We are a global financial institution with a strong European base, offering banking services.
Our brand value Number 26 most valuable bank brand in the world (EUR 7.3 billion, year-end 2014).(1)
Our size Number 9 European bank by market capitalisation (EUR 42 billion, year-end 2014).(2)
J F M A M J J A S O N D
› Good customer satisfaction scores in all our retail banking markets.
› Presentation and implementation of ING’s renewed purpose, strategy and sustainability direction.
The main external developments in 2014 are described in the chapter ‘Market and regulatory context’, followed by one discussing the issues our stakeholders find most important. These issues are also addressed throughout this report. ‘How we are balancing our responsibilities’ is illustrated with examples.
After the ‘Key figures’ chapter, we explain how Retail and Commercial Banking activities are furthering ING’s strategy. Then the key resources we deploy to create value take centre stage in two chapters: ‘People’ and ‘Innovation and information technology’. The ‘Risk and capital management’ chapter describes how we manage risks and ensure optimal use of capital for value creation. The ‘ING Shares’ chapter contains key information for our shareholders. The integrated report which encompasses the ‘Report of the Executive Board’ section is concluded with the assurance report of our external auditor.
Other information Independent auditor’s report 335 Proposed appropriation of result and subsequent events 339
We have further integrated sustainability into our key activities. We are proud of the external recognition that we received from raters, which acknowledges the work that we have done in this field. What is important for me to state is that sustainability is part of how we do business. We consider our role in society as supporting and stimulating economic, social and environmental progress, and aiming for a better quality of life for people.
We also believe that all sustainable progress is driven by people with the imagination and determination to improve their future and the futures of those around them.
During the year, I made a worldwide tour visiting our businesses to explain our strategy to employees and describe how their work and their businesses fit into it. There are already many examples of our strategy in action. For example, in Spain, we have launched a new digital platform which encourages clients to think about their future by helping them to analyse and manage their personal finances using customisable visuals. Through digital wallet initiatives we are aiming to make shopping safer and easier in Turkey, Spain, Poland and Italy. In Commercial Banking we progressed with the transformation programme we introduced in late 2012 to standardise products and channels and harmonise client services.
Our business is based upon trust. Only by acting with professionalism and integrity can we maintain stakeholders’ confidence. With a new strategy and a changing external environment we started a programme to determine the values and behaviours we need. These values and behaviours were launched to all employees in early 2015.
We are in constant dialogue with stakeholders. If we are to offer relevant customer propositions we have to understand what they want and how they think. Social media is a key channel for gauging opinions and identifying needs. ING France’s Web Café is a good example. In this online forum customers exchange views and help each other. The café brings customers into the innovation process and offers them an opportunity to co-create new products. Another example is ING Turuncu Destek (ING Orange Support) which ING Turkey uses to encourage suggestions that improve services. We received recognition by the jury of the Social Media Monitor in the Netherlands for how we visibly integrated social media into our business operations. We are building on these best practices in other countries. The more we know about customers’ needs the better we are able to help them stay a step ahead.
How our core functions add value Our stakeholders rely on us to perform a wide variety of tasks seamlessly on their behalf. Individuals shop for groceries and receive salaries; companies receive payments from customers and manage working capital. Core tasks are to provide a safe repository for customer savings and generate returns. These savings are used to lend (a further core task) to people who may use them to buy a home- and to businesses to stimulate growth and economic activity.
We also advance the interests of many other stakeholders, including regulators.
How we create value How we create value for our customers and other stakeholders in life and in business
Fuelling entrepreneurship and growth of SMEs and mid-corporates More than EUR 3 bln net lending growth was provided to retail companies to start, maintain and expand their businesses locally and internationally.
Many transactions were executed for customers by ING in 2014. We underpin economic activity by always aiming for prompt, accurate payments for both individuals and businesses.
Ultimately, our customers determine whether we have succeeded in offering them a valuable customer experience and empowering them to take smart financial decisions. We ask them, of course, whether we have delivered on our promises, but this also can be measured in customer loyalty numbers and the number of products and services they buy from us.
Executing value creation At a more concrete level, we focus on meeting our ambitions by optimising our ability to execute our core functions. We create most value, for ourselves and for our stakeholders, by maximising the positive impact of our activities and by optimising or minimising the level of resources we need to deploy.
We empower people and organisations to realise their own vision for a better future in life and in business.
The more successful we are in accomplishing our mission, the more society at large will benefit.
In July 2014, NN Group, the European/Japanese insurance business, listed on the Euronext Amsterdam stock exchange. Through the listing, ING’s stake in NN Group was reduced to 68.1 percent, which remained ING’s ownership position at the end of 2014. In February 2015, ING’s stake was reduced to 54.6 percent. This is required to fall to less than 50 percent and to be deconsolidated in 2015, and to reach zero in 2016.
In 2009, ING and the Dutch State agreed to transfer/sell a portfolio of US mortgage securities. The agreement to unwind this facility, also known as the Illiquid Assets Back-up Facility (IABF), was completed at the end of 2013. The actual unwinding took place and was completed early 2014, when the Dutch State sold the remaining securities in the market. This generated a EUR 1.4 billion cash profit for the Dutch State.
Finally, the remaining Government Guaranteed Notes still outstanding in 2014 were all redeemed. Over the years, ING has paid EUR 0.4 billion to the Dutch State to benefit from this scheme.
ING Group 8 Report of the Executive Board Our strategy and progress
Empower The best financial decisions are informed decisions. Customers want relevant, up-to-date information at their fingertips. They need to understand their choices, and the implications, both today and for the future.
Our strategic priorities We have identified four strategic priorities that serve to create a differentiating customer experience.
We appointed a head of Advanced Analytics in August 2014 responsible for increasing ING’s advanced analytics skills. We are establishing centres of excellence in data science in the Netherlands and in Germany, to support ING units with technology, education, knowledge and hands-on capabilities in advanced analytics.
Increase the pace of innovation to serve changing customer needs Not only do new technological developments lead to improved ways of serving our customers, customers even expect the bank to be on top of these possibilities to make things simple and clear. Innovation is key as we strive to enhance the customer experience and differentiate ourselves from the competition. Rapid technological change, especially in mobile developments and payments systems, is shifting the competitive landscape.
Changes to our governance, which came into effect in July 2014, encourage more effective cooperation between globally steered functions and local country organisations, and prioritise innovation. For countries with both retail and commercial banking businesses (One Bank), the country CEOs take responsibility for both Retail and Commercial Banking.
Broadening our lending capabilities to match deposit franchises will help us to build stronger, more sustainable local businesses. We are aiming for continued growth in net lending.
We aim to increase lending to SMEs. The SME and selfemployed segments have a natural affinity with ING’s main Retail banking segment – self-directed customers. We also plan to grow our asset portfolio in consumer lending, a segment where ING has been underrepresented in the past.
To facilitate this process, we appointed a head of Consumer and SME lending in July 2014, with overall responsibility for steering commercial strategy and business development.
Our geographic profile We have designated three distinct categories of markets and have developed our strategy accordingly. They are characterised as market leaders, challengers and growth markets.
Growth markets Growth markets are where we offer a full range of retail and commercial banking services in strongly expanding economies that offer good growth opportunities.
The Dutch economy, with its housing market stabilised and domestic demand no longer acting as a drag on growth, performed slightly better than the eurozone average.
Meanwhile the Italian recession continued. The French economy underperformed while the German economy decelerated as the loss of momentum in emerging markets, ongoing tensions in eastern Ukraine and sanctions imposed on and by Russia affected exports. A weakening euro during 2014 was one positive for European exports.
November 2014, saw the start of the Single Supervisory Mechanism (SSM). The ECB took over responsibility for the supervision of the major European banks. The ECB had already prepared the ground with a comprehensive assessment of all supervised banks to test the stability of the financial system in stressed conditions.
ING Group 14 Report of the Executive Board Market and regulatory context
Further, there have been various regulatory developments that impact our product offerings and therefore our customers directly, currently or in future years. Other important reforms in this regard seek to enhance an efficient and competitive internal market for consumers by removing barriers to cross-border activity and promoting a level playing field between providers, e.g. the European Mortgages Credit Directive. Besides this, the improvement of the European payments market also remains an important objective, and is addressed by the Payments Services Directive II.
Channelling all this information and converting it into concrete customer propositions is a key challenge. We maintain a constant dialogue with our customers, especially on social media. There is scope for us to improve our use of social media to anticipate potential customer requirements.
We believe we are one of the front-runners in digital innovation in the banking sector, but we cannot afford to be complacent. We are investing resources to ensure that we become faster and more agile, and increase our innovative capabilities. We do that to meet the ever-changing expectations of our customers, while respecting the fact that they are entrusting us with their banking matters which are personal and confidential in nature. At the same time we are maintaining options for face-to-face service.
› Financial sector has an unfavourable public image in many countries.
An extensive network of ING experts, from across business disciplines and regions regularly engages with both internal and external stakeholders. For the 2014 materiality assessment, this network reached out to seven stakeholder groups in seven countries through a materiality survey. They were asked to rank a range of topics by significance. In total, over 1,600 respondents provided us with their insights into what issues are material to them.
ING’s risk and capital management framework and procedures are designed to maintain financial stability for our customers, shareholders and other stakeholders. Through ING’s effective risk management we are able to create the right balance between mitigating the potential impact of unexpected events and creating value for our customers. We are also increasing the strength of our capital base to protect customers and contribute to a sustainable financial environment.
Si gn ifi ca nc e fo r st ak eh ol de rs
Customer centricity 4 Innovative business developments 5 Customer privacy and data security 6 Enhancing customer financial capabilities
Fair operating practices 7 Sustainable finance and investment policies 8 Regulatory developments
Stakeholder engagement 9 Transparency and openness 10 Stakeholder dialogue 11 Regaining trust
High-priority material issue Why it is important to our stakeholders How we managed it in 2014
Net lending increased by 3 percent. Retail Banking and Commercial Banking.
3 Managing risks We need to manage all financial and nonfinancial risks effectively. For example, we take and spread the financial risks of individuals and companies. This enables a sound financial reality for our customers, which is also important to many other stakeholders such as regulators.
Actively monitoring our risk portfolio as well as further strengthening our liquidity profile and capital base.
CEO statement, Retail Banking, Commercial Banking, Risk and capital management and Sustainability Annex 2014.
We continued engaging with our stakeholders and weighing their interests carefully.
The total extrapolated amount of carbon emissions for ING Bank decreased from 127 to 102 kilotonnes.
We see it as our responsibility to consider our stakeholders’ interests carefully. We involve them in the design of our business strategies. But stakeholders’ expectations are not always consistent; sometimes they are even contradictory. This chapter contains a few of the real-life challenges and dilemmas we face as we aim to reconcile competing interests.
There is ever-higher demand for both renewable and non-renewable resources. The causes and the solutions to the resulting scarcity are complex, but we already know that resource scarcity will change traditional business models. If households and businesses are able to bridge investment gaps as they innovate and move towards cleaner technologies, that transition might also provide business opportunities. As a financial institution, we can play a facilitating role in enabling this transition by financing change, sharing knowledge and using our influence.
Can we guarantee personal information will be protected while using advanced client data analytics to design innovative products and services? Protecting our clients’ interests including their financial information is a company priority, which also makes commercial sense, and is a legal requirement. While new technology makes it possible to extract much more value from our data, it also allows us to fulfil our duty of care more effectively by providing customised services.
The development of financial regulation is widely considered to be a matter of public interest. Should we provide full transparency on our interactions with policymakers and supervisors? In principle, our stakeholders and regulatory requirements guide our approach to supervisory and policy issues. However, these diverse groups have interests that do not always coincide and sometimes actually conflict. To strike the right balance, we will carefully weigh the interests of all parties concerned.
How do we ensure that our company pays its fair share of tax? We pay tax at regular rates in the countries where we operate as a financial services provider. We publish our global effective underlying tax rate, which is currently 26 percent.
In determining the compensation schemes, we take a variety of factors into consideration, such as functional complexity, the scope of responsibilities, aligning risk and reward, our ability to attract and retain the best talent possible and meeting the long-term objectives of the company and its stakeholders.
Common Equity Tier 1 ratio fully loaded ING Bank >10% 11.4% 10.0% n/a Leverage ratio ING Bank (1) ~4% 4.1% 3.9% n/a Underlying cost/income ratio ING Bank 50-53% 58.7% 56.8% 60.3% Underlying return on equity ING Bank 10-13% 9.9% 9.0% 7.0% Dividend payout ING Group ≥ 40% 38% n/a n/a
The decrease was mainly due to special items to make the Dutch pension fund financially independent and the payment related to the nationalisation of SNS. Net result was also impacted by the deconsolidation of Voya in 2014 and the Held for Sale classification of NN Group.
Brief business insights The condition of the economy directly affects our customers, and therefore us. The bulk of our retail businesses are in the eurozone. Despite weak, unstable and uneven recovery in the eurozone, we have delivered a good financial performance.
Towards omnichannel Being where the customer is, is a pre-requisite for success. Developing a balanced network of distribution channels to serve diverse customer needs is a key challenge for banks today.
We have established a focused IT team that is working on defining and detailing a plan and approach to improve, in the short term, the system reliability for our customers in the Netherlands, and in Belgium. This plan will be delivered in the first quarter of 2015.
Privacy and cyber security ING aims to provide an adequate level of data protection globally (both at head office and at all our business units) by means of the Global Data Protection Policies (GDPPs), which were adopted in 2013. These policies qualify as Binding Corporate Rules, approved by all relevant Data Protection Authorities in the European Economic Area. The policies are currently being implemented in all ING countries and implementation is expected to be finalised by mid-2015. In 2014, we focused on implementing the governance around GDPP. All our business units, including the retail countries, have appointed a data protection executive (DPE), a first-line officer responsible for data protection in the business. DPEs, in turn, are supported by data protection officers (DPOs), who, in their capacity as second line of defence, advise the DPEs and help them to achieve and monitor compliance with the GDPPs.
ING wants to be more than a facilitating bank. It wants to make a positive contribution to a healthy financial situation and add genuine value for its customers, throughout their lives.
To help customers navigate their way through life, we want to provide them with the right information at the right time: for example, on their current spending patterns and daily expenditure, but also about the future. What, for example, are the effects of taking out a mortgage? What happens if your income suddenly changes?
Consumer and SME lending One of our key objectives is to maintain sustainable positions in both consumer lending – particularly the self-employed segments – and SME lending in all our countries. We can achieve this by broadening and diversifying our lending capabilities, particularly in our challenger markets with innovative customer propositions. This will also help us to grow to a sustainable share in markets where we currently trail our peers.
We advise this group of customers on specific private and business topics, such as how do I sustain my family business for the next generation, how do I deal with change of ownership, how do I improve the governance of the company, and what are the most important changes within the family and company that we need to address?
Given the success in 2014, this initiative will be continued in 2015.
ING Group 26 Report of the Executive Board Retail Banking continued
The SME lending market in Europe and within ING has always had challenges and the financial crisis has only exacerbated this situation. Banks have been challenged to serve this segment given the relatively small loan amounts, its heterogeneous nature, labour-intensive processing, and higher risk profile. The most pressing problems SMEs face while requesting a loan is the lack of access to finance and poor customer experience, i.e. banks are not easy to deal with. Alternative lending providers have begun to meet such demand in the market and – leveraging on digital technologies – are contesting the strongholds of traditional banks.
Despite reduced demand for credit from SMEs and individuals as well as insufficient creditworthiness of SMEs – which challenges our ambition to grow lending to SMEs – we intend to selectively grow the Consumer and SME Lending portfolio in the Benelux.
To fulfil our purpose of empowering customers we need to deliver on all four components of the Customer Promise.
Specific groups have specific needs. ING Belgium addresses the needs of legal practitioners by offering them “Privalis”, a specific and extensive service, tailor made for professional customers. Privalis customers also enjoy the services of a dedicated ING liaison officer who helps them to optimise the structure and management of their business. Even though ING Belgium is market leader in servicing this customer segment, Privalis grew further in 2014.
ING Group 28 Report of the Executive Board Retail Banking continued
We are developing services that capitalise on the increasing importance of mobile channels. In November, ING Belgium launched fingerprint recognition for its smart banking app, as first Belgian bank and pioneer for mobile banking in the country. With the launch of “Inge” on our mobile application in the Netherlands, we became the first bank in Europe to apply voice recognition to mobile banking services. The Inge concept has now been adopted by our customer care centre in Romania where customers are identified by their voice “print”, simplifying their access to the customer care professionals.
ING Romania has adopted the pre-approved loan system developed by ING Spain. This is leading to far fewer lengthy applications. Many customers now get a consumer loan instantly simply by accepting their personalised pre-approved offer. However, the loan is granted only after they have signed a contract with the Bank and their application has been carefully considered. Pre-approved loan production already accounted for 40 percent of total production by year-end 2014.
In May, ING-DiBa opened its first Servicepoint in Vienna. Customers are able to consult staff face to face in a relaxed, lounge atmosphere. The establishment of a Servicepoint in one of Vienna’s busiest, most accessible areas, is a result of customer demand, because certain needs and situations can be resolved more easily through face-to-face contact.
Supporting customers in financial distress The Bank has flexible responses for people that suffer temporary financial distress. ING Netherlands offers interest breaks to mortgage customers faced with a temporary cut in income. It also provides Personal Mortgage Coaches, who proactively support mortgage holders with income overviews and insights into their expenditure, allowing them to regain control of their finances. ING-DiBa in Germany has been sending the so-called Dispowarnbrief (overdraft warning letter) to the 23,000+ affected current-account customers to offer more favourable consumer loans as an alternative to current-account credit facilities.
ING’s eZonomics team, which aims to present economic and financial information in easy-to-understand and engaging ways, published a number of ING International Surveys in 2014 on topics such as Pocket Money, Homes and Mortgages, Mobile Banking and Savings. We believe it is important to share our knowledge in this field and publish studies about these topics on a regular basis to support consumers in becoming more financial savvy. The eZonomics team is funded by ING and part of ING’s global research department.
Funding comes from savings with fiscal incentive, which makes ING’s savings account an attractive alternative to regular savings accounts.
Following a period of volume decline in sustainable savings, which started in 2008 due to a governmental re-evaluation of the fiscal incentives programme, 2014 marked a turning point. The Dutch Government has announced that it would be evaluating both the tax benefits and the effectiveness of the Regeling Groenprojecten linked to these benefits in 2015.
Screening for SRIs In identifying sustainable opportunities, we use the combination of a best-in-class assessment with a negative screening of certain industries and products (for example, controversial weapons), and controversial behaviour such as violations of human rights. This SRI methodology covers all asset classes, including government bonds, corporate bonds and relatively new products, such as index trackers. We use the same methodology to assess investment funds offered by third-party suppliers.
Extending our SRI offering There is a need to be innovative and agile in creating financial products and services that are able to support commercial activities with environmental and social benefits.
Sustainable assets under management In 2014, our sustainable assets rose by EUR 652 million to EUR 1,538 million, which underlines our customers’ appetite for products and services that meet specific sustainability criteria.
ING Liric SRI Top 50 15 19 20 CS ING SRI Index fund 92 38 13
(1) 2014 figure including ING Belgium and ING Luxembourg. 2012 and 2013 figures are based on ING Netherlands only. The increase in 2014 results from growing client demand, particularly in the Netherlands, for sustainable assets. It also reflects higher asset values.
Measuring customer satisfaction The Net Promoter Scores (NPS) methodology measures how likely customers are to recommend a company to their family and friends. Under our NPS programme, which has been in place since 2009, customers give us their opinion on their customer experience. We also get feedback from customer surveys, online polls and focus groups.
Total Retail Banking Retail Banking posted strong 2014 results. The underlying profit before tax rose by 23.5 percent to EUR 3,158 million on the back of healthy business growth and substantially lower risk costs in most markets.
Net funds entrusted (adjusted for currency impacts and the deconsolidation of ING Vysya Bank) grew by EUR 19.2 billion in 2014. Net lending (also adjusted for the transfers of WestlandUtrecht Bank (WUB) mortgages to NN Bank and the sale of a mortgage portfolio in Australia) increased by EUR 8.4 billion, entirely outside the Netherlands. Net lending in the Netherlands declined due to higher pre-payments on mortgages and muted demand for business lending.
Operating expenses increased by 4.0 percent to EUR 6,433 million in 2014, due to higher redundancy provisions mainly related to the further digitalisation of our banking services in the Netherlands. Excluding these provisions in both years, expenses were almost flat. Higher pension costs in the Netherlands and investments in our franchises to further strengthen our IT domain and expand our capabilities and services were offset by the cost savings from the restructuring programmes. The underlying cost/income ratio, excluding redundancy provisions, improved to 56.9 percent from 59.7 percent in 2013.
Market Leaders Retail Netherlands The underlying result before tax of Retail Netherlands rose by 6.5 percent to EUR 888 million, from EUR 834 million in 2013, supported by higher interest results and lower risk costs, and despite EUR 349 million of redundancy provisions recorded in 2014, mainly related to the further digitalisation of our banking services in the Netherlands. The interest result rose by 6.8 percent to EUR 3,818 million, reflecting higher margins on lending and savings, which more than offset a decline in volumes due to the sale and transfer of WUB assets to NN Group as of mid-2013. Excluding these sale and transfers, net lending declined by EUR 3.7 billion versus year-end 2013, of which EUR 2.2 billion in mortgages due to higher prepayments and the continuing run-off in the WUB portfolio. Other lending, mainly business lending, declined by EUR 1.5 billion following low demand. Funds entrusted recorded a net inflow of EUR 1.7 billion in 2014.
Operating expenses, excluding redundancy provisions in both years, increased by 1.2 percent, mainly due to higher pension costs and increased IT investments, which were partly offset by the impact of the cost-containment initiatives. The cost-efficiency programmes, including the next steps in digital banking, are on track to realise EUR 675 million of annual cost savings by the end of 2017. Of this amount, EUR 354 million has already been realised.
ING Group 32 Report of the Executive Board Retail Banking continued
Retail Germany recorded strong growth, which drove the result before tax up 29.6 percent to EUR 775 million in 2014, from EUR 598 million in 2013.
Underlying income rose by 16.8 percent to EUR 1,621 million, driven by higher interest results and increased fee income. The interest result increased by 15.6 percent following continued business growth in all products and higher margins on savings. Funds entrusted grew by EUR 7.5 billion in 2014, while the lending portfolio rose by EUR 1.6 billion, of which EUR 1.0 billion was in mortgages and EUR 0.6 billion in consumer lending.
The net addition to loan loss provisions fell to EUR 72 million, or 29 basis points of average risk-weighted assets, from EUR 83 million, or 37 basis points, in 2013, reflecting better performance in the German mortgage book.
While many new initiatives were launched in 2014, many challenges remain on the operational front. We continually strive to do better, but in some areas – including accessibility and driving progress – there is room for improvement. We are working to prioritise the issues that we feel are the most important for our customers. We believe that while new initiatives are important, we carefully consider local market conditions, demand and customer suitability.
For instance, ING Australia was again chosen as Australia’s most beloved bank by customers at the Mozo People’s Choice Awards. ING Netherlands was recognised as Best Social Media Company and as Most Popular Financial Website of the Year for the 4th time in a row by Dutch consumers with close to 81,000 votes. ING Spain received an award from DEC, an association for customer experience development, based on customer surveys. ING-DiBa Germany was recognised as the “Most Preferred Bank” for the 8th time in a row by business magazine €uro. ING Belgium was recognised as “Best Bank in Belgium” by The Banker for the 2nd time in a row. In addition to its Best Bank Award by Euromoney, ING Poland won two silver Effie awards for its marketing/communications campaigns. It was also ranked in first place in the Mobile Bank category in the Newsweek weekly ranking “Newsweek Friendly Bank” in the “Mobile Bank” category for its user-friendly navigation and interface. And ING Romania’s Customer Care and Services team won an award for its ability to meet all criteria that define a Customer Care team’s daily tasks.
› Our key business units performed well: we delivered strong results supported by loan growth in our global Industry Lending franchise, in particular within Structured Finance.
Global Finance recognised us as: Best Bank in Western Europe Best Bank in the Netherlands Best Bank in Belgium
Structured Finance Structured Finance is a traditional lending business based on specialised industry knowledge. It is a mature business built over more than 20 years and has achieved a top-10 position globally.
Freeport LNG won the award for Americas Deal of the Year by Project Finance International and the award for North American Oil & Gas Deal of the Year by IJGlobal Awards Americas
Our Trade and Commodity Finance team arranged a credit facility for Biosev, the world´s second largest sugar cane processor, located in Brazil and controlled by Louis Dreyfus Commodities Holdings. The transaction received a lot of attention from the Brazilian and international banking community, resulting in an increase in size from the original target of USD 200 million to a final amount of USD 440 million. ING was able to attract new banks for Biosev in this transaction, increasing their access to the international banking market.
General Lending Many of our relationships with corporate clients are anchored through our General Lending capabilities. The challenge in this area is maintaining margins and volumes within our established risk appetite while competition intensifies. This is particularly true in markets where large domestic competitor banks are actively protecting their core franchises.
We constantly strive to improve the client experience across products and countries, by standardisation and streamlining processes and documentation and by aligning products with client needs, market developments and regulation. Process improvements are further unlocking the potential of our international network for our clients with cross-border activities.
ING Group 36 Report of the Executive Board Commercial Banking continued
During 2014, we have reduced our balance sheet usage, capital consumption and cost base but at the same time increased productivity whilst maintaining a healthy cost-income ratio.
Regulatory changes and new capital rules continue to increase the capital required to support trading businesses and dilute return on capital. As a consequence, FM constantly analyses and assesses its business profile to ensure that we achieve target levels of return.
Real Estate and Other Real Estate & Other (RE&O) manages the run-off and closure of non-core activities, consisting of the residual assets of the legacy businesses sold or discontinued within the former Real Estate Development and Real Estate Investment Management operations. It also includes General Lease operations outside ING’s home markets which have been placed in run-off.
RE&O continued to reduce its exposure substantially despite the ongoing challenging market. RE&O also succeeded in accelerating the wind down of several lease operations by the sale of lease portfolios. This winding-down process is now nearing completion.
Standardisation of technology plays a major part in the transformation, enabling true globalisation and integration of products. All new applications support global, multi-entity, multi-currency, locationindependent business execution and processing. The programme is standardising our products and channels, harmonising our client services and improving our mobile and online capabilities, leading to cost efficiencies and a ‘One Bank’ way of working. Doing international business with ING is becoming less complex.
ING Group 38 Report of the Executive Board Commercial Banking continued
(1) In line with Dutch Tax authority guidelines the amount of green loans on the Groenbank balance sheet is over 70 percent. For more details on ING Groenbank, please see the Retail Banking section of this report.
In 2014, the share of renewables (wind, solar, geothermal, hydro and biomass) among the electricitygenerating projects in the Structured Finance Power portfolio grew from 37 percent in 2013 to 43 percent. This continues a trend of a gradual increase of the proportion of renewable electricity-generating projects which saw it rise from 23 percent in 2009 to the current level. Continuing the downward trend of recent years, the share of coal-fired assets has almost halved over the past five years, from 21 percent in 2009 to 13 percent in 2014.
Recent developments ING has signed up for the Green Bond Principles which were launched this year. Green Bonds are corporate bonds where proceeds can only be used for financing sustainable projects.
Financial results Commercial Banking posted a good set of results on the back of very strong Industry Lending performance, good volume growth, and despite negative CVA/DVA impacts and additional redundancy provisions. The underlying result before tax was EUR 1,997 million, 7.5 percent lower than in 2013, but up 12.9 percent excluding these two items in both years.
The 144MW Westermeerwind windfarm is a landmark transaction in the Netherlands, enjoying strong support from the Dutch government. The wind farm will be built in the IJsselmeer and it is estimated that it will provide sustainable energy to 160,000 Dutch households. ING acted as the structuring bank, mandated lead arranger, bridge loan provider, junior debt provider, agent, underwriter and hedging bank for the EUR 320 million term loan.
Project Finance International awarded Burgos with “Asia Pacific Renewable Deal of the Year”. It was also recognised by Global Trade Review with “Best Deal of 2014“.
We also participated in the financing for the world’s largest single contract geothermal project. Sarulla Operations Limited will deliver 320MW of clean, sustainable, reliable electricity to the Indonesian market. The plant is also expected to make a significant contribution towards Indonesia’s goal of increasing its share of renewable energy to around 23 percent of its total portfolio by 2025, and reducing greenhouse gas emissions by 26 percent by 2020. ING acted as a co-mandated lead arranger for a USD 1.17 billion term loan.
We made steady progress in adapting our business to meet changing regulatory, market and client demands and adding value for all stakeholders. As a result, we now have a robust, efficient, effective business model, winning awards which underline our strengths and supporting the bank strategy.
Sustainability is part of how we do business. In 2014, environmental and social risk assessments were further embedded in core processes. ING is committed to dedicating more resources that give Commercial Banking teams the capacity to explore market developments in sustainability and support their clients to fulfil their sustainability agendas.
ING Group 42 Report of the Executive Board Commercial Banking continued
Developing a performance culture ING stimulates a performance culture, giving employees scope to make their own decisions in an environment where we encourage sharing of successes, working together and getting ahead. We combine this with clear roles and accountability. We believe this combination generates increased levels of business, more satisfied customers and enhanced economic performance.
› The key value drivers of Retail Banking and Commercial Banking.
› How to empathise, engage, inspire and align others through leadership behaviour.
The values and behaviours were launched to all employees in early 2015.
The banking industry and society are changing rapidly. As a result of the further digitisation of ING’s banking services, we regretfully had to announce that ING’s workforce in the Netherlands is to be reduced by around 1,700 FTEs over the years 2015 to 2017. In such situations all employees are entitled to training and development to adjust to the restructuring, and where necessary to help them find their next position.
In 2015, we plan to extend coverage to more employees and incorporate our new global behaviours into our performance criteria. In that way we will be able to monitor the attributes that drive value-adding performance throughout the company.
Fair remuneration The primary objective of our remuneration policy is to retain and recruit highly qualified employees and new talent. We do not discriminate based on age, gender or cultural background. We also respect all regulatory rules that affect the level of compensation.
We are reviewing our current leadership programmes and tailoring these to be much more integrated with our values, behaviours and diversity principles as well as ensuring a direct link to our customer promise. Other initiatives in 2014 included: › The European Works Council established a diversity taskforce, which supported the Global Diversity Council in developing a proposal for improving work/life balance.
› Lioness; a community for ING women who want to realise their personal ambitions. The aim is to strengthen female talent and to make that talent visible to the rest of the organisation.
Empowering people with information technology Our IT infrastructure underpins ING’s efforts to create a differentiating customer experience. IT is a critical component for the Think Forward strategy. It develops operational excellence and simplifies and streamlines the bank. It facilitates an increased pace of innovation, and helps ING live up to its Customer Promise by delivering reliable and secure solutions that are available anytime, anywhere and in a clear and easy way.
Our senior leadership gained insights into the opportunities offered by exponential technologies, and will be applying this knowledge to help deliver on our purpose of empowering people to stay a step ahead in life and in business.
Implementation funding is allocated to concepts developed in ING’s various business units. In 2014, nine projects received funding. They included the international rollout of online customer communities based on ING France’s Web Café, and innovative payment solutions that combine transactional capabilities with value-added services for shoppers in the pre- and post-purchase phases of the experience.
Increasing the pace of innovation is a strategic priority for ING. We are building a rapid innovation culture supported by modular, customer-centric technologies and agile development methodologies.
ING Group 46 Report of the Executive Board Innovation and information technology
Security, cybercrime and advanced analytics Limiting the complex and constant threat of cybercrime requires a holistic approach which combines prevention with detection and rapid response. In 2014, we executed the CyberCrime Resilience Programme, to increase our resilience against so called distributed denial-of- service (DDoS) attacks, Advanced Persistent Threats and e-fraud. The advanced analytics capabilities that we are building to better understand and service our customers also play a key role in combatting criminal activity. Pattern recognition and advanced algorithms help in predicting, and therefore preventing, fraudulent activity, as well as supporting faster detection. Customer data security is of paramount importance to us, and we continue to invest in state-of-the-art security capabilities.
The information technology architecture of the bank has been rebuilt from the ground up. ING Spain uses APIs to be able to easily plug in new tools and services developed in-house or by third-party partners. An intuitive, graphical interface – optimised for the user’s device – delivers a personal financial management service that helps customers better manage their money.
Through ING’s focused approach to knowledge sharing, Genoma is being applied to other retail banking business units. Poland, Italy and Australia are developing and implementing Genoma-like nextgeneration digital customer interfaces, while other business units are closely monitoring the project and applying lessons learnt.
G o v e rn a n ce 1st line of defence Business lines
Independent and objective assurance of the overall effectiveness of internal controls
The conflict in the Ukraine, sanctions against Russia and declining energy prices are leading to deteriorating
The Bank improved its funding profile with growth in funds entrusted of EUR 16.8 billion. It also maintained its liquidity position well above regulatory and internal targets. Full-year 2014 long-term debt issuance totalled EUR 13.9 billion. This is compared with EUR 25.7 billion in 2013 and is lower due to a slowdown in asset growth.
CRR/CRD IV On 1 January 2014, Basel III and, within the EU, CRR/ CRD IV came into force. With the adoption of the Capital Requirements Directive IV (CRR/CRD IV), new capital, liquidity and leverage rules apply to EU-based banks. The European Banking Authority (EBA) has published technical standards for the implementation of most of the rules. A phased implementation is planned, with full implementation by 1 January 2019.
ESR matrix: Transaction risk versus client risk mitigation Client risk mitigation
Transaction risk profile High ESR medium risk ESR high risk ESR high risk Unacceptable risk (1)
(1) “Unacceptable risk” applies to a limited number of clients and/or transactions.
ESR assessment is integrated into the risk management framework ESR assessment is an integral part of ING’s risk management framework and hence follows the ‘three lines of defence’ governance model for risk management. ING strengthened integration in 2014 by incorporating systematic and automated ESR assessments into mainstream data systems for client information and lending data.
Developing best practice Beyond stimulating higher environmental and social performance of our portfolio, ING actively collaborates with other institutions and regulators to address environmental challenges that are specific to the sector and not just a client. ING is an Equator Principles (EP) financial institution and applies this common risk management framework for environmental and social risks in project financing. As an EP Steering Committee member and Chair until May 2014, we also have an active role in promoting EP, and several financial institutions adopted this risk framework during ING’s chairmanship.
The risk appetite statements and targets are communicated to the different businesses in line with our risk management strategy and capital allocation. Regular stress tests provide important inputs for the capital planning and management process. These focus on topical issues and assess the sensitivity of the Group’s capital position to specific risks.
These analyses also help to determine the Group’s strategic direction. Policies for recovery planning and resolution are a natural extension of ING’s capital management policies and follow ING’s risk management framework seamlessly.
The Group’s success in the recent ECB Asset Quality Review and stress test demonstrates the efficiency of this approach.
Pension Asset related to this plan has accordingly been removed from ING’s balance sheet as of the first quarter 2014. The after-tax P&L impact of the agreement was approximately EUR -1.1 billion. Of this P&L impact, EUR -0.7 billion has been attributed to ING Bank and EUR -0.4 billion to NN Group. For ING Group, the removal of these financial obligations and the subsequent removal of a cross guarantee between ING Bank and NN Group was an important step towards the IPO of NN Group.
During 2014, all net capital flows enabled ING Group to reduce Group debt from EUR 4.9 billion at the end of 2013 to EUR 1.5 billion at the end of 2014.
Finally, NN Group redeemed EUR 1.2 billion of ING Group hybrids in the third quarter of 2014, further disentangling NN Group from ING Group. These hybrids were onlent to ING Bank as CRR/CRD IV eligible securities thus improving the Tier 1 capital base.
In March 2014, ING Group made the penultimate payment of EUR 1.2 billion in core Tier 1 securities to the Dutch State. ING Bank paid a dividend to ING Group to facilitate the payment. ING Group’s strong financial position allowed us to accelerate the final payment of EUR 1.0 billion. This was completed six months ahead of schedule in November 2014.
ING has now completely repaid the EUR 10 billion in Dutch State aid we received in 2008 as well as EUR 3.5 billion in premiums and coupons. The total repayment of EUR 13.5 billion equates to a 12.7% internal rate of return for the Dutch State.
In January 2014, ING completed the sale of 37.7 million units in SulAmérica to Swiss Re Group. This was already announced in 2013. This transaction further reduced ING’s stake in the Brazilian insurance holding to approximately 10%.
Capital development at ING Bank On 1 January 2014, CRR/CRD IV came into effect. As a result, all published ratios as of 2014 follow the more stringent CRR/CRD IV calculations.
Number of shares in issue and shares outstanding in the market in millions Year-end
Geographical distribution of ING depositary receipts for shares in % (1)
Score: 82 (out of 100) Position: 1 (out of 135 financial peers)
FTSE4Good Index Series – (2) Score: not used any more Position: Included
(1) Some benchmarks we reported on in previous years are not included as they are not relevant any more with our new status as a standalone bank.
(2) As the researching method changed, we cannot compare the score between 2014 and 2013. Therefore we cannot report on an increase or decrease of our score.
This is ING’s first integrated annual report. Our stakeholders want to assess our ability to create and sustain value in the short, medium and long term. To do that, they need both financial and non-financial information. We believe that integrated reporting is a better way to meet the requirements and interests of all our stakeholders.
dd iti on al in fo rm at io n mailto:communication%40ing.com?subject=
The GRI index 2014 as published on www.ing.com is an integral part of the Report and is within our engagement scope. Other references in the Report (to www.ing.com, external websites and other documents) are outside the scope of our assurance engagement.
Our responsibility for the review of the Report Our responsibility is to express a conclusion on the Report based on our review. We conducted our review in accordance with Dutch law, including the Dutch Standard 3810N ‘Assurance engagements relating to sustainability reports’. This Standard is based on the International Standard on Assurance Engagements (ISAE) 3000 ‘Assurance Engagements Other Than Audits or Reviews of Historical Financial Information’. This requires that we comply with ethical requirements and that we plan and perform the review to obtain limited assurance about whether the Report is free from material misstatement.
ING Group 60 Report of the Executive Board Assurance report of the independent auditor
The final repayment on Dutch State aid in November was a key milestone completed half a year ahead of the schedule agreed with the European Commission in 2012. It brought total repayments on this aid package to EUR 13.5 billion, a significant return for the Dutch State.
The Supervisory Board approved the Bank’s new strategy in March and monitored its implementation during 2014. We are delighted that the new strategy strikes a good balance between all the different stakeholders. It seems in tune with the way society is developing and how people want to do their banking. We support the way ING is developing itself as a bank with a broad customer base. We are encouraged by the positive and improving feedback that ING receives from customers about its products and services; it is a sign of growing appreciation by the public.
Key societal topics The Supervisory Board focused on the topic of lending to SMEs in Europe on several occasions. This is an issue that clearly has high societal relevance. We were encouraged to see that ING has been working to optimise this important lending role despite a challenging financial and regulatory environment.
Changing and developing Given the rapidly changing external environment, we strongly supported the intensified focus of the management board of the Bank on innovation and operational excellence. The appointment of a chief operations officer can be seen in this context. Its aim is to enhance the Bank’s preparedness for the business environment of tomorrow.
The composition of the executive top team also changed as a result of the then ongoing divestments of Voya and NN Group. These developments also had consequences for the composition of the Supervisory Board. You can read more about these changes in the Report of the Supervisory Board in this Annual Report.
In September, the Supervisory Board visited ING Bank Slaski in Poland for two days, allowing the Supervisory Board to get a better understanding of the local business activities and how these relate and contribute to ING’s strategy. Presentations were given on the impact of Basel III regulation and on how ING implemented the Single European Payments Area (SEPA). The Supervisory Board was briefed on the transition to a Single Supervisory Mechanism and the transfer of supervision to the European Central Bank in November. Several other educational sessions on specific topics were organised for the Supervisory Board during the year.
Corporate strategy In January, the Supervisory Board held its meeting on ING’s strategy as well as the Medium-Term Plan (MTP) 2014–2016 and related risks. The MTP addresses the plans and the financial and non-financial targets for the banking and the insurance businesses and for the Group as a whole. The Supervisory Board specifically discussed the strategic ambitions for ING Bank, while taking into account the regulatory changes, the economic developments, the further execution of the EC Restructuring Plan, the capital position of ING and the intended repayments of the outstanding core Tier 1 securities to the Dutch State. The Supervisory Board approved the MTP. After approving the Think Forward strategy in March, the Supervisory Board was updated on the implementation of the Bank strategy in September. In November, the Supervisory Board reviewed and approved the proposal for further IT investments to increase the reliability, efficiency and agility of ING’s IT systems and operations in the Netherlands and to move to an omnichannel approach.
Financial and risk reporting The fourth quarter and annual financial results for 2013 were discussed in February, including the related press release and reports from the external auditors. The Executive Board’s assessment of the adequacy and effectiveness of ING’s risk management and control systems was also discussed. The Supervisory Board supported the proposal not to pay a dividend over 2013 given the uncertain financial environment, increasing regulatory requirements and ING’s priority to repay the remaining State aid. The annual accounts and the SOX 404 sign-off were approved. The draft agenda of the Annual General Meeting was discussed and approved, including the publication on the application of the Dutch Banking Code and the Dutch Insurers’ Code. The quarterly results were reviewed and discussed in May, August and November.
The Supervisory Board approved the annual risk appetite statements for banking and insurance and assured itself that the risk appetite framework is suitable for its purpose. The Supervisory Board was regularly updated on the status of the Resolution Plan for ING Bank and how the Asset Quality Review (AQR) and ECB’s stress test were proceeding. Throughout the year, the Supervisory Board was informed in detail on the risks for ING relating to the Russian and Ukrainian political and economic situation. In November, a decision was made on the to-be-appointed external auditor in order to comply with the mandatory rotation of the external auditor.
Audit Committee meetings In 2014, the Audit Committee met five times to discuss the quarterly results and the interim and annual accounts and key audit matters, as included in the independent auditor’s report. On average, 97.2% of the Audit Committee members were present at the scheduled meetings. In addition to the Audit Committee meeting, 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. All relevant issues discussed in the Audit Committee were reported to the Supervisory Board. Directly following the Audit Committee meetings, the members of the Audit Committee met with the internal and external auditors to seek confirmation that all relevant topics were discussed in the Audit Committee meeting.
Risk and capital management chapter and the Risk section in the Annual Accounts for more information.
The Remuneration Committee reviewed the thresholds above which the pool for variable remuneration becomes available. It discussed the variable remuneration pool and reviewed the performance assessment for the Executive Board and Bank and Insurance Management Boards, as well as the variable remuneration proposals for Bank and Insurance Management Boards. The remuneration proposals for Identified Staff were also reviewed, including potential cases for holdback of deferred compensation by way of malus. The proposed 2014 performance objectives for the CEO and the Banking and Insurance Board members and the proposed hurdles for the 2014 capital test were supported. The Remuneration Committee agreed to table an adjusted Executive Board and Management Board Banking pension scheme for the 2014 AGM.
In preparation for the NN Group IPO the remuneration policy for the future NN Group Supervisory Board was discussed in February. In May, the Remuneration Committee supported the remuneration policy for NN Group after the IPO. Much time was devoted to adjusting the ING Bank remuneration policy following the CRD IV legislation and in preparation of the future Wbfo legislation.
One of the features of CRD IV is the rules concerning the limitation of ancillary positions of board members, with implications which are different from those of the Dutch Civil Code. Another feature is that, the CRD IV corporate governance provisions are based on a one-tier board structure while the two-tier board structure is mandatory for Dutch banks. ING Bank will consult with the Dutch central bank (DNB) how to apply these requirements in the two-tier board structure of the bank.
On 16 October 2014, the Dutch Banking Association published a revised version of the Dutch Banking Code. Just like its predecessor, the revised version (“Banking Code 2014”), does not apply to ING Group, but to ING Bank N.V. The Banking Code 2014 will apply to the financial year 2015 and subsequent years, and as of the financial year 2015, ING Bank N.V. will explain how it applied the Banking Code 2014.
Compliance with the Corporate Governance Code For its corporate governance structure and practices, ING Group uses the Corporate Governance Code as reference. The Corporate Governance Code can be downloaded from the website of the Dutch Corporate Governance Code Monitoring Committee ( ).
ING Group believes the following to be the significant differences between its corporate governance practices and NYSE corporate governance rules applicable to US companies: › ING Group has a two-tier board structure, in contrast to the one-tier board structure used by most US companies. In the Netherlands, a public limited liability company (naamloze vennootschap) with a two-tier board structure has an executive board as its management body and a supervisory board which advises and supervises the executive board. In general, members of the executive board are employees of the company while members of the supervisory board are not. The latter are often former state or business leaders and sometimes former members of the executive board. Members of the executive board and other officers or employees of the company cannot simultaneously be a member of the supervisory board. The supervisory board must approve specified decisions of the executive board. Under the Corporate Governance Code, all members of the supervisory board with the exception of not more than one person, should be independent. The definition of independence under the Corporate Governance Code, however, differs in its details from the definitions of independence under the NYSE listing standards. In some cases, the Dutch requirements are stricter and in other cases the NYSE listing standards are the stricter of the two. The Audit Committee, Risk Committee, Remuneration Committee, Nomination Committee and Corporate Governance Committee of ING Group are comprised of members of the Supervisory Board. Furthermore, a temporary committee, the Insurance Europe Committee, which was established on 1 October 2013, does not exist any more because of the sale of (part of) NN Group.
› The articles of association of ING Group (‘Articles of Association’) provide that there are no quorum requirements to hold a General Meeting, although certain shareholder actions and certain resolutions may require a quorum.
The Board of ING Continuity Foundation currently comprises 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.
Issuance of shares ING Group’s authorised capital is the maximum amount of capital allowed to be issued under the terms of the Articles of Association. New shares in excess of this amount can only be issued if the Articles of Association are amended. For reasons of flexibility, ING Group seeks to set the authorised capital in the Articles of Association at the highest level permitted by law.
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.
Details of investors, if any, who have reported their interest in ING Group pursuant to the Dutch Financial Supervision Act (or the predecessor of this legislation), are shown on page 54.
Investor relations and bilateral contacts with investors ING Group encourages and recognises the importance of bilateral communication with the investment community. Communications with current and potential shareholders, holders of depositary receipts, bondholders, and industry analysts is actively managed by the Investor Relations department.
ING Group participates in several industry conferences and generally hosts one Investor Relations Day each year. These events are announced in advance on ING Group’s website, and presentation materials are made available in real time on the website. This is in accordance with the applicable regulatory requirements intended to ensure that all shareholders and other market participants may have equal and simultaneous access to information that could potentially influence the price of the company’s securities. ING Group’s Investor Relations Days can be accessed by means of live webcasts or telephone conferencing.
Frequency, notice and agenda of General Meetings General Meetings are normally held each year in April or May, to discuss the course of business in the preceding financial year on the basis of the reports prepared by the Executive Board and the Supervisory Board, and to decide on the distribution of dividends or other distributions, the appointment and/or reappointment of members of the Executive Board and the Supervisory Board, if any, other items requiring shareholder approval under Dutch law, and any other matters proposed by the Supervisory Board, the Executive Board or shareholders or holders of depositary receipts in accordance with the Articles of Association.
Voting instructions of holders of depositary receipts to ING Trust Office Holders of depositary receipts not attending a General Meeting are entitled to give binding instructions to ING Trust Office, concerning ING Trust Office’s exercise of the voting rights attached to the ordinary shares. ING Trust Office will follow such instructions for such number of ordinary shares equal to the number of depositary receipts for shares held by the relevant holder of depositary receipts.
In order to encourage the participation in the Annual General Meeting, ING has introduced the EVO Platform for the first time in the Annual General Meeting of 2014. The EVO Platform enables holders of depositary receipts to register online for the meeting, appoint a proxy or issue voting instructions to the ING Trust Office.
Main powers of the General Meeting The main powers of the General Meeting are to decide on: › The appointment, suspension and dismissal of members of the Executive Board and members of the Supervisory Board, subject to a binding nomination or a proposal of the Supervisory Board as set forth in the Articles of Association.
› The declaration of dividends, subject to the power of the Executive Board to allocate part of or all of the profits to the reserves – with approval of the Supervisory Board – and the declaration of other distributions, subject to a proposal by the Executive Board which was approved by the Supervisory Board.
Moreover, the approval of the General Meeting is required for Executive Board decisions that would be considered to greatly change the identity or nature of ING Group or its enterprise. This includes resolutions to transfer or otherwise assign all, or substantially all, of the enterprise of ING Group or its subsidiaries as a consequence of which such resolutions ING Group or the group of companies over which ING Group exercises control, would cease to engage in either insurance or banking activities.
A resolution to suspend or dismiss members of the Executive Board that has not been proposed by the Supervisory Board may only be adopted by the General Meeting by an absolute majority of the votes cast, which majority represents more than one-third of the issued share capital.
Profile of members of the Executive Board The Supervisory Board has drawn up a profile to be used as a basis for selecting members of the Executive Board. It is available on the website of ING Group ( ) and at the ING Group head office.
Ancillary positions/conflicting interests No member of the Executive Board has corporate directorships at listed companies outside ING. This is in accordance with ING Group’s policy to avoid conflicts of interest.
A resolution to suspend or dismiss members of the Supervisory Board that has not been proposed by the Supervisory Board may only be adopted by the General Meeting by an absolute majority of the votes cast, which majority represents more than one-third of the issued share capital.
Committees of the Supervisory Board On 31 December 2014, the Supervisory Board had five standing committees: the Audit Committee, the Risk Committee, the Remuneration Committee, the Nomination Committee and the Corporate Governance
J.C.L. (Joost) Kuiper (vice-chairman) (Born 1947, Dutch nationality, male; appointed in 2011, term expires in 2015)
Former member of the Executive Board of ABN AMRO Bank N.V.
Most relevant ancillary positions: chairman of the Supervisory Board of NSI N.V. (real estate fund) (listed company). Non-executive director of Brink Groep B.V. Chairman of the Supervisory Board of Inholland University.
Most relevant ancillary positions: Honary Vice-President of the European Investment Bank.
Legal provisions Pursuant to the terms of the Dutch Financial Supervision Act, a declaration of no objection from DNB until 4 November 2014 and after this date from the European Central Bank (ECB), must be obtained by anyone wishing to acquire or hold a participating interest of at least 10% in ING Group and to exercise control attached to such a participating interest. Similarly, on the basis of indirect change of control statutes in the various jurisdictions where subsidiaries of ING Group are operating, permission from, or notification to, local regulatory authorities may be required for the acquisition of a substantial interest in ING Group.
Severance payments to members of the Executive Board The contracts entered into with the members of the Executive Board provide for severance payments, which become due upon termination of the applicable Executive Board member’s contract in connection with a public bid as defined in section 5:70 of the Dutch Financial Supervision Act. For purposes of calculating the amounts due, it is not relevant whether or not termination of the employment or commission contract is related to a public bid. Severance payments to the members of the Executive Board are limited to a maximum of one year’s fixed salary, in line with the Corporate Governance Code.
The external auditor may be questioned at the Annual General Meeting in relation to its audit opinion on the annual accounts. The external auditor will therefore attend and be entitled to address this meeting. The external auditor attended the meetings of the Audit Committee and of the Risk Committee and attended and addressed the 2014 Annual General Meeting, wherein the external auditor was questioned on the audit opinion.
The object of ING Trust Office, as described in the Articles of Association, is as follows: a. to acquire and administer for the purpose of management registered shares in the capital of ING Groep N.V., a public limited company with its registered office in Amsterdam (“ING Group”) 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 promote 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.
A profile and an overview of relevant positions held by the members of the Board can be found on the website of ING Trust Office ( ).
A call-option agreement concluded between ING Continuity Foundation and ING Groep N.V. ("ING Group") vests ING Continuity Foundation with the right to acquire cumulative preference shares in the share capital of ING Group up to a maximum of 4.5 billion cumulative preference shares. The acquisition of cumulative preference shares by ING Continuity Foundation is subject to the restriction that, immediately after the issue of cumulative preference shares, the total amount of cumulative preference shares may not exceed one-third of the total issued share capital of ING Group. If new shares other than cumulative preference shares are subsequently issued, ING Continuity Foundation may again exercise its right, subject to the provisions of the preceding sentence. On acquisition of cumulative preference shares, at least 25% of the nominal value must be paid on said shares.
It is also responsible for establishing and maintaining internal procedures which ensure that all major financial information is known to the Executive Board, so that the timeliness, completeness and correctness of the external financial reporting are assured.
The Executive Board assessed the effectiveness of our internal control over financial reporting as of 31 December 2014. 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 and those criteria, the Executive Board concluded that the Company’s internal control over financial reporting is effective as of 31 December 2014.
Remuneration policy The primary objective of the remuneration policy is to enable ING to retain and recruit qualified and expert leaders, senior staff and other highly qualified employees. The remuneration policy forms an integral part of ING’s corporate strategy and risk profile and maintains a sustainable balance between short-term and long-term value creation, building on ING’s long-term responsibility towards clients, employees, society, providers of capital and other stakeholders.
Many of the specific requirements under CRD IV apply to identified staff (i.e. employees that could potentially have a significant impact on the Company’s risk profile), including the Executive Board.
ING has implemented the remuneration principles under CRD IV and the Dutch regulation on Sound Remuneration Policies pursuant to the Financial Supervision Act 2014 in its remuneration policies with effect from 1 January 2014, and has taken measures to comply with these requirements.
On 7 November 2014, ING made final repayment to the Dutch State. As a result, the Dutch Bonus Prohibition Act no longer applies to ING with effect from 7 November 2014.
In addition, new Dutch legislation, the Dutch Law on Remuneration Policies of Financial Undertakings (de Wet beloningsbeleid financiële ondernemingen; Wbfo), has been enacted with effect from 7 February 2015. This new legislation introduces, amongst others, caps on variable remuneration applicable to all global staff. ING has taken all necessary measures to implement the legislative requirements in its remuneration policies.
To all share awards granted to Executive Board members in their capacity as Board member, a retention period of five years from the grant date is applicable. However, they are allowed to sell part of their shares at the date of vesting to pay tax over the vested share award.
Tenure Members of the Executive Board who were appointed prior to 2013, have an employment agreement with ING Groep N.V. Members who are appointed as of 2013 have a commission contract. The employment agreement and the commission contract for Executive Board members provide for an appointment for a period
Supervisory Board discretion to review the policy and the remuneration paid Within the Executive Board remuneration policy as adopted by the AGM of ING and as described herein, the Supervisory Board annually determines the remuneration for the Executive Board members based on the advice given by the Supervisory Board Remuneration Committee.
In 2014 there was no clawback applied to paid or vested variable remuneration from any of the Executive Board members. The total direct compensation of former members of the Executive Board amounted to nil for 2014, EUR 1,015 thousand for 2013 and EUR 1,353 thousand for 2012.
Pension costs In 2014, members of the Executive Board participated in the defined contribution pension plans introduced in 2010 as part of the Executive Board Remuneration Policy.
Performance shares are shares conditionally granted, with the final shares awarded in three years (tiered) based on ING’s performance at the end of each performance cycle. The ultimate value of the performance share is based on ING Group’s share price at the vesting date and performance measurement.
LSPP Deferred share units 28 Mar 2012 28 Mar 2014 3,511 3,511 € 10.08 LSPP Performance shares 30 Mar 2011 30 Mar 2014 7,016 7,893 € 10.10
Loans and advances to the individual members of the Executive Board amounts in thousands of euros
The new remuneration levels are still significantly below median level of the Euro Stoxx 50 benchmark. This remains a major concern, however, the Supervisory Board deems fully bridging the gap with peers currently not appropriate in the context of the public debate.
The Supervisory Board will continue to monitor the development of the applicable benchmark and continues to support the Executive Board remuneration policy of compensating in line with the Dutch Banking Code. As such annual reviews will be held.
Total direct compensation Total direct compensation levels will be based on benchmark data in the international context in which ING operates. ING aims for compensation levels to be set at market median levels. Total compensation levels will be determined on the basis of a variety of factors including relevant market practices and regulatory environment.
Moreover, in light of the Capital Requirements Directive IV, 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.
The regulatory environment is still in development. The structure as set out above is based on information currently available. If more legislation would enter into force and amendments are necessary, ING will amend the structure as deemed appropriate.
In addition, as mentioned earlier, the Wbfo has been enacted with effect from 7 February 2015, introducing amongst others caps on variable remuneration applicable to all global staff. ING has taken the necessary measures to implement the legislative requirements in its remuneration policies.
With ING’s international footprint, a significant part of ING’s key staff is employed outside the Netherlands. Especially outside the European Economic Area (“EEA“), ING operates in markets that do not have local limitations on variable remuneration and where ING’s international peers and competitors, being subject to less home country restrictions concerning variable remuneration, have a more favorable competitive position.
2014 Remuneration Supervisory Board The table below shows the remuneration, expense allowances and attendance fees per Supervisory Board member.
(4) Peter Elverding, Tineke Bahlman and Luc Vandewalle retired in May 2014. Jan Holsboer and Yvonne van Rooy retired in June 2014. The remuneration figures for 2014 reflect a partial year as a member of the Supervisory Board.
Compensation of former members of the Supervisory Board who are not included in the above table amounted to nil in 2014, EUR 90 thousand in 2013 and EUR 264 thousand in 2012.
Jeroen van der Veer 119,469 119,469 119,469 Hermann-Josef Lamberti (2) 5,700 5,700 Eric Boyer de la Giroday (3) 43,094
Shares Granting date Vesting date Number of shares granted Number of shares vested Vesting price
Notes to the consolidated annual accounts Notes to the accounting policies 1 Accounting policies 108
Notes to the consolidated balance sheet 2 Cash and balances with central banks 129 3 Amounts due from banks 129 4 Financial assets at fair value through profit and loss 129 6 Loans and advances to customers 137 7 Investments in associates and joint ventures 139 8 Real estate investments 141 9 Property and equipment 142 10 Intangible assets 143 11 Deferred acquisition costs 144 12 Assets and liabilities held for sale 145 13 Other assets 149 15 Subordinated loans 158 16 Debt securities in issue 159 17 Other borrowed funds 160 18 Insurance and investment contracts, Reinsurance contracts 19 Amounts due to banks 164 20 Customer deposits and other funds on deposit 164 21 Financial liabilities at fair value through profit and loss 165 22 Other liabilities 166
Notes to the consolidated profit and loss account 23 Interest result banking operations 168 24 Investment income 169 25 Result on disposals of group companies 169 26 Commission income 170 27 Valuation results on non-trading derivatives 170 28 Net trading income 171 29 Other income 171 30 Intangible amortisation and other impairments 172 31 Staff expenses 172 32 Other operating expenses 175 33 Discontinued operations 176 34 Earnings per ordinary share 177 35 Dividend per ordinary share 178
The comparison of the balance sheets is impacted by the classification of businesses as held for sale and discontinued operations. For further information, reference is made to the section ‘Other significant changes in 2014’ on page 111.
ING Group 100 Consolidated annual accounts Consolidated balance sheet of ING Group
Share of result from associates and joint ventures 7 138 150 102
Net result from continuing and discontinued operations attributable to: Equityholders of the parent 1,251 3,545 4,362
Net result from discontinued operations attributable to: Equityholders of the parent –1,406 495 1,280 amounts in euros 2014 2013 2012
Items that may be reclassified subsequently to the profit and loss account: Unrealised revaluations available-for-sale investments and other 6,981 –6,159 7,070 Realised gains/losses transferred to the profit and loss account –139 –79 –840 Changes in cash flow hedge reserve 2,394 –827 737 Transfer to insurance liabilities/DAC –2,146 1,944 –2,181 Share of other comprehensive income of associates and joint ventures 43 6 29 Exchange rate differences and other 2,374 –1,468 –822
– trading assets –23,676 651 7,367 – non-trading derivatives –3,022 –2,151 –1,779 – other financial assets at fair value through profit and loss –553 1,899 –2,417 – loans and advances to customers –13,901 6,090 531 – other assets 246 2,542 –596 – amounts due to banks, not payable on demand 3,353 –10,266 –26,459 – customer deposits and other funds on deposit 19,015 25,585 27,718 – trading liabilities 23,855 –10,172 –24,031 – other financial liabilities at fair value through profit and loss –1,018 –3,429 –1,376 – other liabilities 1,778 –11,772 –2,246
As at 31 December 2014 Cash and cash equivalents includes cash and balances with central banks of EUR 12,233 million (2013: EUR 13,316 million; 2012: EUR 17,657 million). Reference is made to Note 38 ‘Cash and cash equivalents’.
Remeasurement of the net defined benefit asset/liability 41 –3,221 –3,221 –3,221 Unrealised revaluations property in own use –22 –22 –22 Unrealised revaluations available-for-sale investments and other 7,061 7,061 9 7,070 Realised gains/losses transferred to the profit and loss account –840 –840 –840 Changes in cash flow hedge reserve 718 718 19 737 Transfer to insurance liabilities/DAC –2,181 –2,181 –2,181 Share of other comprehensive income of associates and joint ventures 29 29 29 Exchange rate differences and other –870 –870 48 –822 Total amount recognised directly in equity (other comprehensive income) 674 674 76 750 Net result from continuing and discontinued operations 4,362 4,362 161 4,523
Remeasurement of the net defined benefit asset/liability 41 –905 –905 –37 –942 Unrealised revaluations property in own use –7 –7 –7 Unrealised revaluations available-for-sale investments and other –6,421 –6,421 262 –6,159 Realised gains/losses transferred to the profit and loss account –114 –114 35 –79 Changes in cash flow hedge reserve –812 –812 –15 –827 Transfer to insurance liabilities/DAC 2,200 2,200 –256 1,944 Share of other comprehensive income of associates and joint ventures 6 6 6 Exchange rate differences and other –1,242 –1,242 –226 –1,468 Total amount recognised directly in equity (other comprehensive income) –7,295 –7,295 –237 –7,532 Net result from continuing and discontinued operations 3,545 3,545 265 3,810 Total comprehensive income –3,750 –3,750 28 –3,722
ING Group 106 Consolidated annual accounts Consolidated statement of changes in equity of ING Group
Changes in accounting policies in 2014 Change in accounting for GMDB in Japan Closed Block VA NN Group has moved towards fair value accounting for the reserves for Guaranteed Minimum Death Benefits (GMDB) reserves of the Japan Closed Block VA segment as of 1 January 2014. This improves the alignment of the book value of the GMDB reserves with their market value, better reflects the economic value of these guarantees and improves the alignment of the accounting for the guarantees with the accounting for the related hedges. Furthermore, such a move makes the accounting for the GMDB consistent with the accounting on the reserves for Guaranteed Minimum Accumulation and Withdrawal benefits.
Changes in IFRS-EU The following new standards were implemented by ING Group on 1 January 2014 for IFRS-EU: › IFRS 10 ‘Consolidated Financial Statements’; › IFRS 11 ‘Joint Arrangements’ and amendments to IAS 28 ‘Investments in Associates and Joint Ventures’; › IFRS 12 ‘Disclosure of Interests in Other Entities’; › Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27); › Amendments to IAS 32 ‘Presentation - Offsetting Financial Assets and Financial Liabilities’; › Amendments to IAS 39 ‘Novation of Derivatives and Continuation of Hedge Accounting’; › Amendments to IAS 36 ‘Recoverable amount disclosures for non-financial assets’; and › IFRIC 21 ‘Levies’.
IFRS 10 ‘Consolidated Financial Statements’ IFRS 10 ‘Consolidated Financial Statements’ introduced amendments to the criteria for consolidation. Similar to the requirements that were applicable until the end of 2013, all entities controlled by ING Group are included in the consolidated annual accounts. However, IFRS 10 redefines control as being exposed to variable returns and having the ability to affect those returns through power over the investee. The requirements in IFRS 10 are generally similar to the policies and interpretations that ING Group applied and, therefore, the impact of implementing IFRS 10 was not significant. The implementation of IFRS 10 has no impact on Shareholders’ equity, Net result and/or Other comprehensive income. The impact of IFRS 10 is included in the tables below.
Japan Closed Block VA Change in Insurance and investment contracts –219 –630 Impact before tax –219 –630 Tax effect 54 156 Impact on Shareholders' equity –165 –474
Impact on Net result from discontinued operations: – Japan Closed Block VA (fair value accounting of GMDB reserves) 313 201
Changes in accounting policies in 2014: Impact on the basic earnings per ordinary share – Japan Closed Block VA
Changes in accounting policies in 2014: Impact on the diluted earnings per ordinary share – Japan Closed Block VA
Amendments to IAS 39 ‘Novation of Derivatives and Continuation of Hedge Accounting’ These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria and retrospective application is required. There is no impact on Total equity, Net result and/or Other comprehensive income as ING already applied these principles.
IFRIC 21 ‘Levies’ IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be provided for before the specified minimum threshold is reached. Retrospective application is required for IFRIC 21. This interpretation has no impact on ING as ING applied the recognition principles under IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ which is consistent with the requirements of IFRIC 21.
Other significant changes in 2014 NN Group In July 2014, ING Group sold 31.9% of its interest in NN Group (a wholly owned subsidiary of ING Group) through an initial public offering (‘IPO’) and transactions with anchor investors and underwriters reducing its remaining interest in NN Group to 68.1%. These partial divestment transactions did not impact the profit and loss account of ING Group of 2014, as NN Group continued to be consolidated. The transactions had a negative impact on shareholders’ equity of ING Group of EUR 4,263 million in 2014.
Other The comparison of balance sheet items between 31 December 2014 and 31 December 2013 is impacted by the Initial Public Offering (‘IPO’) of NN Group, the classification of NN Group as held for sale and discontinued operations, the further sale of ING Group’s interest in Voya, the deconsolidation of Vysya and other divestments. Reference is made to Note 12 ‘Assets and liabilities held for sale’, Note 33 ‘Discontinued operations’, Note 52 ‘Companies and businesses acquired and divested’ and Note 57 ‘Other events’.
Hedge accounting The hedge accounting requirements of IFRS 9 aims to simplify general hedge accounting requirements. Furthermore, IFRS 9 aims to create a stronger link between financial accounting and the risk management strategy and permits a greater variety of hedging instruments and risks. The standard does not address macro hedge account strategies, which are being considered in a separate project for which a discussion paper was issued in April 2014.
Group companies The results and financial positions of all group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows: › Assets and liabilities included in each balance sheet are translated at the closing rate at the date of that balance sheet; › Income and expenses included in each profit and loss account are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
ING Group 116 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
› 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); › 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; › 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; and
ING Group 118 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
› Historical experience, updated for current events where necessary, provides evidence that a proportion of a group of assets is impaired although the related events that represent impairment triggers are not yet captured by the Group’s credit risk systems.
ING Group as the lessee The leases entered into by ING Group are primarily operating leases. The total payments made under operating leases are recognised in the profit and loss account on a straight-line basis over the period of the lease.
ING Group 122 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Acquisitions, goodwill and other intangible assets Acquisitions and goodwill ING Group’s acquisitions are accounted for using the acquisition method of accounting. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued in exchange for control of the acquiree. Goodwill, being the difference between the cost of the acquisition (including assumed debt) and the Group’s interest in the fair value of the acquired assets, liabilities and contingent liabilities as at the date of acquisition, is capitalised as an intangible asset. The results of the operations of the acquired companies are included in the profit and loss account from the date control is obtained.
Claims provision The claims provision is calculated on a case-by-case basis or by approximation on the basis of experience. Provisions have also been made for claims incurred but not reported (IBNR) and for future claims handling expenses. The adequacy of the Claims provision is evaluated each year using standard actuarial techniques. In addition, IBNR reserves are set to recognise the estimated cost of losses that have occurred but which have not yet been notified to the Group.
Adequacy test The adequacy of the provision for life insurance, net of unamortised interest rate rebates, DAC and VOBA (the net insurance liabilities), is evaluated regularly by each business unit for the business originated in that business unit. The test considers current estimates of all
ING Group 126 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Other provisions A provision involves a present obligation arising from past events, the settlement of which is expected to result in an outflow from the company of resources embodying economic benefits, however the timing or the amount is uncertain. Provisions are discounted when the effect of the time value of money is significant using a before tax discount rate. The determination of provisions is an inherently uncertain process involving estimates regarding amounts and timing of cash flows.
Expense recognition Expenses are recognised in the profit and loss account as incurred or when a decrease in future economic benefits related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably.
Statement of cash flows The statement of cash flows is prepared in accordance with the indirect method, classifying cash flows as cash flows from operating, investing and financing activities. In the net cash flow from operating activities, the result before tax is adjusted for those items in the profit and loss account, and changes in balance sheet items, which do not result in actual cash flows during the year.
Parent company accounts The parent company accounts of ING Groep N.V. are prepared in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code.
ING Group 128 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In 2014, the change in Amounts due from Banks includes EUR –575 million related to the deconsolidation of Vysya. Reference is made to Note 57 ‘Other events’.
Trading assets 136,959 114,247 Investments for risk of policyholders 39,589 Non-trading derivatives 4,384 8,546 Designated as at fair value through profit and loss 2,756 2,790
In 2014, the increase in trading equity securities are mainly due to new trades. The increase in the trading derivatives is mainly due to changes in fair value resulting from market interest rates. The increase is substantially mitigated by a similar increase in Trading derivative liabilities.
As at 31 December 2013, investments in investment funds (with underlying investments in debt, equity securities, real estate and derivatives) are included under equity securities.
In 2014, the change in Non-trading derivatives includes EUR –3,111 million (EUR –5,409 million as per classification date) related to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Equity securities 9 437 Debt securities 1,124 1,289 Loans and receivables 1,623 1,052 Other 12
Trading assets 21,584 18,890 Investments for risk of policyholders 1,821 Designated as at fair value through profit and loss 1,124 1,289 Financial assets at fair value through profit and loss 22,708 22,000
Debt securities by type and balance sheet lines - Available-for-sale investments and Assets at amortised cost (total) Available-for-sale investments Held-to-maturity investments Loans and advances to customers Amounts due from banks Total
To/from loans and advances to customers/amounts due from banks –282 –282 To/from investment in associates and joint ventures –167 –167
Reclassifications to Loans and advances to customers and Amounts due from banks (2009 and 2008) Reclassifications out of available-for-sale investments to loans and receivables are allowed under IFRS-EU as of the third quarter of 2008. In the first quarter of 2009 and in the fourth quarter of 2008 ING Group reclassified certain financial assets from Investments available-for-sale to Loans and advances to customers and Amounts due from banks. The Group identified assets, eligible for reclassification, for which at the reclassification date it had the intention to hold for the foreseeable future. The table below provides information on the two reclassifications made in the fourth quarter of 2008 and the first quarter of 2009. Information is provided for each of the two reclassifications (see columns) as at the date of reclassification and as at the end of the subsequent reporting periods (see rows). This information is disclosed under IFRS-EU as long as the reclassified assets continue to be recognised in the balance sheet. Reference is made to Note 12 ‘Assets and liabilities held for sale’ for reclassifications by NN Group in 2009.
ING Group 134 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Expected recoverable cash flows 24,052 1,646 Unrealised fair value losses in shareholders’ equity (before tax) –1,224 –69 Recognised fair value gains (losses) in shareholders’ equity (before tax) between the beginning of the year in which the reclassification took place and the reclassification date nil –79 Recognised fair value gains (losses) in shareholders’ equity (before tax) in the year prior to reclassification –192 –20 Recognised impairment (before tax) between the beginning of the year in which the reclassification took place and the reclassification date nil nil Recognised impairment (before tax) in the year prior to reclassification nil nil
ING Group 136 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In 2014, the change in Loans and advances to customers includes EUR –24,773 million (EUR –28,576 million as per classification date) as a result of the classification of NN Group as held for sale and EUR –4,388 million related to the deconsolidation of Vysya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’. This overall change is partly offset by an increase in Loans and advances to customers mainly due to increased business and consumer lending and foreign currency developments.
As at 31 December 2014, Loans and advances to customers includes receivables with regard to securities which have been acquired in reverse repurchase transactions related to the banking operations amounting to EUR 1,779 million (2013: EUR 810 million).
– more than 1 year but less than 5 years 5,299 6,283 – more than 5 years 3,804 4,041
In 2014, Changes in the composition of the group and other changes includes EUR –73 million as a result of the classification of NN Group as held for sale and EUR –170 million due to the deconsolidation of ING Vysya. Reference is made to Note 7 ‘Investments in associates and joint ventures’, Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
ING Group 138 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In 2014, the 2013 comparative were adjusted due to the implementation of IFRS 11. Reference is made to Note 1 section ‘Changes in accounting policies in 2014’.
Other ING Group does not hold any interests in Investments in Associates and joint ventures that are individually significant to ING Group. Other investments in associates and joint ventures represents a large number of associates and joint ventures with an individual balance sheet value of less than EUR 25 million. In 2014, ING Group reduced this threshold from EUR 50 million to EUR 25 million following the deconsolidation of Voya and the classification of NN Group as held for sale and discontinued operations.
Revaluations In 2014, Revaluations includes EUR 53 million relating to associates of NN Group before classification of NN Group as held for sale, EUR 10 million relating to Vysya (2013: nil), EUR 0 million relating to TMB (2013: EUR –2 million) and nil (2013: EUR –2 million) relating to SulAmérica S.A.
In 2014, Share of results includes EUR 17 million relating to Vysya (2013: nil), EUR 56 million (2013: EUR 29 million) relating to TMB and EUR 56 million (2013: EUR 128 million) relating to a gain on further sale of SulAmérica S.A.
In 2013, Changes in the composition of the group and other changes includes EUR –6 million as a result of the classification of Voya as held for sale and nil as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’.
The total amount of direct operating expenses (including repairs and maintenance) in relation to Real estate investments that generated rental income for the year ended 31 December 2014 is EUR 4 million (2013: EUR 45 million). The total amount of direct operating expenses (including repairs and maintenance) incurred on Real estate investments that did not generate rental income for the year ended 31 December 2014 is nil (2013: EUR 7 million).
Transfers to and from Real estate investments –26 Transfers to and from Other assets –2 Depreciation –19 –24 Revaluations –56 –4 Impairments –36 –30 Reversal of impairments 5 5 Disposals –28 –34 Exchange rate differences 1 –26 Changes in the composition of the group and other changes –128 –104 Closing balance 1,020 1,243
In 2013, Changes in the composition of the group and other changes included EUR –104 million as a result of the classification of Voya as held for sale and nil as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’.
The cost or the purchase price amounted to EUR 1,475 million (2013: EUR 1,680 million). Cost or the purchase price less accumulated depreciation and impairments would have been EUR 655 million (2013: EUR 794 million) had property in own use been valued at cost instead of at fair value.
ING Group 142 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Gross carrying amount as at 31 December 1,052 1,347 2,368 2,498 3,420 3,845 Accumulated depreciation as at 31 December –786 –1,032 –1,635 –1,678 –2,421 –2,710 Accumulated impairments as at 31 December –1 –1 –1 –1 Net carrying value as at 31 December 265 314 733 820 998 1,134 10 Intangible assets
In 2013, Changes in the composition of the group and other changes included EUR –894 million as a result of the classification of Voya as held for sale and EUR 5 million as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’.
The changes in reportable segments as disclosed in Note 39 ‘Segments’ resulted in the above reporting units but did not impact the outcome of the impairment test.
ING Group 144 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Investments in associates and joint ventures 2,244 146 37 Real estate investments 1,104 6 Property and equipment 129 56
Deferred acquisition costs 1,403 4,402 5,124 Other assets 3,448 2,745 –1,558
Reported claims provision 2,583 77 2,660 Claims incurred but not reported (IBNR) 612 1 613
To the extent that the assuming reinsurers are unable to meet their obligations, the Group is liable to its policyholders for the portion reinsured. Consequently, provisions are made for receivables on reinsurance contracts which are deemed uncollectable.
Where discounting is used in the calculation of the Claims provision the rate is within the range 2.3% to 4.0% in 2014 based on weighted averages.
Methods applied in determining fair values of financial assets and liabilities - Held for sale - Voya 2013 Level 1 Level 2 Level 3 Total
Investment contracts (for contracts at fair value) 1,569 3,903 9 5,481
Real estate investments 1,104 1,104 Property in own use 88 88
ING Group 148 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Unrealised fair value gains/losses recognised in shareholders’ equity (before tax) –213 –111 –186 –307 –491 –734 Effect on shareholders’ equity (before tax) if reclassification had not been made 175 10 –27 –174 129 321 Effect on result (before tax) if reclassification had not been made nil nil nil nil nil nil Effect on result (before tax) after the reclassification (mainly interest income) n.a n.a. n.a. n.a. n.a. 121 Effect on result (before tax) for the year (interest income and sales results) –2 –10 –47 90 89 n.a. Recognised impairments (before tax) nil nil nil nil nil nil Recognised provision for credit losses (before tax) nil nil nil nil nil nil 13 Other assets
Receivables on account of direct insurance from – policyholders 500 – intermediaries 51 Reinsurance receivables 84
The allowance for uncollectable reinsurance and insurance receivables amounted to EUR 62 million as at 31 December 2013. The allowance is deducted from this receivable.
Shareholders’ equity (parent) 50,424 45,776 51,303 Non-voting equity securities 1,500 2,250
Issue of shares 17,968 4 Issued share capital as at 31 December 2014 3,858,862 925
Unrealised revaluations –28 7,656 7,628 Realised gains/losses transferred to profit and loss –133 –4 –137 Changes in cash flow hedge reserve 3,105 3,105 Transfer to insurance liabilities/DAC –2,658 –2,658 Impact of IPO NN Group –2 –874 –1,100 –1,976 Changes in composition of the group and other changes 2 –497 –3 –498
ING Group 152 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Impact of NN Group relates to the Initial Public Offering (‘IPO’) of NN Group N.V., ING’s Europe-based retirement, investment and insurance business (‘NN Group’) as explained in Note 57 ‘Other events’.
Non-voting equity securities (Core Tier 1 securities) On 7 November 2014, ING Group made the final repayment on the Core Tier 1 securities of EUR 1.025 billion to the Dutch State. Including this final payment, the total amount paid to the Dutch State is EUR 13.5 billion, containing EUR 10 billion in principal and EUR 3.5 billion in interest and premiums, giving the Dutch State an annualised return of 12.7%. For information on the non-voting equity securities and the repayments made, reference is made to Note 56 ‘Transactions with the Dutch State and the European Commission Restructuring Plan’.
ING Group 154 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Equity invested represents the actual stake held by ING Group, which is 100% in ING Bank and 68% in NN Group, as per 31 December 2014.
On a distribution of a dividend, ING Groep N.V. is in principle required to withhold an income tax on dividends at a rate of 15%.
The proportional interest held and key information on NN Group is included in the tables below.
ING Group 156 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Voya In 2014, the deconsolidation of Voya impacted various components of equity including EUR –5,100 million in minority interest. The loss on the deconsolidation of Voya is recognised in the profit and loss account. Following the deconsolidation of Voya there is no remaining minority interest relating to Voya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Interest held (%) Total assets Total liabilities Total equity Minority interests
Total assets and Total liabilities as presented above, to which the minority interest in Voya related, were all presented in the Consolidated balance sheet in Assets held for sale and Liabilities held for sale in 2013. Total income and Total expenses as presented above, to which the minority interest in Voya related, were all presented in the Consolidated profit and loss account in Net result from discontinued operations in 2013.
ING Groep N.V.’s Articles of Association make provision for the cancellation of cumulative preference shares. Upon cancellation of cumulative preference shares and upon liquidation of ING Groep N.V., the amount paid up on the cumulative preference shares will be repaid together with the dividend shortfall in preceding years, insofar as this shortfall has not yet been made up.Property in own use by year of most recent appraisal by independent qualified valuers
Subordinated loans consist of perpetual subordinated bonds issued by ING Groep N.V. These bonds have been issued to raise hybrid capital for NN Group (originally issued by ING Verzekeringen N.V.) and Tier 1 capital for ING Bank N.V. Under IFRS-EU these bonds are classified as liabilities. They are considered capital for regulatory purposes.
ING Group 158 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
More than 1 year but less than 2 years 9,912 10,327 More than 2 years but less than 3 years 7,674 9,475 More than 3 years but less than 4 years 7,872 7,317 More than 4 years but less than 5 years 5,952 7,836 More than 5 years 23,270 23,899 Total fixed rate debt securities 97,950 96,102
Subordinated loans of group companies 105 810 760 1,121 18 6,293 9,107 Preference shares of group companies 379 379
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 securities have a liquidation preference of a certain amount plus any accrued interest and unpaid dividend. Dividends with regard to these preference securities are presented as an interest expense in the profit and loss account. These Trust Preference Securities have no voting rights.
Reported claims provision 2,643 77 2,720 Claims incurred but not reported (IBNR) 595 1 596
In 2013, Changes in the composition of the group and other changes included EUR –136,541 million as a result of the classification of Voya as held for sale and EUR 29,445 million as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’.
Premiums earned during the year –1,225 –1,643 –26 –40 –1,251 –1,683
ING Group 162 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Changes in the composition of the group and other changes –3,195 1 –83 –1 –3,278
Where discounting is used in the calculation of the claims provisions, based on weighted averages, the rate is within the range of 3.0% to 4.0% in 2013.
In 2013, Changes in the composition of the group and other changes included EUR –9,402 million as a result of the classification of Voya as held for sale and nil as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’.
Trading liabilities 97,091 73,491 Non-trading derivatives 6,040 11,155 Designated as at fair value through profit and loss 13,551 13,855
In 2014, the increase in trading equity securities are mainly due to new trades. The increase in the trading derivatives is mainly due to changes in fair value resulting from market interest rates. The increase is substantially mitigated by a similar increase in Trading derivative assets. Reference is made to Note 4 ‘Financial assets at fair value through profit and loss’ for information on trading assets.
Derivatives used in: – fair value hedges 3,210 4,555 – cash flow hedges 1,663 4,385 – hedges of net investments in foreign operations 100 52 Other non-trading derivatives 1,067 2,163
Deferred tax liabilities 860 998 2,813 Income tax payable 450 440 956 Net defined benefit liability 676 336 799 Other post-employment benefits 101 136 220 Other staff-related liabilities 408 558 650 Other taxation and social security contributions 584 833 918 Deposits from reinsurers 58 869
Releases –18 –66 Charges –212 –580 Exchange rate differences 5 –4 Changes in the composition of the group and other changes –109 –14 Closing balance 728 575
In 2013, a reorganisation provision of EUR 167 million was recognised in the segment Retail Netherlands and Commercial Banking as a result of further measures that have been taken to accelerate the cost savings program. These measures were expected to result in a further reduction of the workforce of around 300 FTEs.
Releases –16 –40 –51 –26 –67 –66 Charges –11 –6 –13 –254 –24 –260 Exchange rate differences 1 –6 1 –16 2 –22 Changes in the composition of the group and other changes 8 –9 –50 58 –42 49
ING Group 168 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Realised gains/losses on disposal of debt securities 142 129 209 142 129 209 Impairments of available-for-sale debt securities –1 –16 –1 –16 Reversal of impairments of available-for-sale debt securities 1 2 1 2 Realised gains/losses and impairments of debt securities 143 130 193 143 130 193
Change in fair value of real estate investments 3 –11 3 –11
Other includes commission fees of EUR 163 million (2013: EUR 215 million; 2012: EUR 230 million) in respect of bank guarantees and commission fees of EUR 23 million (2013: EUR 27 million; 2012: EUR 17 million) in respect of underwriting syndication loans.
Insurance broking 14 14 27 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.
Change in fair value of assets and liabilities (hedged items) 536 –963 536 536 –963 536 Valuation results on assets and liabilities designated as at fair value through profit and loss (excluding trading) –583 –53 –1,101 –583 –53 –1,101 Net valuation results –393 204 –978 98 – –2 –295 204 –980
ING Group 170 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Foreign exchange transactions results –454 –138 –142 2 –452 –138 –142
In 2014, for the Banking operations, Net trading income - Derivatives trading results includes EUR 205 million negative CVA/DVA adjustments on trading derivatives, compared with EUR 243 million positive CVA/DVA adjustment in 2013.
In 2014, for Banking operations, Net trading income includes EUR –454 million (2013: EUR –138 million) foreign exchange results.
Software and other intangible assets 1 7 5 1 7 5
Share-based compensation arrangements includes EUR 57 million (2013: EUR 61 million; 2012: EUR 100 million) relating to equitysettled share-based payment arrangements and EUR 3 million (2013: EUR 17 million; 2012: EUR 22 million) relating to cash-settled share-based payment arrangements.
In 2014, no share awards (2013: nil; 2012: nil) were granted to the members of the Executive Board of ING Groep N.V., 206,650 share awards (2013: 553,600; 2012: 643,644) were granted to the Management Boards of ING Bank and NN Group. To senior management and other employees 6,814,308 share awards (2013: 10,403,613; 2012: 19,802,692) were granted. In 2014, all outstanding ING Groep N.V. share awards held by the Management Board, senior management and other employees of NN Group N.V. were converted into awards on NN Group N.V. shares. The conversion was performed at an exchange factor such that the fair value of the outstanding awards was unchanged. The outstanding option awards on ING Groep N.V. shares which are fully vested, remained unchanged. As of 2014, new awards to the Management Board, senior management and other employees of NN Group are all based on NN Group N.V. shares. In 2013, members of the Management Board, senior management and other employees of Voya received Voya shares instead of the share awards of ING Groep N.V. they received previously.
Changes in option rights outstanding Options outstanding (in numbers) Weighted average exercise price (in euros)
ING Group 174 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In 2014, Other operating expenses – Other include EUR 304 million related to the SNS Reaal one-time levy, and includes EUR 138 million (2013: EUR 149 million) related to the Netherlands bank tax.
33 Discontinued operations In 2014, Net result from discontinued operations mainly includes results from the NN Group and Voya. In 2013, Net result from discontinued operations mainly included the results of NN Group, including the results of ING’s Insurance and investment management businesses in Asia and Voya. In light of ING’s intention to divest its remaining interests over time, NN Group and the Voya available-forsale investment are classified as held for sale and discontinued operations in 2014.
Net result from disposal of discontinued operations (1) –1,572 17 752
Per ordinary share (in euros) 0.12 Total amount of dividend proposed 470
In 2013 and 2012 no dividend was declared, therefore the dividend per ordinary share was nil.
ING Group 178 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Treasury bills and other eligible bills 677 574 518 Amounts due from/to banks –2,036 1,015 4,633 Cash and balances with central banks 12,233 13,316 17,657 Cash and cash equivalents classified as Assets held for sale 6,239 2,275 1,342 Cash and cash equivalents at end of year 17,113 17,180 24,150
Segment reporting 39 Segments a. General ING Group’s segments are based on the internal reporting structure by lines of business.
ING Group evaluates the results of its banking segments using a financial performance measure called underlying result. Underlying result was previously defined as result under IFRS-EU (continuing and discontinuing operations) excluding the impact of divestments, special items and total net result from discontinued operations. As of 30 September 2014, ING Group’s ‘Underlying result’ was adjusted in order to better reflect the performance of the Total banking business. Therefore, the remaining legacy insurance activities (included in ‘Insurance Other’) as well as the intercompany eliminations between ING Bank and NN Group will no longer be included as part of ING Group’s underlying result. The presentation of previously reported underlying profit and loss figures has been adjusted accordingly.
ING Group 180 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Underlying expenditure – Operating expenses 8,891 8,891 – Additions to loan loss provision 1,594 1,594 – Other impairments 88 88 Total underlying expenses 10,573 10,573
Divestments in 2014 reflect the result on the deconsolidation of ING Vysya Bank following changes to the governance structure.
(1) Insurance Other comprises mainly the net result from ING’s associate SulAmérica, partly offset by certain expenses that are not allocated to the business units.
Reconciliation between Underlying and IFRS-EU income, expenses and net result 2013 Income Expenses Net result
ING Group 182 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Divestments in 2012 included the gain on the sale of ING Direct Canada of EUR 1,135 million, the gain on the sale of ING Direct USA of EUR 489 million and the loss of EUR 260 million related to the sale of ING Direct UK.
ING Group 184 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
– Additions to loan loss provision 665 168 83 250 955 2,121
The key elements of the agreement are: › Responsibility for future indexation and funding thereof is transferred to the Dutch ING Pension Fund; › ING’s obligation to restore the coverage ratio of the Dutch ING Pension Fund ceased; › The cross guarantees between ING Bank and NN Group to jointly and severally fund the obligations of the Dutch ING Pension Fund are terminated; › ING paid EUR 549 million (before tax) to the Dutch ING Pension Fund for the removal of these obligations; and › ING will reduce the employees’ own contribution to the pension premium under the new defined contribution plan by approximately
As part of the agreement, ING Bank and NN Group are released from all financial obligations arising out of the Dutch defined benefit plan. Accordingly, this plan is no longer accounted for as a defined benefit plan and, consequently, it has been removed from ING’s balance sheet in 2014. The removal of the net pension asset related to the Dutch defined benefit pension fund from ING’s balance sheet of EUR 770 million (EUR 578 million after tax), the payment to the Dutch ING Pension Fund of EUR 549 million (EUR 412 million after tax), the compensation for lower employee contribution of EUR 80 million (EUR 60 million after tax) and other impacts resulted in a charge of EUR 1,413 million (EUR 1,059 million after tax). EUR 871 million (EUR 653 million after tax) of this charge is allocated to ING Bank and EUR 542 million (EUR 406 million after tax) is allocated to NN Group and included in Net result from discontinued operations.
Fair value of plan assets 2,703 21,621 Defined benefit obligation 2,790 20,951 Funded status (Net defined benefit asset/(liability)) –87 670
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 2014. 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.
Changes in the fair value of plan assets for the period were as follows: Changes in fair value of plan assets Fair value of plan assets
In 2013, the Effect of curtailment or settlement included the curtailments of two minor pension plans in the Netherlands. These plans were closed for new pension rights and are replaced by defined contribution schemes.
Amounts recognised directly in Other comprehensive income (equity) were as follows: Changes in the net defined benefit assets/liability remeasurement reserve
Expected rates of salary increases (excluding promotion increases) 3.10 2.10 2.00
As at 31 December 2014, the actuarial assumption for Indexation for inflation is 2.5% (2013: 2.0%). The percentage for 2014 is mainly based on the expected inflation and the best estimate assumption for future indexation in the pension plans in the United Kingdom, Belgium and the Netherlands (before 2014 the percentage was based on the plan in the Netherlands).The best estimate assumption for future indexation was amended in 2013 to reflect the outcome of the arbitration in respect of the 2013 indexation as disclosed in Note 51 ‘Legal proceedings’.
For 2015 the expected contributions to pension plans are EUR 41 million.
Effect of curtailment or settlement 871 –37 –335 871 –37 –335
Defined benefit plans In 2014, a charge of EUR 871 million is recognised in Effect of curtailment or settlement related to the Dutch defined benefit plan settlement.
Certain group companies sponsor defined contribution pension plans. The assets of all ING Group’s defined contribution plans are held in independently administered funds. Contributions are generally determined as a percentage of pay. These plans do not give rise to balance sheet provisions, other than relating to short-term timing differences included in other assets/liabilities.
In 2014, ING reached an agreement with the various stakeholders to transfer all future funding and indexation obligations under ING’s current closed defined benefit plan in the Netherlands to the Dutch ING Pension Fund. The agreement made the Dutch ING Pension Fund financially independent. This agreement resulted in the removal of the net pension asset related to the Dutch defined benefit pension fund from ING Group’s balance sheet in 2014.
Investment portfolio of the pension fund Debt securities (fixed income investments) – Governments bonds 9,104 9,104 – Corporate bonds 1,406 1,406 – Other bonds (developing markets) 909 909 Total fixed income investments 11,419 11,419
Equity security investments – Equity securities in developed markets 3,488 3,488 – Equity securities in developing markets 1,019 1,019 Total equity security investments 4,507 4,507
Alternative investments – Private equity 350 350 – Hedge funds 171 171 – Commodities Total alternative investments 521 521
Total Assets of the pension fund – 16,647 – 2,066 – 18,713
42 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.
In 2014, Changes in the composition of the group and other changes includes EUR –1,647 million as a result of the classification of NN Group as held for sale and EUR 61 million as a result of the deconsolidation of ING Vysya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Presented in the balance sheet as: – deferred tax liabilities 2,813 998 – deferred tax assets –2,244 –1,380 569 –382
In 2014, the change in Total unused tax losses carried forward is mainly attributable due to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
As at 31 December 2014 and 31 December 2013, ING Group had no significant temporary differences associated with the parent company’s investments in subsidiaries as any economic benefit from those investments will not be taxable at parent company level.
Result before tax from continuing operations 3,707 4,167 4,241 Weighted average statutory tax rate 29.5% 29.0% 31.2% Weighted average statutory tax amount 1,095 1,211 1,323
Adjustment to prior periods in 2013 related to a true-up of tax positions. Adjustment to prior periods in 2012 related mainly to a tax settlement.
– designated as at fair value through profit and loss 2,756 2,790 2,756 2,790 Investments
ING Group 198 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Other assets The other assets are stated at their carrying value which is not significantly different from their fair value.
Non-trading derivatives 6,024 16 6,040 Financial liabilities designated as at fair value through profit and loss 1,719 11,509 323 13,551
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’.
Sale of assets –704 –52 –322 –562 –575 –2,215 Maturity/settlement –242 –20 –465 –227 –954
In 2014, Changes in composition of the group and other changes includes EUR 0 million as a result of the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
In 2013, Changes in the composition of the group and other changes included EUR –1,250 million as a result of the classification of Voya as held for sale and nil as a result of the classification to continuing operations of ING Japan.
The table below provides a summary of the valuation techniques, key unobservable inputs and the lower and upper range of such unobservable inputs, by type of level 3 asset/liability. The lower and upper range mentioned in the overview represent the lowest and highest variance of the respective valuation input as actually used in the valuation of the different financial instruments. Amounts and percentages stated are unweighted. The range could change from period to period subject to market movements and change in Level 3 position. Lower and upper bounds reflect the variability of Level 3 positions and their underlying valuation inputs in the portfolio, but do not adequately reflect their level of valuation uncertainty. For valuation uncertainty assessment, please refer to section below ‘Sensitivity analysis of unobservable inputs’.
ING Group 204 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Net asset value Price (%) 100% 100% Option pricing model Equity volatility (%) 17% 94%
IR/INF correlation 0.5 0.5 Present value techniques Reset spread 3% 3%
Present value techniques Credit spread (bps) 1 1,362 Implied correlation 0.6 1.0
– Other 6 1 Option pricing model Commodity volatility 9% 75%
Available for sale – Debt 78 Price based Price (%) 3% 100%
Multiplier method Observable market factors n.a n.a Comparable transactions n.a n.a
Present value techniques Reset spread 3% 3% Prepayment rate 5% 5%
Present value techniques Credit spread (bps) 1 1,372 Implied correlation 0.4 1
– Equity 102 240 Option pricing model Equity volatility (%) 5% 94% Equity/Equity correlation –0.1 1 Equity/FX correlation –0.9 0.5
Sensitivity analysis of unobservable inputs (Level 3) Where the fair value of a financial instrument is determined using inputs which are unobservable and which have a more than insignificant impact on the fair value of the instrument the actual value of those inputs at the balance date may be drawn from a range of reasonably possible alternatives. In line with market practice the upper and lower bounds of the range of alternative input values reflect a 90% level of valuation certainty. The actual levels chosen for the unobservable inputs in preparing the financial statements are consistent with the valuation methodology used for fair valued financial instruments .
If ING had used input values from the upper and lower bound of this range of reasonable possible alternative input values when valuing these instruments as of 31 December 2014 then the impact would have been higher or lower as indicated below. The purpose of this disclosure is to present the possible impact of a change of unobservable inputs in the fair value of financial instruments where unobservable inputs are significant to the valuation.
In reality some valuation inputs are interrelated and it would be unlikely that all unobservable inputs would ever be simultaneously at the limits of their respective ranges of reasonably possible alternatives. Therefore it can be assumed that the estimates in the table below show a greater fair value uncertainty than the realistic position at year end.
Fair value through profit and loss Equity (equity derivatives, structured notes) 42 9 Interest rates (Rates derivatives, FX derivatives) 36 32 Credit (Debt securities, Loans, structured notes, credit derivatives) 24 17 Available-for-sale
Other financial instruments The fair values of the financial instruments carried at amortised cost in the balance sheet, but for which fair values are disclosed are determined as follows: Methods applied in determining fair values of financial assets and liabilities (carried at amortised cost) 2014 Level 1 Level 2 Level 3 Total
Amounts due to banks 4,643 17,777 8,264 30,684 Customer deposits and other funds on deposit 387,482 41,752 55,685 484,919
As at 31 December 2014, it was assessed that certain loan portfolios were classified as level 3, as more than an insignificant part of the inputs, in terms of the overall valuation were determined not to be market observable. Certain comparative figures were adjusted from level 2 to level 3.
Real estate investments 80 80 Property in own use 1,020 1,020
–67 13 –54 44 Derivatives and hedge accounting Use of derivatives and hedge accounting As described in the ‘Risk management’ section, 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.
With respect to exchange rate and interest rate derivative contracts, the notional or contractual amount of these instruments is indicative of the nominal value of transactions outstanding at the balance sheet date; however they do not represent amounts at risk. ING Group uses credit derivatives to manage its exposure to credit risk, including total return swaps and credit default swaps, to sell or buy protection for credit risk exposures in the loan, investment and trading portfolios. Hedge accounting is not applied in relation to credit derivatives.
As at 31 December 2014, the fair value of outstanding derivatives designated under cash flow hedge accounting was EUR –409 million (2013: EUR 245 million), presented in the balance sheet as EUR 1,254 million (2013: EUR 4,630 million) positive fair values under assets and EUR 1,663 million (2013: EUR 4,385 million) negative fair values under liabilities.
As at 31 December 2014, the fair value of outstanding non-derivatives designated as hedging instruments for cash flow hedge accounting purposes was nil (2013: EUR –299 million).
ING Group 212 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Loans and advances to customers 60,470 14,648 33,204 135,054 274,102 517,478
Remaining assets (for which maturities are not applicable) (3) 3,133 3,133
(1) Includes assets on demand. (2) Assets held for sale consist of the assets of the disposal groups classified as held for sale as disclosed in Note 12 ‘Assets and liabilities held for sale’. For these assets and liabilities, the underlying contractual maturities are no longer relevant to 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’.
(1) Includes assets on demand. (2) Investments for risk of policyholders are managed on behalf of policyholders on a fair value basis. Although individual instruments may (or may not) have a maturity depending on their nature, this does not impact the liquidity position of ING.
(3) Assets held for sale consist of the assets of the disposal groups classified as held for sale as disclosed in Note 12 ‘Assets and liabilities held for sale’. For these assets and liabilities, the underlying contractual maturities are no longer relevant to 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’.
Coupon interest due on financial liabilities 1,327 1,181 4,248 9,789 39,568 56,113
(3) Liabilities held for sale consist of the liabilities of the disposal groups classified as held for sale as disclosed in Note 12 ‘Assets and liabilities held for sale’. For these assets and liabilities, the underlying contractual maturities are no longer relevant to 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’.
Banks includes Amounts due from banks and balances with central banks. In some jurisdictions ING Bank N.V. has an obligation to maintain a reserve with central banks.
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 52.0 billion (2013: EUR 45.9 billion), in Germany to EUR 13.0 billion (2013: EUR 8.4 billion), in Belgium EUR 4.0 billion (2013: EUR 2.5 billion) and in Australia to EUR 3.0 billion (2013: nil).
The loan to the Dutch State in connection with the Illiquid Assets Back-Up Facility agreement as disclosed in Note 55 ‘Related parties’ was included in Loans and advances to customers until full repayment in 2014 (2013: EUR 2.7 billion).
Transferred assets at carrying amount Financial assets at fair value through profit and loss 2,202 22 6,465 3,684 Investments 3,594
Associated liabilities at carrying amount Amounts due to banks n.a n.a Customer deposits and other funds on deposit n.a n.a Financial liabilities at fair value through profit and loss 2,202 22 6,414 6,422
In 2014, the carrying amount of transferred assets under repurchase agreements and securities lending that do not qualify for derecognition are included in the table above, whereas in 2013, the receivables from reverse repurchase agreements were included. The 2013 comparatives were adjusted.
Transfer of financial assets that qualified for derecognition In 2013, ING transferred financial assets (mortgage 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 ongoing 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 2014 amounted to EUR 33.7 million (2013: EUR 62.3 million); fair value changes on this swap recognised in the profit and loss account in 2014 were EUR 28.6 million (2013: EUR 4.7 million). Fee income recognised in the profit and loss account in 2014 amounted to EUR 0.5 million (2013: EUR 1.2 million).
Gross amounts of recognised financial assets offset in the balance sheet
50 Contingent liabilities and commitments In the normal course of business ING Group is party in activities whose risks are not reflected in whole or in part in the consolidated financial statements. In response to the needs of its customers, the Group offers financial products related to loans. These products include traditional off-balance sheet credit-related financial instruments.
In addition, ING’s Dutch insurance subsidiaries announced additional measures (flankerend beleid) that comply with the ‘Best in Class’ criteria as formulated on 24 November 2011 by the Dutch Minister of Finance. In December 2011, this resulted in an additional agreement on these measures with the two main consumer protection organisations. In 2012, almost all unit-linked policyholders were
ING Group 222 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
informed about the compensation. The agreements with the two consumer protection organisations are not binding on policyholders. Consequently, neither the implementation of the compensation schemes, nor the additional measures offered by ING’s Dutch insurance subsidiaries, prevent individual policyholders from initiating legal proceedings against ING’s Dutch insurance subsidiaries and making claims for damages.
In July 2011, the Dutch ING Pensioners’ Collective Action Foundation (Stichting Collectieve Actie Pensioengerechtigden ING Nederland), together with two trade unions (FNV Bondgenoten and CNV Dienstenbond) and a number of individual pensioners, instituted legal proceedings against ING’s decision not to provide funding for indexing pensions insured by the Dutch ING Pension Fund (Stichting Pensioenfonds ING) in 2009, 2010 and 2011. This claim was rejected by the District Court of Amsterdam on 9 November 2012. On 15 April 2014, the Amsterdam Court of Justice dismissed claimants’ appeal against the decision of the District Court of Amsterdam.
In July 2013, the investment management business in South Korea was agreed to be sold to Macquarie Group. The transaction closed on 2 December 2013. In the fourth quarter of 2014, a provision was recognised following a claim letter that NN Group received from Macquarie Group under the share purchase agreement. NN Group is in continuous dialogue with Macquarie Group and is considering its position.
NN Group Following the IPO of NN Group in 2014, ING Group’s stake reduced to approximately 68.1%. As from 30 September 2014, NN Group is presented as Assets and liabilities held for sale and discontinued operations. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Other For details on the (expected) transactions with regard to ING’s interest in ING Vysya Bank reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
(3) IFRS requires the derecognition of the subsidiary and the recognition of the retained investment of 43.2% at the fair value on the date of disposal. (4) The gain/loss on disposal comprises the sales proceeds, the net assets disposed, the expenses directly related to the disposal and the realisation of unrealised reserves. (5) The portion of the loss attributable to measuring the retained investment in Voya at its fair value amounted EUR –1,467 million.
Asia - ING’s investment management business in Thailand In November 2012, ING reached an agreement to sell its investment management business in Thailand to UOB Asset Management Ltd. ING received a total cash consideration of EUR 10 million for the investment management business in Thailand. The transaction closed on 3 May 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 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.
Acquisitions effective in 2012 There were no significant acquisitions in 2012.
53 Principal subsidiaries For the majority of ING’s principal subsidiaries, ING Bank N.V. has control because it either directly or indirectly owns more than half of the voting power. For subsidiaries in which the interest held is below 50%, control exists based on the combination of ING Bank’s financial interest and its rights from other contractual arrangements which result in control over the operating and financial policies of the entity.
The principal subsidiaries of ING Groep N.V. and their statutory place of incorporation or primary place of business are as follows: Companies that are part of the banking operations Proportion of ownership and interest held by the Group
In 2013, the consolidation of ING Vysya Bank Limited (Vysya), was based on the combination of ownership interest and additional agreements that, amongst others, provide ability to nominate the majority of the board of directors. In 2014, 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% remains unchanged, ING Bank no longer has a majority representation in the Board of Directors and influence on ING Vysya’s operations are aligned with its shareholding interest. As a result, ING Bank no longer has effective control over ING Vysya and, therefore, ING Vysya is deconsolidated in 2014 and accounted for as an Investment in associate held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
(1) NN Group is classified as held for sale and discontinued operations in 2014. (2) Voya was deconsolidated in 2014 following loss of control. Reference is made to Note 57 ‘Other events’.
ING Group 230 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
54 Structured entities ING Group’s activities involve transactions with various structured entities (‘SE’) in the normal course of its business. A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. ING Group’s involvement in these entities varies and includes both debt financing and equity financing of these entities as well as other relationships. Based on its accounting policies, as disclosed in the section ‘Principles of valuation and determination of results’ of these financial statements, ING establishes whether these involvements result in no significant influence, significant influence, joint control or control over the structured entity.
In 2013, 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 4.8 billion (2013: EUR 5.2 billion) which are funded by third parties.
C on so lid at ed a nn ua l a cc ou nt s
For 2013, Reference is made to Note 5 ‘Investments’ in which Available for sale investments – Equity securities are specified by NN Group managed investment funds and Third party managed investment funds. The maximum exposure to loss for ING is equal to the reported carrying value of the investment recognised in the consolidated balance sheet of ING Group. For 2014, reference is made to Note 12 ‘Assets and liabilities held for sale’.
7. Investments – Third party managed structured entities As part of its investment activities, NN Group invests both in debt and equity instruments of various structured entities originated by third parties.
For 2013, reference is made to Note 5 ‘Investments’ in which Available for sale investments – Debt securities – ABS portfolio is disclosed. For 2014, reference is made to Note 12 ‘Assets and liabilities held for sale’.
The majority of the equity investments relate to investments in investment funds that are not originated or managed by NN Group. Reference is made to Note 5 ‘Investments’ in which Available for sale investments – Equity securities are specified by NN Group managed investment funds and Third party managed investment funds.
8. Other structured entities In the normal course of business, ING Group enters into transactions with structured entities as counterparty. Predominantly in its structured finance operations, ING can be instrumental in facilitating the creation of these structured entity counterparties. These entities are generally not included in the consolidated financial statements of ING Group, as ING facilitates these transactions as administrative agent by providing structuring, accounting, funding, lending and operation services.
For changes in ‘Transactions with associates and joint ventures’, reference is made to Note 7 ‘Investments in associates and joint ventures’ and Note 57 ‘Other events’.
Officers ING U.S. (4) Total 2013 amounts in thousands of euros
In 2013, the Dutch Government imposed an additional tax charge of 16% on the income in excess of EUR 150,000 of each employee who is subject to Dutch income tax. The tax was charged to the company and did not affect the remuneration of involved staff. The tax imposed on ING for relevant members of the Executive Board and Management Boards amounted to nil for 2014 (2013: EUR 2.2 million and is not included in the figures in the table above).
The table above shows the fixed remuneration, expense allowances and attendance fees for the Supervisory Board for 2014 and 2013.
56 Transactions with the Dutch State and the European Commission Restructuring Plan Following a number of transactions, as disclosed in this note, the Dutch State was a related party of ING Group. During 2014, the Dutch State was fully repaid. As per 8 November 2014, the Dutch state is no longer a related party of ING Group. All other transactions between ING Group and the Dutch State are of a normal business nature and at arm’s length.
ING Group 236 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In order to obtain approval from the European Commission (‘EC’) on ING Group’s Restructuring Plan (see below), ING agreed to make additional Illiquid Assets Back-up Facility payments as part of the overall agreement with the EC to the Dutch State corresponding to an adjustment of the fees for the Illiquid Assets Back-up Facility. In total, these additional Illiquid Assets Back-up Facility payments as part of the overall agreement with the European Commission amounted to a net present value of EUR 1.3 billion before tax, which was recognised as a one-off charge in 2009.
In connection with the sale of ING Direct USA, as disclosed in Note 52 ‘Companies and businesses acquired and divested’, ING reached an agreement with the Dutch State to adjust the structure of the IABF. This adjustment served to de-link the IABF from ING Direct USA by putting ING Bank in its place as counterparty for the Dutch State and became effective at the closing of the sale in February 2012. Under the terms of the original transaction ING Direct USA held on its balance the remaining 20% of the Alt-A portfolio, ensuring an alignment of interests between ING and the Dutch state regarding the performance of the portfolio.
In November 2012, NN Group (formerly ING Insurance) restructured the IABF to effectively de-link Voya from the IABF. Voya transferred its Dutch State receivable of approximately EUR 1.1 billion (USD 1.4 billion) to ING Bank, and at the same time transferred legal title to 80% of the Alt-A portfolio to ING Bank. The securities were held in an ING Bank custody account for the benefit of the Dutch State (the portion for which the investment risk has been transferred to the Dutch State). Following the restructuring, Voya continued to own 20% of the Alt-A portfolio (the portion for which the economic ownership and investment risk remained for the risk of ING), but had the right to sell these securities, subject to a right of first refusal granted to ING Bank. ING committed to the Dutch State that it would not sell these securities to non-ING parties without the prior written consent of the Dutch State.
In 2013, ING reached a final agreement with the Dutch State on the unwinding of the IABF. The terms of the agreement were approved by the EC. Under the agreement, the IABF in its current form was terminated, the regular guarantee fee payments were settled for an amount of EUR 0.4 billion and the other restrictions as part of the IABF agreement were no longer applicable. Furthermore, under the agreement, the Dutch State committed to sell the Alt-A securities in the market. Unwinding the IABF also resulted in eliminating a counter-guarantee that ING extended to the Dutch State in connection with the divestment of ING Direct USA in 2012.
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; › 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, needs to be divested; › Restriction to be a price leader in any EU country for certain retail and SME banking products and restriction to acquire financial institutions or other businesses that would delay the repayment of the non-voting equity securities.
Amendments to the Restructuring Plan in 2012 The amendments to the 2009 Restructuring Plan as announced in November 2012 extended the time horizon and increased the flexibility for the completion of divestments and have adjusted other commitments in light of the market circumstances, economic climate and more stringent regulatory requirements.
On 1 July 2013, EUR 3.8 billion of WestlandUtrecht Bank’s Dutch mortgage portfolio, EUR 0.1 billion of consumer lending and EUR 3.7 billion of Dutch savings portfolio were transferred to Nationale-Nederlanden Bank. In addition approximately 400 of WestlandUtrecht Bank’s employees were transferred to Nationale-Nederlanden Bank. All assets and liabilities were transferred at the existing carrying value as included in ING Bank’s balance sheet. This transaction was completed on 1 July 2013. In addition, during the second half of 2013 a further EUR 4.2 billion Dutch mortgages were transferred from WestlandUtrecht Bank to NN Group. In 2014, a further EUR 1.2 billion Dutch mortgages were transferred from WestlandUtrecht Bank to NN Group. These transfers were made at arm’s length prices.
ING has committed, amongst others, that Nationale-Nederlanden Bank will reach certain targets for mortgage production and consumer credit until the date on which more than 50% of the Insurance and investment management Europe operations has been divested, or until 31 December 2015 if the European Commission requires so. Furthermore, ING has agreed to a maximum ratio for mortgage production at ING Retail Banking Netherlands in relation to mortgage production of Nationale-Nederlanden Bank until year-end 2015.
Status of the European Commission Restructuring Plan ING has completed most commitments of the restructuring plan. As at 31 December 2014, the following were still in progress: › Divestment US Insurance and investment management activities (‘Voya’): The November sale of Voya shares reduced ING’s stake in Voya to 18.9%. In March 2015, ING Group sold its remaining 18.9% stake in Voya. Reference is made to Note 58 ‘Subsequent events’. As agreed, ING Group divested its remaining stake before year-end 2016; and
Reference is made to Note 12 ‘Assets and liabilities held for sale’, Note 52 ‘Companies and businesses acquired and divested’ and Note 57 ‘Other events’.
Total gross proceeds from the NN Group IPO, including the exchange of the first tranche of subordinated notes into NN Group shares and the over-allotment option, amount to EUR 2.2 billion.
ING Group 240 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
operations’. A remaining expected loss is only recognised in the profit and loss account upon a divestment resulting in deconsolidation.
In November 2014, ING Group sold a further 34.5 million shares of Voya. ING Group sold 30.0 million Voya shares at a price of USD 39.15 per share in the public offering. In addition, ING Group sold to Voya 4.5 million shares for an aggregate amount of EUR 138 million (USD 175 million). The gross proceeds to ING Group from the public offering and the concurrent repurchase by Voya amounts to EUR 1.1 billion (USD 1.4 billion). These transactions settled on 18 November 2014. The sale of the total of 34.5 million shares from the combined transactions reduces ING Group’s stake in Voya from 32.5% to 18.9%. As a result of these transactions, ING Group loses significant influence over Voya and accounts for its stake in Voya as an available-for-sale equity investment held for sale investment as at 31 December 2014. These transactions resulted in a net profit after tax profit of EUR 418 million and is recognised in the profit and loss account in the line Net Result from disposal of discontinued operations in 2014.
ING Group 242 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Taking measured risks is the core of ING Group’s business. As a financial services company active in banking, investments, life and nonlife insurance and retirement services, ING Group is naturally exposed to a variety of risks. To ensure measured risk-taking throughout the organisation, ING Group operates through a comprehensive risk management framework and integrated 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.
Mission The mission of ING Group’s risk management function is to support ING Group’s ambition to be the preferred bank for our customers, by safeguarding ING’s current and future financial strengths. The following principles support this mission: › The risk management function is embedded in all levels of ING Group’s organisation and is part of the daily business activities and to strategic planning to have a sustainable competitive advantage; › Products and portfolios are structured, underwritten, priced, approved and managed appropriately and compliance with internal and external rules and guidelines is monitored; › Delegated authorities are consistent with the overall Group strategy and risk appetite; › Transparent communication to internal and external stakeholders on risk management.
Unit-linked ‘Woekerpolis’ Proceedings in which ING Group is involved include complaints and lawsuits on Unit-linked products in The Netherlands. For details on the status of the claims on Unit-Linked products reference is made to Note 51 ‘Legal proceedings’.
to risks associated with fluctuations in global financial markets in general and particularly in interest rates. For example, some of NN Group’s life insurance and pension products contain guaranteed minimum benefits, which have resulted, and may result, in increased values of these guaranteed minimum benefits, and may result in a decrease in customer lapses.
Some of the factors that may adversely affect the market price of the NN Group shares or cause the market value of the remaining shares to fluctuate may be internal to NN Group, such as operating and financial performance, introduction of new or enhancement in products or services by NN Group, or by competitors, or external such as adverse developments in the legal or other proceedings related to Dutch unit-linked policies or negative publicity associated therewith, changes in industry conditions or changes in the market outlook for the insurance industry, changes in applicable laws, rules or regulations, as well as regulatory actions affecting NN Group.
Credit risk definitions and governance 263 Risk culture 267 Credit risk appetite and concentration risk framework 267 RWA comparison 270 375 Credit risk measurement (SA & AIRB) 271 376 Credit risk models 272 Exposure classes 274 377
Governance 314 Framework 314 Operational risk and main developments 315 Compliance risk and main developments 315
Risk Governance ING Bank’s risk management framework is based on a ‘three lines of defence’ governance model, whereby each line has a specific role and defined responsibilities and at the same time work closely together to identify, assess and mitigate risks. This governance framework ensures that risk is managed in line with the risk appetite as proposed by the Management Board Bank (MBB), approved by the Supervisory Board (SB) and is cascaded throughout ING Bank.
› Non-Financial Risk Committee Bank (NFRC Bank): Accountable for the design and maintenance of the Risk Management Framework including the ORM, 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 MV department undertakes backtesting of all existing risk models. In addition to evaluating the underlying model parameters, ensuring continued applicability of the models for the relevant portfolios, and discussing the model performance with front office and risk users of the models, MV also tests the observed performance of a model (and its components) with the predicted level. A model where the observed results deviate from the predicted results is a candidate for either re-calibration or re-development.
Business Model And Risk Profile Business model ING Bank is a large, predominantly European retail bank with a strong world-class commercial banking franchise operating an extensive network with presence in over 40 countries. Next to the operations in its historical markets of the Benelux, ING Bank has developed a strong (internet) banking franchise in a number of European countries and in Asia and Australia.
This business model is translated into the following specific ambitions: › Retail Banking will pursue the One Bank approach by combining retail and commercial banking and converge to one retail model: Easy, fair, and at low costs.
Financial risks: › Credit risk: the risk of potential loss due to default and/or credit rating deterioration by ING Bank’s debtors (including bond issuers) or trading counterparties; › Market risk: the risk of potential loss due to adverse movements in market variables. Market risks include interest rate, equity, real estate, implied volatility, credit spread, and foreign exchange risks; › Liquidity risk: the risk that ING Bank or one of its subsidiaries cannot meet its financial liabilities when they come due, at reasonable cost and in a timely manner. Liquidity risk can materialise both through trading and non-trading positions; and › Business risk: the exposure to value loss due to fluctuations in volumes, margins and costs, as well as customer behaviour risk. These fluctuations can occur because of internal, industry, or wider market factors. It is the risk inherent to strategy decisions and internal efficiency, and as such strategic risk is included in business risk.
Non-financial risks: › Operational risk: the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. It includes reputational risk, as well as legal risk; and › Compliance risk: the risk of impairment of ING Bank’s integrity as a result of failure (or perceived failure) to comply with relevant laws, regulations, ING Bank policies and standards as in ING Bank Business Principles.
(1) EC market risk: Mainly held for the interest rate risk embedded in the long-term investment of ING’s capital (investment of own funds). In this overview the replication of capital is presented in line with the regulatory prudential approach and therefore capital itself is classified as an overnight interest rate position; (2) EC market risk: Mainly held for the price risk embedded in equity investments.
Commonly seen as norms and traditions of behaviour of individuals and of groups within an organisation, risk culture determines the way in which employees identify, understand, discuss, and act on the risks the organisation confronts and the risks it takes. This is a long-term commitment and journey that cannot be reached overnight. Therefore, ING Bank initiated different programmes and manuals have been issued within the organisation as statement of what the organisation objectives are.
The Executive Board and the Supervisory Board of ING Group have approved the ING Whistleblower Procedure. The ING Whistleblower Procedure provides the opportunity for every employee to make his or her complaint, including anonymous complaints, to an independent Reporting Officer in order for the responsible management to take appropriate and adequate action in case of alleged breaches of internal or external regulation or other irregularities.
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 both to set boundaries for the Medium Term Plan (MTP) budget process and to monitor and manage the actual risk profile in relation to the risk appetite.
This annual Risk Assessment serves as input when defining the global risk appetite which - in line with its business model and risk ambition - is currently formulated as follows: ING Bank has the ambition to be and remain a strong bank, resilient to possible adverse events on a standalone basis and able to address such developments based on its own strengths and resources.
For financial risks, a sequence of different risk appetite frameworks are implemented to address the most significant risks. This implies that a whole framework of credit risk limits is in place that monitors the overall quality of the ING Bank credit portfolio and that of all the underlying portfolios as well. In addition, specific concentration risk appetites are defined on product level, geographic level and (single name) counterparty level which are cascaded down into the organisation. For market risk, the risk appetite for the trading book activities within Financial Markets is accompanied by a risk appetite framework for market risks in the banking books. For both types of market risk, limits at Bank level are translated into the organisation. The liquidity & funding risk appetite statements that are defined on ING Bank level are translated down into the organisation, taking the liquidity & funding specific situation of each (solo) unit into account.
Specific measurement by risk type is described in greater detail in the separate risk type sections.
The main changes in ING Bank’s economic capital and regulatory capital are: › Economic capital for credit risk decreased in 2014, due mainly to the impact of the Scaling Factors, which reflect the effects of using ING-specific correlations to calculate EC. The recalibration of the Scaling Factors in 4Q14, model updates, and rating migrations ensured that all the elements of last year’s add-on have been fully incorporated in the INCAP methodology. More information on the Credit Risk EC can be found in the ‘Credit Risk Capital and Measurement’ section.
Ongoing changes in the regulatory environment After the turmoil in the financial markets and the consequent need for governments to provide aid to financial institutions, financial institutions have been under more scrutiny from the public, supervisors and regulators. This has resulted in more stringent regulations intended to avoid future crises in the financial system and taxpayers’ aid in the future.
In response to the crisis, ING Bank has set up an all-encompassing Recovery Plan to enhance the bank’s readiness and decisiveness to tackle financial crises on its own strength. Furthermore, ING Bank is diligently working towards providing information on the basis of which the Dutch National Resolution Authority will be able to develop a Resolution Plan.
ING introduced differentiation in pricing based on LTV buckets attracting new customers with lower LTV, and stimulating existing clients to repay their mortgages. ING has seen a record high of partial repayments in 2014.
Business lending Benelux ING Bank’s Business Lending portfolio, defined as lending to corporates in the business line Retail Banking, is concentrated within the Benelux. The weak economic environment was reflected by increased, but lower compared to last year, risk costs and an elevated percentage of non-performing loans. The Netherlands showed increased non-performing loan amounts, which was mainly driven by the sectors transportation & logistics - especially inland shipping and short sea -, builders & contractors and retail non-food. The nonperforming loan amounts in Belgium and Luxembourg decreased slightly over 2014.
Real estate finance Real Estate Finance (REF) is ING Bank’s commercial real estate financer with a global portfolio. It is active in all the core real estate sectors: offices, retail, residential, industrial and logistics. REF financing policy is based on cash flow generating prime real estate portfolio, senior secured facilities, relatively low starting Loan-to-Value (LTV) and conservative covenant setting.
In 2014, the commercial real estate key market areas overall improved although it remains challenging. This is reflected in lower risk costs and decrease in non-performing loans compared to 2013. ING managed down the credit outstandings through sale or redemption of loans mainly in The Netherlands. In 2014, the ECB conducted an AQR for the total bank and the CRE portfolio was also included.
Russia & Ukraine ING has a long history supporting clients in both Ukraine and Russia. We have intensified our monitoring and tightened acceptance criteria. 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. We intend to remain long-term players in both countries as these are defining moments for our clients.
Cybercrime Cybercrime is an increasing threat to companies in general, and to financial institutions specifically. Both the frequency and the intensity of attacks are increasing at a global scale. In 2014 ING Bank has successfully finished its Cybercrime Resilience Programme to become more mature in being able to protect, detect and respond to e-banking fraud, Distributed Denial of Service (DDoS) and targeted attacks (also called Advanced Persistent Threats). The Cybercrime Resilience Programme has handed over the Cybercrime activities to the line organisation to ensure structural embedding.
ING Bank is continuously working on strengthening its global cybercrime resilience including strengthened collaboration against cybercrime with the financial industry, law enforcement authorities, government (e.g. National Cyber Security Centre) and Internet Service Providers (ISPs).
› Settlement risk: is the risk that a counterparty will fail to deliver on financial markets (PS or MM) transaction/contract at Settlement and ING Bank could lose up to 100% of the value expected to be delivered. Settlement Risk arises when there is an exchange of value (funds or instruments) for the same value date or different value dates and receipt is not verified or expected until after ING has given irrevocable instructions to pay or has paid or delivered its side of the trade. The risk is that ING Bank delivers but does not receive delivery from ING Bank’s counterparty. ING manages Settlement Risk in the same way as other risks including a per borrower risk limit structure. However, because of the short term nature and per definition double count of Settlement Risk, ING Bank does not hold provisions or capital for specific Settlement Risk. Although a relatively low risk, ING increasingly uses DVP (Delivery versus Payment) and FITO (First in Then Out) payment techniques to reduce Settlement Risk.
For the reconciliation between credit risk outstanding categories and financial assets we refer to the section ’Credit risk management classification’ as included in the chapter ‘Accounting policies for the consolidated annual accounts’
ING Bank’s credit policy is to maintain an internationally diversified loan and bond portfolio, while avoiding large risk concentrations. The emphasis is on managing business developments within the business lines by means of the top-down risk appetite framework, which sets concentration limits for countries, individual counterparties and counterparty groups and investment activities. The aim is to expand relationship-banking activities, while maintaining stringent internal risk/reward guidelines and controls. To ensure a proper risk reward balance in our portfolios, the risk appetite framework is linked to the Medium Term Plan (MTP) process.
Credit analysis at portfolio level is a function of different concentration levels and various metrics like Economic Capital, Regulatory Capital, Exposure at Default, Probability of Default and Loss Given Default. The risk/reward is monitored and managed at portfolio level to ensure efficient use of ING Bank’s capital. Credit analysis at facility level is also risk/reward-oriented in that the level of credit analysis is a function of the risk amount, tenor, structure (e.g. covers received) of the facility, and the risks entered into. RAROC-based tools are used internally to ensure a proper balance of risk and reward within the portfolio and concentration parameters. ING Bank’s credit analysts make use of publicly available information in combination with in-house analysis based on information provided by the counterparty, peer group comparisons, industry comparisons and other quantitative techniques and tools.
Credit risks of commercial and retail banking are monitored by Commercial Banking CRM, Global Credit Restructuring and Retail Banking. These units are guided, instructed and supported by Credit Capitals, Information Management Services and Strategy & Business Management. Each head of the five units reports directly to the CRM General Manager. As shown in the organisation chart, the CRM General Manager reports directly to CRO.
Commercial Banking Commercial Banking manages the credit risk of the commercial banking activity i.e. the corporates, sovereigns and counterparties (financial institutions). There is a functional reporting line from the regional CB risk departments to CB CRM. There is a hierarchical reporting line from the risk departments Corporate & Structured Finance, Real Estate Finance, Counterparty & Investment and Real Estate & Other to CB CRM. Several reports are made regularly for monitoring and managing purposes. These reports are intensively discussed with the (regional) risk managers. Credit RWA developments are monitored on portfolio level and per individual client during the month.
Information Management Services Information Management Services (IMS) manages, updates and improves the Credit Risk infrastructure of ING Group to support Credit Risk life cycle activities: › Supports CRM and ING organisation; › Optimises Credit Risk related end-to-end data, processes and systems; › Enables advanced technologies and analytics to support decision making; › Creates and strengthens a risk/reward culture within the bank.
Integrity Specific training on “good banker-ship” is obligatory. These courses, approximately three per year are known as the Personal Integrity Programme (PIP). Each CRM employee, senior managers included, needs to pass these courses within defined time frames. For specific roles within CRM, the Insider regulation applies. Those employees are obliged to adhere to certain rulings in trading in shares and confidentially restrictions. All new CCRM staff must attend an ORM/Compliance introduction workshop. Results and involvement are monitored and a quarterly update is provided to the Management Team in the ORM/Compliance Quarterly Report.
O rg a n is a ti o n a l S
Credit risk appetite Credit risk appetite is the maximum level of credit risk ING Bank is willing to accept for growth and value creation. This credit risk appetite is linked to the overall Bank-wide risk appetite framework. Articulating the credit risk appetite is a complex task that requires balanced views. It can be expressed in quantitative and qualitative measures. Having a credit risk appetite achieves: › Clarity over the credit risks that ING Bank can assume; focused execution in balancing ING Bank’s credit risk exposures within the boundaries of ING’s strategy, target setting and prudent risk management; › Consistent communication to different stakeholders; › Guidelines how to align reporting and monitoring tools with the organisational structure and strategy; › Alignment of business strategies and key performance indicators of business units with the overall ING Bank credit risk appetite by means of the MTP.
Concentration risk framework The concentration risk framework consists of a number of different components to properly manage and control any concentration levels within the ING portfolio.
tests on a monthly basis in order to continually assess the portfolio risks and concentrations. These monthly stress tests are consistent with the stress scenario as established in the ING Bank wide credit risk appetite framework. The monthly stress tests are reviewed in the Credit Portfolio Committee (CPC) and potential management actions are proposed if necessary.
Risk programs Within ING we distinguish between risk programs for Retail Banking and risk programs for Commercial Banking business.
Reference benchmarks A reference benchmark defines the appetite for credit risk per obligor or related group of obligor’s counterparty group. It is expressed as an EAD exposure at the concentration risk level, which corresponds to a (maximum) internal capital consumption for credit risk. It is used as a reference amount tool in the credit approval process and can be waived on the basis of proper arguments but requires consent from a higher approval authority.
Practice based drivers ING Bank tries to have an ‘early in early out’ approach to troubled exposures. This means that ING has a conservative default definition. This will have a direct impact on the level of RWA. In addition to an impact on RWA, the conservative default definition implies that many of both corporate and retail customers classified as non-performing are not overdue for more than 90 days in either interest or principal. For all customers, ING uses a borrower rating which means that a customer will only have one PD regardless of the type(s) of transactions done with ING Bank. This means that if one facility is in default, usually all facilities of the client are in default. Once the customer is deemed performing, a non-default PD will be given to the borrower. Non-performing clients which were granted forbearance measures need to stay non-performing for a minimum of one year starting from the moment they are classified as forborne. Only after this probation period the clients may become eligible to be changed back to performing.
EC is an important ingredient for the Risk Adjusted Return On Capital (RAROC) ratio. RAROC is a risk adjusted profitability measure over Economic Capital and supports transaction decision-making processes (for example through the ING Bank loan pricer tool). RAROC allows measuring the risk adjusted return of different products and structures within different parts of the organisation along one and the same yardstick. Next to Pillar II based RAROC, within commercial banking, a Pillar I ‘sanity check’ is performed on transaction level. This sanity check is a ‘margin over credit risk weighted asset (CRWA)’ ratio, which should exceed a pre-determined level (hurdle), which is tested in the Front Office ‘green light committees’.
EC for SA portfolios is calculated by means of AIRB based unexpected loss formula which is based on the corresponding PD, Downturn LGD and EAD inputs.
For exposures from 1 year and longer: PD values represent the PD for 12 months. Shorter than 1 year: 1 year PD values are used. Next to the PD, there is the maturity adjustment: always set to 1 year (for tenors shorter than 1 year) unless, the product is placed on a list of self-liquidation and or trade related products that is CRC approved (in line with the CRR). These should be seen as “not part of the institution’s ongoing financing of the obligor” (CRR article 162).
In the Solvency Report Other non-credit obligation assets (ONCOA) are included.
equal to or higher than the associated credit risk outstanding, under the assumption that counterparties tend to absorb liquidity from available credit resources before financial problems become apparent to the counterparty’s creditors. The EAD is largely a function of the type of credit facility (revolving, overdraft, term) offered to the borrower.
Loss Given Default (LGD): The third element is the loss given default. These models are intended to estimate the amount ING Bank will lose when liquidating collateral pledged in association with a given loan or financial obligation, or alternatively, liquidating the company as a whole, as part of a workout process. LGD models are based on cover types, estimated recovery rates given orderly liquidation, and (in) direct cost of liquidation.
Maturity (M): The fourth element is the time to the maturity of the underlying financial obligation. Regulations (CRR/CRDIV) cap the maturity element at five years, despite the fact that many obligations extend their facilities for longer than five years.
The Pillar III disclosure provides detail of the ING portfolio classified by these Exposure Classes. This should be helpful for comparison with other AIRB banks. However, ING Bank does not manage its portfolio according to these exposure classes but based more on geography, customer segment, industry, and product. Therefore, additional portfolio breakdowns are also provided in Pillar III that reflect these management classifications of the portfolio.
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 Insurance being “intercompany loans”, unless stated otherwise: Exposure classes ING Bank portfolio per risk category, as % of total EAD 2014 Lending Investment Money Market Pre-Settlement Total Total (ALL)
The declines seen in the SA categories are due to the deconsolidation of ING Vysya Bank from ING Bank.
› 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.
› Loss – Distressed Restructuring: ING Bank restructures the loan agreement so as to recover the exposure after allowing some discount. The relationship with the borrower continues after the restructuring. ING Bank suffers some loss in the process.
As of 2014, ING Bank has implemented the latest forbearance policy in line with EBA guidelines. More details on this are available in the forbearance section.
In addition to these model updates, methodology change related to Masterscale update led to a decrease in RWA. For further details regarding model changes and the subsequent RWA migration in 2014 we refer to the chapter Risk Weighted Assets Migration Analysis in the Pillar III section.
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 had done a very limited number of transactions as Originator. These have all matured or have been unwound.
To ensure data integrity, GRID is reconciled on a weekly basis to over 17 external databases.
Credit risk reporting Credit risk reporting is a crucial element of credit risk management. Regulators and ING Bank’s management increasingly recognise the value of risk-reporting systems and accessibility of data to monitor trends as well as to keep consistency and credibility in published data. A dedicated credit risk reporting department addresses various reporting requirements as well as key reporting principles.
Role of reporting department The credit risk reporting department contributes in the following ways to CRM: › Provides periodic overviews of credit capital, migration of credit risk weighted assets, concentration overviews by industry/sector/ counterparty names required or requested by the DNB, the ECB and other European regulators; › Create periodic overviews of a set of high level credit risk metrics as defined in the ING Bank Credit Risk Appetite Statements and monitor to ensure that ING Bank remains within its defined Credit Risk Appetite; › Participate in the various exercises/simulations conducted by regulators and other policy-makers by being transparent in the data and analysis shared, to allow useful results and work towards more stable and efficient financial markets; › Provides senior management and other risk departments an insight showing trends and quantitative as well as qualitative analysis in significant risk areas within ING Bank in a comprehensive and simplified manner to facilitate informed decision-making; › Addresses ad hoc requests from regulators, analysts and rating agencies and other external stakeholders which are driven by current market events impacting specific regions, portfolios or counterparties; and
› Serves as a control function by analysing various portfolios and comparing them to certain risk policies. In addition, significant monthly portfolio changes are analysed and reviewed.
Country risk In Europe, growth continued in the German portfolio, both corporate and retail. Lower proportion of Dutch mortgages in the overall portfolio has reduced the overall concentration of the Netherlands.
Credit quality In this section the credit quality of the ING Bank portfolio is described. Outstandings carrying a risk that ING will end up with an actual loss or with an opportunity loss, if no specific action is taken, are captured in this section. Since the beginning of the crisis, the quantity and the share of the total ING credit risk portfolio of past due obligations, provisions, non-performing loans in general or any other loan that requires special risk management attention has increased. The average turnaround time of problematic files has stabilised in 2013 and improved in 2014, however is not yet back to pre-crisis levels. Obviously, the length and intensity of the crisis require continuous attention for credit quality. In this section the distinction between the Retail and Commercial Banking approach of past due obligations will be explained. Also the watch list and restructuring status will be introduced and an insight in the non-performing portfolio is given. After that, an analysis of the loan loss provisions is made and finally, the concept of forbearance will be discussed. As a logical next step, the credit risk management paragraph will be concluded with extended analyses of the strategy of ING Bank to mitigate its credit risk.
ING Bank to establish whether the payment default was due to non-operational reasons (i.e. the deteriorated credit quality of the financial institution) or due to operational reasons. The latter does not trigger default; 3) ING Bank thinks the Borrower is unlikely to pay: The Borrower has evidenced significant financial difficulty, to the extent that it will have a negative impact on the future cash flows of the Financial Asset. The following events could be seen as examples of financial difficulty indicators, but not as default triggers per se: › a material breach of contract; › the disappearance of an active market for a certain financial asset; › the downgrading of a Borrower’s external rating; 4) 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.
As such, other than the arrear driven approach at Retail Banking, Commercial Banking has a much more individual name approach, using Early Warnings indicators to signal probable, upcoming, redemption breaches. As a general rule, in line with the Regulatory definition (CRR/CRDIV), ING Bank considers all business loans as non-performing if they are 90 days past due.
Watch list, Restructuring and Non-performing loans are discussed at least on a quarterly basis between Front Office, respective Credit Risk Management executives and GCR, at which time it may be decided to change the status of an account from Watch list to Restructuring or Non-Performing loans or vice versa. Furthermore, all three categories Watch list, Restructuring and Non-performing loans are in scope for forbearance. For further details on forbearance we refer to the Forbearance section.
Private individuals remained the largest sector, mainly due to the large mortgage portfolio in the Netherlands. Due to the new regulations for forbearance enforcing a one-year probation period before non-performing loans move back to performing, NPL exposure for this exposure class increased more than others.
ING Bank has made conservative choices in Retail Banking with respect to curing from default. The majority of units only allow curing from default once there are no more days overdue. If ING Bank would allow curing from default once the client is < 90 days overdue and this, only if there is no forbearance, then the total non-performing loans would reduce to EUR 15.3 billion.
Forbearance In July 2014, EBA has provided a final draft definition on forbearance and non-performing exposures, which was a further refinement of the draft definition published in 2013. ING Bank has followed up on the EBA recommendations, by updating and implementing its forbearance policy in 2014.
Clients which are granted forbearance measures can have any risk rating (performing or non-performing), depending on their risk profile: › Performing - If the contract is considered as performing prior to any forbearance measure, and also after granting the forbearance measure, the forbearance status for this client needs to be reported for a minimum of two years; › Non-performing - If the contract is considered as non-performing prior to any forbearance measure, the client will retain its nonperforming status for a period of minimum one year.
The rating of clients with forbearance measures can also change during the forbearance reporting period: › From performing to non-performing - If the performing client, after forbearance measures have been granted, hits one of the general non-performing triggers defined by ING, becomes more than 30 days past due or receives additional forbearance measures during the reporting period, the client needs to be classified as non-performing.
In 2014, the forborne assets increased by EUR 4.5 billion, which was mainly driven by Retail Banking. The increase in Retail Banking was mainly visible in the non-performing book, due to a combination of reasons, e.g. more stringent definitions by EBA, implementing forbearance retrospectively in combination with the probation periods and the stricter non-performing criteria. For Commercial Banking the increase was visible in the performing book, mainly due to the extension of the screening scope.
Commercial Banking As per end 2014, Commercial Banking forborne assets amounted to a total of EUR 5.8 billion, which represents 1.6% of the total Commercial Banking portfolio.
Forborne assets Of which: Performing Of which: Non-Performing Forborne assets Of which: Performing Of which: Non-Performing
During 2014, ING screened the lending and investment book on forborne assets. The portfolios that were typically assessed are clients with Early Warning Signals, Watch List, Restructuring and Recovery status and clients rated 18 and 19. These clients are perceived to have the potential trigger for whom forbearance measures could be granted. Last year, exposures below EUR 3 million were left out of scope. This change had a large impact on the performing forborne assets per end of 2014.
(1) These regions correspond to the respective ING initiating offices. Region Netherlands includes Netherlands Retail and Westland Utrecht and region Belgium includes Belgium Retail and Record Bank.
The forborne assets in the performing portfolio increased by EUR 0.8 billion. The increases were mainly visible in Germany, Australia and Belgium. The forborne assets in the non-performing portfolio also increased in these countries. However, the largest increase originates from the Netherlands with EUR 1.8 billion, which is 72% of the total EUR 2.5 billion increase in the non-performing portfolio.
This significant increase of forborne assets, especially in the non-performing portfolio, was not the result of a deteriorating consumer lending portfolio. It is mainly explained by forbearance screening of new portfolios, which took place in 2014. Units were instructed to perform a review on their book based on the updated ING policy on forborne assets, taking new regulations into account. In addition to this, more stringent definitions issued by EBA increased the forborne assets in some countries.
The Netherlands showed the largest increase in forborne assets in 2014. Next to the reasons mentioned above, forborne assets increased also as a result of implementing the policy retrospectively. A shift of forborne assets from performing to non-performing was visible as well, which was the result of clients becoming more than 30 days past due after forbearance measures were granted.
Assets The asset that has been pledged to ING Bank as collateral or security gives ING Bank the right to liquidate it in cases where the customer is unable to fulfil its financial obligation. As such, the proceeds can be applied towards full or partial compensation of the customer’s outstanding exposure. An asset can be tangible (such as cash, securities, receivables, inventory, plant & machinery and mortgages on real estate properties) or intangible (such as patents, trademarks, contract rights and licenses).
General guidelines on cover valuation General guidelines for cover valuation are established to ensure consistency of the application within ING Bank. These general guidelines also require that the value of the cover needs to be monitored on regular basis, in principle at least annually. Covers shall be revalued accordingly and whenever there is reason to believe that the market is subject to significant changes in conditions. The frequency of monitoring and revaluation depends on the type of covers.
Cover values by risk category This section provides insight on the type of covers and to which extent a loan is collateralised. The cover disclosures are presented by risk category: Lending, Investment, Money-Market and Pre-settlement. For each risk category, the cover amounts are presented by the most relevant collateral forms, being mortgages and financial collateral (including cash), and the most relevant third party obligation being guarantees. ING Bank obtains covers which are compliant to the Capital Requirements Directive IV (CRDIV) and the related Capital Requirements Regulation (CRR) requirements, as well as those that are not compliant.
Cover values including guarantees received – Total ING Bank – 2013 (1)(2)
Commercial Banking 44,258 Corporate Line Bank 1,371 Retail Banking Benelux 54 Retail Banking International 2,341
Consumer lending portfolio The Consumer Lending portfolio includes Residential Mortgage loans (93.7% in 2014) and Other Consumer Lending loans, which mainly comprise credit cards, term loans and revolvers to consumers. As a result, most of the collateral consists of mortgages. The mortgage values are maintained in the ING Bank’s central database (Vortex) and in most cases external data is used to index the market value. On a quarterly or annual basis, the mortgages value is updated in Vortex using the relevant house price index (the NVM Index in the Netherlands, Level Housing Index in Australia, Crif Real Estate Appraisal Company in Italy, Ministerio de Fomento in Spain and Stadim in Belgium).
Business Lending portfolio Business Lending is an important business of ING Bank, accounting for 36.0% of the total ING Bank’s outstandings. In line with our objective to give stakeholders insight into the portfolio, we present the Business Lending portfolio per Industry breakdown in accordance with the NAICS definition and per Region and main market. Business Lending presented in this section does not include Pre-settlement and Investment & Money Market exposures, which are separately exhibited in the next sections.