Underlying result before taxation Banking 7,524 7,199 7,028 of which underlying income 18,088 17,704 17,458 of which underlying operating expenses 9,907 9,829 9,456 of which underlying addition to loan loss provision 656 676 974
files where necessary and working on various structural improvements in our compliance policies, tooling, monitoring and governance.
With 97 percent of customer contact now digital, and an increasing proportion via mobile devices, we continued to enhance our offerings with innovations like digital advisors and forecasting tools to support a uniform and differentiating experience through customers’ channel of choice.
German digital loans supermarket Fincompare and UK-based platform Funding Options, both of which offer digital funding solutions to SMEs, one of the client segments we are focusing on for growth. We also took a majority stake in payments service provider Payvision to expand our offering to business customers in the fastgrowing e-commerce segment. And we partnered with insurer AXA to create a digital insurance platform for retail customers in a number of markets that will be accessible via the ING
But this success is not a guarantee for the future. My view of the future of banking is based on a few core beliefs. The future is digital – and mobile-first, with a superior digital experience. Products won’t differentiate us – they have become commodities. People, whether consumers or business professionals, are spending more and more time online in the places that provide for a variety of their needs – their digital platforms of choice. For banks, the future is to be present on those platforms or be a platform ourselves. For that latter to be successful, we need a strong brand backed by a solid customer proposition.
Big Tech platforms are already competing with banks. Apple Pay is expanding to more and more markets and its use by consumers is growing rapidly. Tencent’s WeBank offers a highly popular consumer lending product that leverages the reach of its WeChat platform, and Alibaba’s Ant
Climate change is a major threat to our world. I am therefore pleased that in 2018 we took the important step of committing to steer the impact of our €600 billion-plus lending portfolio in support of the Paris Climate Agreement’s goal of limiting the rise of global temperatures to well below two degrees Celsius. We call our strategy to get there the Terra approach. As part of this approach, we worked with global think tank 2˚ Investing Initiative to co-create an innovative and effective way to measure our lending portfolio. This is the first time a global bank will use this measurement to commit to using science-based scenarios to steer business strategy. The approach is open source to inspire other banks to follow our lead. We are pleased that four banks have joined ING in our commitment to steer lending portfolios, namely BBVA, BNP Paribas, Société
I wish to thank our customers, shareholders and other stakeholders for their loyalty and trust, and our employees for their hard work and commitment in 2018. As we look to the future, that trust and commitment is ING's greatest asset, and earning it every day is our most important measure of success.
We must understand which topics are most significant for our stakeholders and are impacted by –
As economic momentum in the US remained strong, the Federal Reserve continued hiking interest rates. The European Central Bank reduced its asset purchase programme.
Furthermore, we have concern about making a ‘sovereign debt restructuring mechanism’ part of the criteria for support from the European Stability Mechanism.
Why does trust decline? The top factors include things like lack of transparency on costs and products, confusing products and services, and unwanted selling. Factors that build trust include the opposite, as well as reliable fraud protection.
ING announced on 4 September 2018 that we had reached a settlement agreement with the Dutch
Many customers opt to provide data if it enhances their experience. At the same time, they expect their data to be kept safe. Some people believe the convenience of products and services gained by sharing data outweighs privacy risks. For example, there were major privacy-related issues at certain big tech companies in 2018, yet there was no major decrease in use of their products and services. We believe people inherently trust banks to keep their data safe but at the same time expect the highly personalised service they are used to with big techs.
However, providing incentives to make people want to grant consent may make privacy into something that’s only for people who can afford to decline the offers.
Services Directive (PSD2) and the General Data Protection Regulation (GDPR). We are refining our internal processes on data in order to meet these new regulatory requirements. We are on course to implement one global approach to data management to ensure we maximise the potential of this key resource.
The world around us is a digital world. Big tech platforms like Facebook, Alibaba, Amazon and
As digitalisation continues to increase, we are connecting more and more platforms via application programme interfaces (APIs). We believe the financial services industry will converge to an open structure connected by APIs.
As we innovate to become the bank of the future, we must move fast, but we have to make sure we don’t leave our core values and less-digital customers behind. Digitalising our products and services is necessary as people expect their financial services company to use the latest technology. But some customers still place great value in being able to talk to a real and knowledgeable person when faced with complex financial decisions. It’s about finding the balance.
and then keeping them – is a challenge, as job profiles are rapidly changing and we increasingly compete for talent with tech companies. We need people who can live up to the levels of integrity we require, and people who feel at home working in an agile way.
Climate change is one of the biggest challenges of our time and, as such, extremely significant to
Development Goals simultaneously. In line with the IEA SDS, global CO2 emissions should peak around 2020 and then decline steeply to 2040, on course towards net-zero emissions in the latter half of the century.
When launched in 2014, the Think Forward strategy anticipated many of the challenges and opportunities driving change in today’s financial services market. It continues to show the way as we transform ING to harness the power of digitalisation and platform thinking to create the customer experience of tomorrow.
While we can look back on many accomplishments since the launch of the Think Forward strategy, we are also conscious of the challenges ahead and the need to keep re-inventing ourselves to remain relevant to customers in the future. The strategic vision embodied in the Think Forward strategy is also guiding us as we navigate a changing world.
Fintechs are leveraging easy mobile access, transparency and low cost to compete for lucrative parts of banks’ value chains in areas like payments and instant lending. But the biggest challenge is coming from the Big Tech platforms that are setting the digital standard in terms of customer experience and where people spend more and more of their time when they’re online – to shop, to socialise, for news and entertainment, and for a whole range of other needs.
They will need to offer the same personal, instant, relevant and seamless experience. They will need to be open to becoming go-to platforms that keep people coming back, offering third-party products and beyond banking services. And they will need to become experts in managing and analysing customer data in order to know the needs and preferences of their customers, create new offers and improve the customer experience.
The Big Tech platforms are not only disrupting banking with their customer experience. They are now directly competing with banks. Apple Pay is growing rapidly and has expanded to more than 20 countries, WeChat is lending to consumers and Alibaba’s Ant Financial now has the world’s biggest money market fund by assets. And with tech platforms now leading the rankings of the world’s largest companies by market capitalisation, they have the size and scale to be formidable competitors.
One important area where we believe banks can differentiate themselves is privacy. With their tradition of safeguarding people’s money and financial information, by extension they enjoy an advantage over tech platforms when it comes to whom people trust most with their data. By building on that trust, we can create appealing propositions for users of our platform and profitable models for cooperating with other platforms, including Big Tech.
To deliver on our Customer Promise and create a differentiating customer experience, we have identified four strategic priorities: 1. Earn the primary relationship
Poland, Romania, Belgium, Austria, Spain and Germany as well as in Wholesale Banking and several support functions. The design and implementation for other countries and support functions is in full swing. ING is the first bank to adopt the methodology in several countries and in Wholesale
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Our strategy and how we create value
Our ambition is to continue to grow profitably within our risk appetite, but given market dynamics we expect lower growth in Wholesale Banking.
If ING is to fulfil its purpose of empowering people to stay a step ahead in life and in business, it must continue to be where its customers are. Nowadays, that’s on digital platforms: our own and those of others. It’s here we need to offer one consistently superior ING experience, one that is instant and borderless.
The main characteristics that make platforms so successful is that they provide simplicity, convenience and personalisation as well as one consistent way to interact with customers.
In 2016, ING announced a series of programmes to unite similar businesses and bring us closer to one mobile-first digital platform that offers a uniform and superior customer experience.
Highlights: Created a cross-border delivery organisation, combining business and IT in both countries. A new harmonised retail organisation was launched offering extended opening hours for all Belgian customers and completing the first joint marketing campaigns.
TouchPoint Architecture (TPA) TouchPoint Architecture is an open technology foundation that enables ING to become a global scalable bank and is one of the foundations for ING’s Think Forward strategy. Producers can share services and for others can combine these services into scalable business propositions across the bank and for third parties.
In 2018, ING launched the ING Developer Portal which makes it easy for internal developers to access ING’s APIs to accelerate the bank’s digitisation globally. Selected APIs are also available for third parties so they can create new and innovative customer experiences.
A digital bank is driven by data. We use it to improve processes and make better management decisions. Data provides meaningful customer insights that help ING to understand customers better and develop innovative data-driven products that personalise and improve their experience.
From 25 May 2018, ING has been subject to the data protection requirements outlined in the EU
ING’s data ethics approach is an integral part of our behaviour and decision-making and is embedded in ING's Orange Code. It consists of data ethics values and principles that are applicable for the whole organisation. Both global and local data ethics councils have been introduced to advise ING business units and help ensure that complex queries or dilemmas relating to data ethics are dealt with properly.
Germany as well as in Wholesale Banking and COO Finance. The design and implementation for other countries is in full swing. ING is one of the first banks to adopt the methodology.
ING uses a number of chatbots in its Retail and Wholesale Banking operations. Some examples include Belgium’s ‘Marie’, a chatbot that instantly helps customers with debit and credit card questions through Facebook Messenger. In the Czech Republic, staff developed an in-house conversational mobile banking app that uses both text and voice to offer a variety of services, including checking balances on savings accounts, sending money and purchasing funds. In
Australia (Lionel), Turkey (INGo), Poland (My Assistant and Kinga) and Italy (Leo) also have chatbots in operation.
ING uses a structured process called PACE to accelerate innovation internally. PACE is a combination of Lean Start-up, Agile Scrum and Design Thinking methods. In 2018, four business units and ING Labs participated in an Accelerator programme. The PACE Accelerator is a 12-week programme that speeds up time-to-market by testing ideas for new products and services and validating them with customers through experimentation.
In 2017, the PACE Everyday programme was introduced to teach employees how to innovate in their daily work. Last year this evolved into a hands-on programme to teach employees in 10 countries how to apply PACE in a more independent way. By the end of 2018, 6,941 employees were trained in PACE. For example, ING in Spain used the PACE methodology to improve the experience of new customers by analysing processes in depth from their perspective. This revealed that processes were designed per product and not from the point of view of someone wanting to join the bank. They were subsequently redesigned. Business benefits as a result of the new processes are expected in 2019.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Innovation and transformation employees were given three ‘beyond banking’ challenges to find platform business models in the areas of housing, leisure and sector ecosystem. The three winners, KYChain (a distributed ledger technology-based platform for KYC), HelloYou (making online identification fast and secure), and
Our Market Leaders are mature businesses in Belgium, the Netherlands and Luxembourg where we have strong positions in retail and wholesale banking.
Around 50,000 merchants in Belgium are signed up to the service, which is available to consumers from all banks, not only the shareholders. In November 2018, the first Dutch retailer signed up, with more to follow as it is rolled out in the Netherlands. Testing has also started in Germany.
In Germany and Austria, we rebranded ING-DiBa as ING, in line with our ambition to be the same brand everywhere. And we introduced a new sales and service organisation in Austria to improve the customer experience. We will add mortgages to our Austrian retail offering in January 2019.
One of the ways we’re empowering German customers is with real-time updates of transactions on their current account, which they receive via configurable push notifications in their banking app.
Lending in Poland and Romania showed significant growth in 2018. An attractive mortgage proposition in Poland, pre-approved online loans and simplified digital lending processes in both markets all contributed to this, along with the introduction in Romania of instant online loans in the
To stand out in the digitally advanced Polish market, where fintechs are gaining ground among tech-savvy consumers, we extended mobile payments to platforms such as Google Pay and Visa
We sharpened our strategy in 2018 to focus on what clients want – advice, data-driven insights and sector knowledge – and reorganised the way we work to deliver an experience that is borderless, instant, personal and consistent. This includes creating a new Europe, Middle East and Africa (EMEA)
Corporate Finance. And we introduced ING’s one Way of Working in our client service and delivery areas to support this new client-led approach.
Customer numbers continued to grow in 2018 and we gained an additional one million customers during the year to reach 38.4 million. Customer numbers were positively influenced by the merger of Record Bank into ING in Belgium, where the primary customer number increased by 170,000
Our customer-facing platforms offer multiple touch points to interact with customers and collect data that we use to define customer journeys; for example when and where they choose to do their banking, the device they use and the services they prefer. We test these insights with feedback from customers to continuously improve our services. For example, we halved the number of fields clients have to fill out when opening an international account after they told us that that filling out separate forms for each country was too time-consuming.
Banks are operating in a rapidly changing environment marked by new competitors, new customer expectations, increased regulation and higher capital requirements. At the same time, persistent low interest rates put pressure on our savings business model. We therefore have to find new ways to be relevant to our customers. Open banking offers opportunities here. By partnering with others or developing our own digital platforms, we can offer customers new and complementary services that go beyond banking – and create new revenue streams for ING.
FinCompare in Germany and Funding Options in the Netherlands, empowering small and mediumsized businesses with more financing options than a conventional bank loan.
Also in June, we announced the expansion of our open banking platform Yolt to France and Italy.
Another data-driven tool is Katana Lens, which we introduced in October 2018. It uses predictive analytics to help bond investors find and compare interesting trades. It was co-created with Dutch pension fund PGGM and is the second Katana tool developed by ING. The first was for bond traders.
Another service for Wholesale Banking clients is Covenant Monitoring, which uses scanning and natural language processing to track loan performance. This has been introduced globally across
Energy Robot in June. The next step on from the digital online sustainability scan tool launched in 2016, the Energy Robot can identify up to 15 percent of energy-saving opportunities. It uses algorithms linked to a ‘smart’ energy meter to detect when energy is being wasted in a building
ING is committed to contributing to a low-carbon and self-reliant society, both through our own efforts and by helping our clients to be more sustainable. As a bank, we make the most impact through our financing, via the loans we provide to clients. This is why we announced in September that we are steering our €600 billion lending portfolio towards meeting the well-below two-degree goal of the Paris Climate Agreement. Our strategy to get there is called the Terra approach.
Investing Initiative, a global think tank developing climate metrics in financial markets. It looks at the technology shift that’s needed across certain sectors to slow global warming and then measures this against the actual technology clients are using – or plan on using in the future. This is where financing comes in – and ING can have an impact. The measurement approach uses science-based scenarios developed by independent organisations like the International Energy
ING was the only bank invited to advise the Austrian government on developing a more active green-finance market. And in November, ING’s second-ever own green bonds issue raised €2.6 billion to fund a portfolio of green loans for renewable energy and green buildings.
Netherlands. Sustainable assets under management (SAuM) can be dedicated portfolios, structured products or investment funds, and cover all asset classes. In 2018, we developed one overall ING approach and strategy covering dedicated portfolios, structured products and investment funds in all asset classes.
We believe empowering people to become financially self-reliant contributes to a healthy economy and helps drive social progress. This means equipping people to make financial decisions now and in the future.
ING’s YouTube channel became the fifth brand in Poland to reach more than 100 million views. Its latest series ‘Straight on the money’, in cooperation with Google, provides straightforward answers to the money questions Polish people most commonly search for online. The videos were watched 1.6 million times in the first five months and helped the channel to attract over 100,000 subscribers.
Belgium. These increases were partly offset by lower expenses in Retail Netherlands supported by the benefits from the ongoing cost-saving programmes. The underlying cost/income ratio improved to 56.3 percent from 56.9 percent in 2017.
The underlying result before tax of Retail Belgium fell 24.2 percent to €595 million in 2018, compared with €785 million in 2017. The decline reflects lower income, higher expenses and an increase in risk costs.
Underlying income decreased to €2,369 million from €2,473 million in 2017. The interest result declined 0.7 percent to €1,830 million, mainly due to margin pressure on most products, in part offset by volume growth in the lending portfolio as well as current accounts. The net production in customer lending (excluding Bank Treasury and the sale of a mortgage portfolio) was €6.1 billion, of which €2.2 billion was in mortgages and €3.9 billion in other lending. The net inflow in customer deposits was €3.0 billion in 2018. Net fee and commission income decreased 9.1 percent, mainly due to lower fee income on investment products. Investment and other income fell by €55 million, mainly due to lower income from financial markets products.
Risk costs increased by €60 million to € 164 million, or 44 basis points of risk-weighted assets, from €104 million, or 30 basis points of risk-weighted assets, in 2017. The increase was primarily in business lending.
Underlying income increased 4.3 percent to €1,972 million in 2018 from €1,891 million a year ago.
Total underlying income rose by €287 million, or 9.5 percent, to €3,315 million. This increase was driven by continued strong commercial results across most countries, reflecting customer growth and higher volumes. Net interest income rose 10.4 percent to €2,690 million, reflecting sustainable growth in lending and customer deposits volumes and an improved total interest margin. The net production (excluding currency effects and Bank Treasury) in customer lending was €9.6 billion, of which €6.4 billion was in mortgages and €3.2 billion in other lending (mainly consumer loans). Net customer deposits grew by €8.6 billion in 2018. Net commission and fee income rose 2.9 percent driven by increases in most countries, partly offset by a decline in Turkey. Investment and other income increased by €23 million, mainly due to a higher dividend from Bank of Beijing and a higher
Operating expenses increased by €114 million, or 5.9 percent, to €2,033 million. This increase was, next to higher regulatory costs, mainly due to higher staff expenses in most counties to support commercial growth and higher investments in strategic projects.
Wholesale Banking posted good 2018 results, supported by continued net core lending growth and despite the difficult financial markets the whole industry faced. The net result rose to €2,055 million from €1,950 million in 2017, this was primarily due to a lower effective tax rate supported by the impact of the corporate tax reforms in Belgium and the US. There were no special items excluded from the underlying results in both years. The underlying result before tax was €2,755 million, down 3.2 percent from 2017, as higher results in Industry Lending were more than offset by lower results in Financial Markets and Bank Treasury & Other.
Industry Lending posted an underlying result before tax of €2,091 million, up 6.4 percent compared with 2017, primarily due to volume growth, partly offset by some pressure on margins. The 2018 result furthermore included a €66 million gain related to an equity-linked bond in Belgium. The underlying result before tax from General Lending & Transaction Services remained unchanged at €751 million. Higher income, supported by volume growth in General Lending and the inclusion of
Italian lease run-off portfolio, while 2017 included a €97 million gain on the sale of an equity stake in the real estate run-off portfolio), partly offset by lower expenses for litigation issues.
Italian lease run-off portfolio. Wholesale Banking’s net core lending book (adjusted for currency impacts, and excluding Bank Treasury and the Lease run-off portfolio) grew by €14.5 billion in 2018.
The ING values are: we are honest, responsible and prudent. It is our policy not to ignore, tolerate or excuse any behaviour that is not in line with our Orange Code values. Doing so damages our reputation and erodes the public’s confidence.
Our values should be core to every ING employee to ensure we are a bank people can trust and that we can be proud of. That’s why we are putting in place a programme of structural improvements with regards to our policies, tooling, monitoring, governance and mind-set. One of these measures is the ‘i for integrity’ programme. Already started in the Netherlands and Belgium, we plan to roll this concept out globally in 2019 (see box out below).
The majority of ING employees were assessed according to the new process in 2018, with the full roll-out expected to be completed in 2020.
The 2018 WPC survey for all employees found global engagement decreased to 71 from 77 in 2016.
The outcomes of the survey have been communicated to management for input into local and global action plans to address employee feedback.
Like all companies, we need to plan our resources carefully to meet our future needs. This includes finding ways to make operational processes more efficient and effective. It could mean digitalising or automating processes, restructuring activities to meet our business requirements, transferring certain activities to shared services centres, for example in Bratislava or Bucharest, or outsourcing others to third parties. In some instances this could lead to certain jobs changing, relocating or becoming redundant.
To help us recruit new talent we took steps in 2018 to upgrade our careers site and introduce a global approach. This includes further developing the global employer brand and introducing targeted cross-border sourcing to find suitable candidates for more difficult-to-fill profiles.
HR system and one standard set of people processes. We are also developing our people analytics and intelligence capabilities using data to aid business performance and create a differentiating employee experience.
We base our own human rights policy on these conventions. We seek to judge employees on their merit and skills and without discrimination on race, age, sex, religion, ability or belief. We believe that by respecting human rights and increasing our efforts in diversity, we are strengthening our workforce and our business.
As part of this, we developed a framework to help us balance human rights in our operations.
Launched in February 2018, it helps guide our decisions on whether to maintain, start or expand our activities in specific countries, as well as to protect employees from human rights risks in new markets.
As a global company ING needs a workforce that reflects and understands the demographics we serve in the various markets where we operate. Studies show that teams with a healthy mix of
Data science can be a real game-changer for ING. To accelerate in this area, we partnered with
‘mixed teams’ and the 70 percent principle. This principle strives for 30 percent difference in team make-up. Mixed teams include all types of diversity, both visible and less visible. Ultimately, managers are responsible for building mixed teams by choosing the dimensions of diversity to focus on while also being guided by the global 70 percent principle as far as possible. At the same time, we will continue our efforts to make all people feel included whatever their background, culture, experience, religion or sexuality.
To help employees better manage their work-life balance we promote flexible working, have company councillors available in many of our locations and provide reintegration support for colleagues returning to work after an extended absence.
And part of Phase 2 of the Think Forward Leadership Programme, which focuses on sustained high performance, is all about equipping managers and leaders to be healthy, manage stress and improve their own performance. (For more about TFLP see the section ‘Developing leadership’
Services in its annual survey. ING was also named as one of the top five non-IT companies to work for in the Netherlands on Computable magazine’s list of Best IT Workplaces. Similarly, in Poland we were recognised by IDG Computerworld as an ‘Outstanding Place to Work in IT’.
“ING-owned Interhyp has grown from one of the first European fintechs to a leader in mortgage broking in Germany. I’m proud to be contributing to its future by developing the next generation of digital products.
continually develops its risk and capital management to address political and economic developments, changing customer behaviour, increasing regulatory requirements, emerging competitors and new technologies.
As of December 2018, our CET1 ratio of 14.5% was above our new CET1 ratio ambition of around 13.5% and SREP requirement of 11.8%, while our annual underlying ROE was within our ambition of
The capital position remained strong in 2018, resulting from profitable and growing operations, complemented by increased optimisation of the capital structure. ING has sufficient buffers to withstand certain adverse scenarios without breaching applicable requirements, at both the consolidated and subsidiary level. ING is confident this position will allow us to continue to successfully execute our Think Forward strategy, support business growth and maintain our dividend policy.
Capital Management is tasked to optimise ING’s capital and debt position in order to meet regulatory requirements, while supporting business growth, ensuring coupon payments and rewarding shareholders according to a progressive dividend policy. Optimising ING’s capital allocation entails finding a balance between the forces governing supply and demand. The uncertainties surrounding these factors are a reflection of changing market circumstances and continuous unpredictability in regulatory and macroeconomic forces.
The risk appetite statements and targets are developed and communicated to the different businesses in line with capital allocation. Policies for recovery and resolution planning are a natural extension of ING’s capital management policies and are fully aligned with ING’s risk management framework.
 Pillar 2 guidance (P2G), which is not legally binding and therefore falling below it does not automatically trigger regulatory action.
need to have recovery plans in place and need to cooperate with resolution authorities to determine, and make feasible, the preferred resolution strategy.
The adverse stress test scenario was developed by the ECB and covers a three-year time horizon
December 2017, and therefore does not take into account current or future business strategies and management actions. The results also reflect the impact of IFRS 9 for determining loan loss provisions in adverse circumstances.
ING's business is managing risks every day. These include financial risks - we take on credit risk when we offer loans, guarantees and other products as part of our business model - market risk in our trading and banking book positions, and liquidity and/or funding risks through financial management.
Where an ING employee suspects any irregularity or misconduct within ING that leads to or could lead to a violation of ING’s Orange Code, ING policies, such as anti-bribery and corruption policy,
In the Netherlands and Belgium we initiated ‘i for integrity’ in 2018, an approach aimed at strengthening a mind-set that puts integrity above all and embeds integrity in the organisation and our decision-making processes.
(ORM) and Information Risk Management (IRM) have established a new risk governance that adopts the ING Way of Working for non-financial risk (NFR) management within various entities. To enable business lines to manage their risks linked to the increased sourcing activities within ING, the sourcing policy has been updated to cover generic control objectives for mitigating and monitoring key risks. The integrated top-down/bottom-up emerging risk assessment identifies and monitors developments that may have an impact on ING’s strategy and risk profile, like changes in the global environment, customer needs and expectations, local/global regulatory requirements and the effectiveness of our response to technological developments.
Supervisory Board spent considerable time discussing, among other things, improvements in the bank-wide Know Your Customer Enhancement Programme. In addition, the design and operation of the Risk Appetite Framework and the Non-Financial Risk Framework are discussed annually with the
We believe this set-up facilitates the overall risk and control environment. Together with a governance process using business and Group-level risk committees, the Executive Board receives regular information about the risk profile of the Group.
Risk Committee and continues to report directly to the CRO. Accordingly, a new head of NFR has been appointed covering ORM, IRM and Corporate Special Investigations (CSI), also reporting directly to the CRO. The split between Compliance and NFR became effective as of 1 July 2018.
In August 2018, the new global Centre of Expertise Behavioural Risk was formed to carry out behavioural risk assessments to identify, analyse and mitigate behaviours within our organisation that could negatively impact ING’s reputation and performance. The team will provide management with specific direction on how to change these behaviours. Behavioural risk is complex and less tangible than other types of risks. Detecting and reducing high-risk behaviours requires a deep understanding of the drivers of such behaviours.
Overall, ING Group’s Stage 3 ratio remained low, with relatively limited impact from the events in
The fifth Anti-Money Laundering Directive (5th AMLD) was adopted by the EU Parliament on 19 April 2018 and published in the EU Official Journal on 19 June 2018. EU member states have to transpose the 5th AMLD into their local laws and regulations by 10 January 2020. The main changes brought by the 5th AMLD: (i) enhance the powers of EU financial intelligence units and facilitate increased transparency regarding who really owns companies and trusts by establishing beneficial ownership registers; (ii) prevent risks associated with the use of virtual currencies for terrorist financing and limit the use of prepaid cards; (iii) improve the safeguards for financial transactions to and from high-risk third countries; (iv) enhance the access of financial intelligence units to information, including centralised bank account registers; (v) ensure centralised national bank and payment account registers or central data retrieval systems in all member states.
 Development and global roll-out of a bank-wide KYC digital service platform, including processes and tooling around CDD, screening and workflow management. This includes the fulfilment of the client acceptance and maintenance life cycle within one global digital platform.
ING recognises that fighting Financial Economic Crime requires close cooperation with other banks and supervisory and regulatory authorities. ING is therefore working with the Dutch Banking
ESR-dedicated training. This included classroom sessions at ING offices in Amsterdam and other locations around the globe.
The ESR policy framework is reviewed on a regular basis to ensure we adequately identify and manage not only existing but also new environmental and social risks. In 2018, we conducted a full review of the ESR policy framework to get more clarity on the scope, governance and due diligence.
in July 2018 decided not to expand its existing palm oil client base (producers and traders)
 Ship breaking policy: ING is one of the co-developers of the Responsible Ship Breaking Standards
Beyond stimulating better environmental and social performance in our portfolio, ING actively collaborates with other institutions and regulators to address environmental challenges that are not just client- but sector-specific.
 ING and the Equator Principles (EPs): The EP Association is undertaking a targeted review of the
Nevertheless, in addition to the EP4 coordination role, ING remains an active participant in EP as a member of several working groups, including those on social risks, climate change and scope. ING
Regarding Human Rights. Our progress and analysis of salient human rights issues are reported in a dedicated Human Rights Report published in November 2018. In the international arena, ING
remained engaged in the Thun Group, an informal group of bank representatives that work together to raise awareness of the UN Guiding Principles on Business and Human Rights (UNGP)
“I’m working on a new platform in the Czech Republic called Model Bank. It will unite Spain, the Czech Republic, Italy and France on one advanced, retail banking platform standardised approach.
are required to provide updated information on their holdings once they reach, exceed, or fall below threshold levels of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%. As of the publication date of this report, ING Group is not aware of shareholders, potential shareholders or investors with an interest of three percent or more in ING Group other than BlackRock Inc. and
Geographical distribution of ING ordinary shares (in %)1 1 These figures based on 4Q 2018 estimates of institutional share ownership provided by IPREO and includes ordinary shares represented by American depository receipts.
ING Group’s approach to sustainability is shaped by our specific skills and expertise as a financial company, our vision of the future and the expectations of our stakeholders. Reviews of our performance by sustainability research and rating agencies help us to improve our strategy and policies. ING’s 2018 scores and rankings in key sustainability benchmarks show our progress and are as follows.
As a large commercial bank, we recognise that we have a direct economic, social and environmental impact, but also a significant indirect impact through our lending and investment activities. ING’s non-financial data reporting protocol describes key performance indicators related to our material topics. We report data on these and other relevant key performance indicators in the value creation model section of ‘Our strategy and how we create value’ chapter.
linked to our strategy and how we create value. In line with the Core option guidelines, we have included the Disclosure on Management Approach (DMA) for each material topic and the GRI
(KPMG). KPMG has reviewed, and provided a limited level of assurance, on the non-financial information in the Report of the Executive Board as defined in the infographic in the ‘World around us’ chapter and in the ‘Non-financial appendix’ for the year 2018. KPMG also audited, and provided a reasonable level of assurance, on the ‘What matters most to our stakeholders’ section in the Nonfinancial appendix, the data for the Net Promoter Score for Retail Banking, the feeling of Financial empowerment and system availability.
Despite much progress commercially and strategically, 2018 was a disappointing year for ING. Painful setbacks highlighted the need to work hard to strengthen compliance and risk management and to improve stakeholder management.
2018 was a year in which two important issues adversely impacted ING’s reputation and led to negative sentiment towards the bank.
It is the role of the Supervisory Board to advise and challenge the Executive Board and
ING made good progress implementing the Think Forward strategy. Among the many examples of this was the growing number of primary relationships, which illustrates that clients are attracted by what ING has to offer. The bank’s strong Net Promoter Scores also show that clients recognise the differentiating experience that ING provides. These are things to be proud of and they show that
We recognise that the many changes in the way employees work, in how ING is organised and in the IT area place great demands on ING’s employees. They need to manage change at the same time that they carry out their daily work supporting our customers. I am impressed by what has been achieved so far. But I also know it’s important to find the right balance to make sure change is successful in the longer term.
Self-assessment is important to gauge the overall quality of the Supervisory Board’s functioning, the performance of the committees and to identify areas for improvement. Following the discussions on the self-assessment in February 2019, the Supervisory Board identified as its overall
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Chairman’s statement spearheads for 2019 improving stakeholder management with a focus on reinstating trust with customers and other stakeholders and employees’ pride at being part of ING, and achieving the right balance between challenging and supporting the Executive Board and the Management Board
In the Report of the Supervisory Board in this annual report you can read about changes in the composition of the Supervisory Board, the Executive Board and the Management Board Banking.
Board stepped down following the announcement of the settlement. I’d like to take this opportunity to thank Koos for his many years of dedication to ING and to acknowledge the significant contribution he made to ING through his expertise, knowledge and loyalty.
banking union, which is an essential condition for a competitive banking sector in Europe, and also contribute to a more level playing field between banks and new entrants, like the Big Tech challengers, who are often more lightly regulated than financial services companies.
The Supervisory Board and its committees focused in 2018 on overseeing and challenging ING’s management in their efforts to advance the Think Forward strategy in areas like beyond banking services and developing a platform approach. Other important topics of attention for the Supervisory Board in 2018 were the
The Supervisory Board met 10 times in 2018. On average, 95 percent of the Supervisory Board members were present at the meetings. This attendance rate illustrates that the members of the
Please refer to Note 47 to the consolidated annual accounts of ING Group for more information.
The continuing dialogue between ING and external supervisors was a standard agenda item throughout the year. Furthermore, the Supervisory Board exercised its oversight role to ensure
Veer in May 2018 after the 2018 Annual General Meeting. In this role he has had conversations with various internal and external stakeholders, including employees, the Central Works Council and government officials. In December 2018 he also participated in a governance roadshow with some of our institutional investors.
Board is now performing an extensive review of ING’s remuneration policy. This comprehensive review will be performed by the Supervisory Board in consultation with its advisory bodies with significant emphasis on broad stakeholder engagement.
ING announced on 4 September 2018 that it had reached a settlement agreement with Dutch authorities related to an investigation that found serious shortcomings in the execution of customer due diligence and requirements related to fighting financial economic crime. In light of the investigation the Supervisory Board, supported by external legal counsel and subject-matter experts, had numerous internal ad hoc meetings and several meetings with external parties that resulted in said agreement on 3 September 2018. As part of the process, the Supervisory Board also performed a management assessment for the persons in scope covering the period 2010-2016 with subsequent necessary measures taken. Looking forward, the Supervisory Board, Executive
Board has nominated Tanate Phutrakul for appointment as a member of the Executive Board of ING
Group, subject to shareholder approval at the Annual General Meeting on 23 April 2019. The appointments have been approved by the European Central Bank.
ING, both for its employees and for the Supervisory Board. As in previous years, the Supervisory
Board, including the SOX 404 Report in relation to our Annual Report on Form 20-F. ING’s Annual
The 2018 quarterly results, including the relevant auditor reports and press releases, were discussed and approved in January, May, July/August and October 2018. The full-year 2017 financial results were discussed and approved in March 2018. Also discussed were the Executive
ING Group Annual Report 2018 the Annual Talent Review. Remuneration was another recurring agenda item. The Supervisory
Board self-assessment was also on the agenda. Action points from last year’s self-assessment were acted on during the year, covering: attention to the future composition of the Supervisory Board, the aim to have fewer presentations and more interactive discussions between the Supervisory
Following the discussions on the self-assessment in February 2019, a number of suggestions were made as key priorities for improving the performance of the Supervisory Board over the coming year, such as continued interaction with stakeholders outside and senior management within the
Supervisory Board regarding the nomination of the external auditors for the years 2020-2023. All relevant items discussed by the Audit Committee were reported to the Supervisory Board, with the
We need to build up strong foundations with structural solutions that continue to earn the trust of our clients and society at large.
A wide range of other topics were discussed, such as the annual review of the Risk Appetite
Read more in the ‘Risk and capital management’ chapter and the Risk section in the Annual
Management Board Banking, as well as the future composition of the Supervisory Board. Various diversity-related aspects were taken into account, such as the minimum and optimal size of a
At the Annual General Meeting on 23 April 2018, Eric Boyer de la Giroday was reappointed as
The Supervisory Board of ING Group is responsible for controlling management performance and advising the Executive Board. All Supervisory Board members, with the exception of not more than one person, shall qualify as independent as defined in the best practice provision 2.1.8 of the Dutch
Management Board Banking for their hard work in 2018. Important milestones were the steps taken towards creating a globally scalable digital platform for customers and further digitalising our offering. The Supervisory Board would also like to thank all ING employees for their contribution in realising these achievements and for continuing to serve the interests of customers, shareholders and other stakeholders of ING. The Supervisory Board is fully aware that ING is going through a challenging period and would therefore also like to thank everyone for their efforts to regain the trust of our customers and other stakeholders.
2 Dutch Bulletin of Acts (Staatsblad) 2004, 747, most recently amended with effect from 1 January 2018: Dutch Bulletin of Acts 2017, 332
 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 with a two-tier board structure has an executive board as its management body and a supervisory board that advises and supervises the executive board. Supervisory board members are often former state or business leaders and sometimes former members of the executive board. A member of the executive board or other officer or employee of the company cannot simultaneously be a member of the supervisory board. The supervisory board must approve specified decisions of the executive board.
 NYSE listing standards require that, when a member of the audit committee of a US company serves on four or more audit committees of public companies, the company should disclose
Currently, only ordinary shares are issued, while a call option to acquire cumulative preference shares has been granted to the ING Continuity Foundation (‘Stichting Continuïteit ING’). The acquisition of cumulative preference shares pursuant to the call option is subject to the restriction that, immediately after the issuance of cumulative preference shares, the total amount of cumulative preference shares outstanding may not exceed one third of the total issued share capital of ING Group (see chapter Report of the ING Continuity Foundation). The purpose of this call option is to protect the independence, continuity and identity of ING Group against influences that are contrary to the interests of ING Group, its enterprise and the enterprises of its subsidiaries and all stakeholders (including, but not limited to, hostile takeovers). However, the ordinary shares are not used for protective purposes.
The board of the ING Continuity Foundation is comprised of four members who are independent of
Share issuances are decided by the General Meeting, which may also delegate its authority. Each year, a proposal is made to the General Meeting to delegate authority to the Executive Board to issue new ordinary shares or to grant rights to subscribe to new ordinary shares, both with and without pre-emptive rights for existing shareholders.
The purpose of this share issue authorisation is to delegate the power to issue new ordinary shares to the Executive Board. Accordingly, the Executive Board is authorised to issue new ordinary shares without first having to obtain the consent of the General Meeting, which in the Netherlands is subject to a statutory convocation period of at least 42 days. This authorisation gives ING Group flexibility in managing its capital resources, including regulatory capital, while taking into account shareholders’ interests to prevent dilution of their shares. It particularly enables ING Group to respond promptly to developments in the financial markets, should circumstances so require. The
The share issue authorisation that will be proposed to the 2019 Annual General Meeting will be similar to the currently applicable authorisation described above.
Details of investors, if any, who have reported their interest in ING Group pursuant to the Dutch
ING Group participated in 18 industry conferences during 2018. In total, there were approximately 900 meetings (including conference calls) with institutional investors and/or analysts during 2018.
The geographical distribution of ING Group’s investor base is diverse: an estimated 34.8% of our shares are held in the United States, 19.0% in the United Kingdom, 12.3% in France, 8.9% in
 Any other matters proposed by the Supervisory Board, the Executive Board or shareholders in accordance with the Articles of Association.
(www.ing.com/18ar015) no later than three months after the meeting. Shareholders may react to the draft minutes in the following three months, after which the final minutes are adopted by the chairman of the meeting in question and by a shareholder appointed by that meeting. The final
For the appointment of Executive Board members, the Supervisory Board may draw up a binding list, which may be rendered non-binding by the General Meeting. A resolution of the General
ING aims for the Executive Board of ING to consist of a diverse selection of persons with executive experience, preferably gained in the banking sector, experience in corporate governance of large stock-listed companies and experience in the political and social environment in which such companies operate. In addition, there should be a good balance in the experience and affinity with the desired nature and culture of the business of ING. ING strives to have at least 30 percent of the seats held by women, and at least 30 percent of the seats by men.
Network from 2007 to 2010, head of Network Management for Retail Banking Direct & International from 2010 to 2011, and CEO of ING Belgium and Luxembourg from 2011 to 2013. He holds a Master
Timmermans graduated from Erasmus University Rotterdam (the Netherlands) in 1986 with a master’s degree in economics.
As announced on 4 December 2018, Tanate Phutrakul was appointed as CFO and member of the
Meeting. For the appointment of Supervisory Board members, the Supervisory Board may draw up a binding list, which may be rendered non-binding by the General Meeting.
Board, specified in the Articles of Association, in the Executive Board Charter and in the Supervisory
After a former member of the Executive Board has been appointed to the Supervisory Board, this member may also be appointed to one of the Supervisory Board’s committees. However, appointment to the Audit Committee is only possible if the individual in question resigned from the
Other diversity related aspects are also taken into consideration in light of the overall SB composition
The members of the Supervisory Board are requested to assess annually whether the criteria of dependence set out in the Dutch Corporate Governance Code do not apply to them and to confirm this in writing. On the basis of these criteria, all members of the Supervisory Board, with the exception of Eric Boyer de la Giroday, are to be regarded as independent on 31 December 2018.
N.V. On the basis of the NYSE listing standards, all members of the Supervisory Board are independent.
Supervisory Board in monitoring and evaluating the corporate governance of ING as a whole and the reporting thereon in the Annual Report and to the General Meeting, and advising the
Remuneration report on page 124. Members of the Supervisory Board are permitted to hold shares in the share capital of ING Group for long-term investment purposes. Details are given on page 139.
Vice-chairman of the Supervisory Board of ING Groep N.V./ING Bank N.V., non-executive member of the Board of Directors of Airbus Group N.V., chairman of the Supervisory Board of Addiko Bank
Severance payments to the members of the Executive Board are limited to a maximum of one year’s fixed salary, in line with the Dutch Financial Supervision Act and the Corporate Governance
The external auditor may only provide services to ING Group and its subsidiaries with the permission of the Audit Committee, in line with the ING Group Policy on External Auditor
There are a number of risks in areas where applicable regulations may be unclear, subject to multiple interpretations or under development, or where regulations may conflict with one another, or where regulators revise their previous guidance or courts overturn previous rulings. Despite our efforts to maintain effective compliance procedures and to comply with applicable laws and regulations we therefore cannot rule out the risk of non-compliance with applicable standards.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Report of the ING Continuity Foundation
ING Continuity Foundation is entitled to acquire cumulative preference shares to be newly issued, on the understanding that, following the issue, the number of cumulative preference shares issued may be no more than one third of the total number of shares issued. This entitlement is vested in the Articles of Association of ING Groep N.V.
Foundation may again exercise its right, subject to the provisions of the preceding sentence. On acquisition of cumulative preference shares, at least 25 percent of the nominal value must be paid on said shares.
The Executive Board is required to prepare the Annual Accounts and the Annual Report of ING Groep N.V. for each financial year in accordance with applicable Dutch law and those International
This comprehensive review will be performed by the Supervisory Board in consultation with its advisory bodies with significant emphasis on broad stakeholder engagement.
ING’s global remuneration policy contributes to the long-term value creation of the company and supports a focus on the long-term interests of its stakeholders, including staff, customers and shareholders.
ING operates a robust performance management process linked to remuneration to steer and motivate all staff to deliver on ING’s strategic goals, aiming to reward success and prevent rewarding for failure.
• Orange Code Behaviours: how employees work and how effective their behaviour is in line with the
• Stretch Ambitions: the achievement of our employees in terms of ambitions that significantly drive delivery of our strategy and build their own capabilities.
All priority setting is agreed between the employee and their manager, as well as between managers, to ensure consistency across the bank. The three dimensions are equally important and have the same weight in the evaluation.
• For employees in control functions (Legal, Risk, Finance, Compliance, Audit and HR), no individual financial KPIs are allowed, unless required by local law.
In all countries where we operate, we adhere to the applicable variable remuneration caps. In the
Netherlands this means for example that a variable remuneration cap of 20% applies with only a small number of exemptions in line with regulations.
ING), at least 40% of variable remuneration is deferred over a period of three to five years with a tiered vesting schedule. Furthermore, a substantial part (50-100%) of variable remuneration is awarded in equity.
The VRAM takes a holistic view of the overall performance of ING across three key dimensions, (i)
The HR function, together with the Risk and Finance functions, prepares the proposal for the variable remuneration pool in line with the principles of the VRAM. The Management Board then proposes the amount of the overall variable remuneration pool to the Supervisory Board, taking into account the advice of the Risk and the Remuneration Committees.
Board, taking into account the input of the Risk and Finance functions and the advice of the
Risk and Remuneration Committees. The risk adjustment takes into account the liquidity required and the cost of capital in order to ensure that the total variable remuneration pool does not limit ING's ability to maintain an adequate capital base.
The post-award risk assessment process analyses whether the outcomes of the initial pre-award risk assessment process were correct. This can result in a downward adjustment of variable remuneration by applying a holdback (i.e., forfeiture of up to 100% of the awarded, but unvested, variable remuneration) and/or claw back (surrender of up to 100% of the paid or vested variable remuneration). In 2018 we imposed various holdbacks related to the settlement agreement with the
Audit and HR), the functional line is in the lead for the performance assessment and individual financial performance priorities are not allowed.
Banking business lines, excluding members of the Management Board Banking, to whom total annual remuneration (including employer pension contributions and severance payments made) of EUR 1 million or more was awarded.
• In total, the amount available for variable remuneration in 2018 has been reduced (EUR 303 million)
• As already announced, the Executive Board volunteered to forfeit any entitlement to variable remuneration immediately following the settlement announcement. The Management
ING’s global remuneration policy is compliant with international and local legislation and regulations. The Dutch Act on the Remuneration Policies Financial Undertakings (hereafter: WBFO) sets various requirements, especially with respect to variable remuneration. ING applies all these requirements. Under the WBFO, financial institutions are permitted to set a variable remuneration cap higher than 100% of fixed remuneration for employees outside of the
European Economic Area (EEA), provided that the higher cap is approved by shareholders and does not conflict with the institution’s capital adequacy requirements.
• On 11 May 2015 in order to lower the maximum variable remuneration in line with legal requirements and specify that variable remuneration for the Executive Board be paid fully in shares
For the AGM on 23 April 2018 a proposal was tabled for an amendment to the Executive Board remuneration policy for the CEO position. This proposal was subsequently withdrawn prior to the meeting in response to reactions from various Dutch stakeholders. For more information please refer to the press releases on the withdrawal of the proposal and on the shareholder reactions.
Total direct compensation for the Executive Board is determined and reviewed periodically by the Supervisory Board taking into account a number of varying factors, in particular the international market environment.
Variable remuneration for the members of the Executive Board is limited to a maximum of 20% of base salary at the time of award. Variable remuneration is based for at least 50% on non-financial performance criteria. The policy provides for an at-target variable remuneration of 16% of base salary if performance criteria are met. If performance criteria are exceeded, the variable component can be increased by the Supervisory Board from target to maximum, but may not exceed 20% of base salary. If performance is below target, the variable component will be decreased, potentially to zero.
Board members in their capacity as board member, a minimum retention period of five years from the date of conditional grant of the shares and one year from the vesting date applies.
However, they are allowed to sell part of their shares on the date of vesting to pay tax on the vested share award.
Fully awarding variable remuneration in shares, in combination with an extensive deferral and retention period, aligns remuneration with ING’s long-term value creation.
In accordance with the Executive Board’s remuneration policy as adopted at the AGM and as described in this chapter, the Supervisory Board annually determines the actual remuneration for the Executive
Special employment conditions, such as commitments required to secure the recruitment of new executives, may be used in circumstances subject to approval by the Supervisory Board.
and CFO total direct compensation is in line with this ambition. However, the total direct compensation for the CEO is not in line with this policy. Last year, the ING Group Supervisory
In line with the Dutch Corporate Governance Code, the internal ratio of the Executive Board members'
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Remuneration report 2018 performance indicators Executive Board
As indicated in the remuneration policy, the performance of the Executive Board is assessed based on non-financial and financial indicators. For 2018, performance indicators applied included the following: Performance Indicators3
The table below highlights key achievements, collectively accomplished by the Executive Board in 2018 in the areas mentioned, reflecting both the overall ambitions of ING and the specific performance priorities agreed with the Supervisory Board at the beginning of 2018.
 Welcome: in Germany, digitisation and operational excellence initiatives continued with the introduction of new features for mortgages disbursements and the automation of back-office dispute handling. Also the testing of new Money Management features was started such as “categorisation” of transactions (e.g.
services for SME and corporate customers to provide them with faster, cheaper and easier payments solutions.
• Major milestones achieved in the blockchain area including:  In partnership with fourteen larger industry players and banks set up the venture Komgo in order to digitalise the trade and commodities finance sector through a blockchain based open platform.
Sustainability • Introduction of the Terra Approach, an innovative and accurate way to measure the climate impact of ING’s EUR 600 billion loan book and steer this towards meeting the Paris Agreement’s two-degree goal.
• Increased number of new retail customers by 1 million to 38.4 million; number of primary relationships up by 1.1 million to 12.5 million.
Amounts in euros (rounded figures) Amount Number of shares Amount Number of shares Amount Number of shares
¹ The number of shares is based on the average ING share price on the day on which the year-end results were published.
Board, acting in accordance with ING’s Remuneration Regulations Framework, deemed that there is sufficient grounds to apply a (partial) holdback of the outstanding deferred variable remuneration of one Executive Board member, given his position during the investigated period as member of the
The individual members of the Executive Board receive other emoluments, including savings allowances for the loss of pension benefits for salary above EUR 105,075 for 2018, employer contributions to savings schemes, reimbursement of costs related to home/work commuting, costs associated with the company car and costs associated with housing and schooling (the latter two only for expats).
Long-term incentives to the Executive Board members in previous years are disclosed in the table on
For the Executive Board members the following shares vested during 2018: Shares Granting date Vesting date
As mentioned before, the Supervisory Board is performing in consultation with its advisory bodies a comprehensive review of the Executive Board’s remuneration policy.
Margarete Haase² 63,000 1 Jeroen van der Veer stepped down as of 23 April 2018. The remuneration figures for 2018 reflect a partial year as a member of the
Compensation of former members of the Supervisory Board who are not included in the table above amounted to nil in 2018, EUR 140,000 in 2017 and EUR 235,000 in 2016.
¹ Due to the fact Jeroen van der Veer is not in a formal position as Supervisory Board member on 31 December 2018 (stepped down as of 23 April 2018), no data is included for 2018.
Notes to the Consolidated statement of financial position 2 Cash and balances with central banks 185 3 Loans and advances to banks 185 4 Financial assets at fair value through profit or loss 186 5 Financial assets at fair value through other comprehensive income 188 6 Securities at amortised cost 189 7 Loans and advances to customers 190 8 Investments in associates and joint ventures 192 9 Property and equipment 193 12 Assets and liabilities held for sale 197 13 Deposits from banks 197 15 Financial liabilities at fair value through profit or loss 198 18 Debt securities in issue 201
Notes to the Consolidated statement of profit or loss 21 Net interest income 209 22 Net fee and commission income 210 23 Valuation results and net trading income 211 25 Result on disposal of group companies 213 28 Other operating expenses 216 30 Earnings per ordinary share 218 31 Dividend per ordinary share 219
Notes to the Consolidated statement of cash flows 32 Net cash flow from operating activities 219 33 Changes in liabilities arising from financing activities 220 34 Cash and cash equivalents 220
Additional notes to the Consolidated annual accounts 37 Pension and other post-employment benefits 230 39 Fair value of assets and liabilities 237 40 Derivatives and hedge accounting 255 41 Assets by contractual maturity 263 42 Liabilities by maturity 265 43 Assets not freely disposable 267 44 Transfer of financial assets 267 45 Offsetting financial assets and liabilities 268 46 Contingent liabilities and commitments 273 48 Consolidated companies and businesses acquired and divested 277 49 Principal subsidiaries, investments in associates and joint ventures 279 54 Capital management 363
Total assets 887,030 846,216 Total liabilities and equity 887,030 846,216 1 The amounts for the period ended 31 December 2018 have been prepared in accordance with IFRS 9, the adoption of IFRS 9 led to new presentation requirements; prior period amounts have not been restated. References relate to the accompanying notes. These are an integral part of the Consolidated annual accounts. Reference is made to Note 1 ‘Accounting policies’ for information on Changes in accounting principles, estimates and presentation of the consolidated annual accounts and related notes.
Investment income 24 183 192 421 Net result attributable to Equityholders of the parent 4,703 4,905 4,651
Diluted earnings per ordinary share from continuing operations 1.21 1.26 1.09 1 The amounts for the period ended 31 December 2018 have been prepared in accordance with IFRS 9, the adoption of IFRS 9 led to new presentation requirements; prior period amounts have not been restated.
Items that may subsequently be reclassified to the statement of profit or loss: Unrealised revaluations AFS investments and other revaluations n/a –283 61
For the disclosure on the income tax effects on each component of the other comprehensive income reference is made to Note 38 ‘Taxation’.
Share of other comprehensive income of associates and joint ventures and other income 283 –270 14 14
– Held-to-maturity investments n/a –3,609 –1,731 Net cash flow from/(used in) financing activities 15,983 –3,948 –19,057
As at 31 December 2018, Cash and cash equivalents includes cash and balances with central banks of EUR 49,987 million (2017: EUR 21,989 million; 2016: EUR 18,144 million). The increase in cash and balances with central banks reflects ING’s liquidity management. Reference is made to Note 34
1.1 Changes in IFRS effective in 2018 A number of new or amended standards became applicable for the current reporting period. ING
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Accounting policies > 1 1.2 Upcoming changes in IFRS after 2018 Major new IFRSs
Note 46 Contingent liabilities and commitments. This decrease is largely caused by the effects of the exemptions applied for leases of low-value assets, the exemption for short-term leases, the effect of discounting and the exclusion of the non-lease components in the lease payments. This is partly offset by including lease payments for periods covered by extension options that are reasonably certain to be exercised.
ING Group has opted to use the incremental borrowing rate as the discount rate for initial measurement of the lease liability. The incremental borrowing rate is the rate a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. This rate is approximated by using the risk free rate applicable to the lease term, currency of the lease payment and jurisdiction, with the Fund Transfer Pricing (FTP) rate as an add-on. The FTP rate is used to transfer interest rate risk and funding and liquidity risk positions between the ING business and treasury departments. It is determined by either ING Group or Local Asset and Liability
Changes to IFRS effective in 2019 and onwards expected to have no significant impact on ING Group
The following published amendments are not mandatory for 2018 and have not been early adopted by ING Group. ING Group is still currently assessing the detailed impact of these amendments, however the implementation of these amendments is expected to have no significant impact on ING Group’s Consolidated annual accounts.
The list of upcoming changes to IFRS, which are applicable for ING Group: Effective in 2019 (* - endorsed by the EU, the rest not yet endorsed by the EU):  IFRIC 23 ‘Uncertainty over Income Tax Treatments’ (issued on 7 June 2017)*;  Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’: Long-term Interests in
Associates and Joint Ventures (issued on 12 October 2017)*;  Annual improvements cycle 2015 – 2017: Amendments to IFRS 3 ‘Business Combinations’, IFRS
Effective in 2020 (not yet endorsed by the EU): Amendments to References to the Conceptual Framework in IFRS Standards (issued on 29 March 2018); Amendment to IFRS 3 Business Combinations (issued on 22 October 2018); and
ING Group Annual Report 2018 1.3 Changes to accounting policies in 2018 1.3.1 IFRS 9 ‘Financial instruments’
The following table reconciles the carrying amounts of financial instruments under IAS 39 to the carrying amounts under IFRS 9 on transition to IFRS 9 on 1 January 2018.
ING Group’s accounting policies on the classification of financial instruments under IFRS 9 are set out in note 1.3.1.2 ‘IFRS 9 Financial instruments - Accounting policies applied from 1 January 2018'.
As a result of the combined application of the business model analysis and the Solely Payments of
C. Certain debt securities and loans previously booked at AC or AFS are measured at Fair Value through Profit or Loss (FVPL) as the cash flows do not meet the SPPI test. This measurement change has a limited negative impact on equity at transition date.
The following table shows the effects of the reclassification and remeasurement of financial assets from IAS 39 categories into AC under IFRS 9.
Loans and advances to customers - To Securities at amortised cost -5,099 -5,099 - To Financial assets at FVOCI -3,126 -3,126 - To Financial assets at FVPL -1,349 -1,349 - Recognition of expected credit losses -761 -761
Other financial assets - To Loans and advances from banks -146 -146 - To Financial assets at FVPL -2,056 -2,056 - To Financial assets at FVOCI -439 -439 - To Securities at amortised cost -377 -377 - To Loans and advances to customers -1,202 -1,202
1 Includes the reclassification of accrued interest from other assets liabilities to the corresponding balance sheet item of the host contract.
The following table shows the effects of the reclassification and remeasurement of financial assets from IAS 39 categories into FVOCI under IFRS 9.
Loans and advances to customers 7 Amortised cost 574,535 565,402 Amortised cost Loans and advances to customers
2 Investments represented all securities other than those measured at FVPL under IAS 39. Under IFRS 9 these Investments are classified as Financial Assets at FVOCI or Securities at amortised cost.
Classification and measurement of financial assets and financial liabilities on the date of initial application of IFRS 9 as at 1 January 2018
IFRS 9 introduced requirements for the assessment of credit impairments, aimed at more timely recognition of credit losses. Consequently, a Loan Loss Provision (LLP) is recognised based on an
Loan commitments and financial guarantee 1 Includes the IAS 37 provisions on loan commitments and financial guarantees issued.
The table below shows carrying amounts and LLP of loans and advances to customers per stage.
Opening balance under IFRS 9 (1 January 2018) 28,609 1 Net amount of reclassifications to retained earnings, to and from fair value reserves and to liability credit reserves, due to changes in classification and measurement.
to presenting the full fair value movements in ‘Valuation results and net trading income’. Similar presentation was applied to interest expense. The presentation of accrued interest in the balance sheet was also changed so that it is no longer separately presented, but rather included in the corresponding balance sheet item of the host contract. The new interest presentation was applied prospectively together with the other requirements of IFRS 9.
Fair value and hedge accounting policies are included in the below section although these have remained unchanged with the adoption of IFRS 9.
(mainly repo’s) are presented fully within valuation result and net trading income. ING Group may in some cases, on initial recognition, irrevocably designate a financial asset as classified and measured at FVPL. This is the case where doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise on assets measured at AC or FVOCI. The interest arising on a debt instrument that is part of a hedge relationship, but not subject to hedge accounting, is recognised in profit or loss and presented within Interest income or Interest expense in the period in which it arises. The interest arising on financial assets designated as at
FVPL is recognised in profit or loss and presented within Interest income or Interest expense in the period in which it arises.
CVA is based on market implied data. Additionally, wrong-way risk (when exposure to a counterparty is increasing and the credit quality of that counterparty deteriorates) and right-way risk (when exposure to a counterparty is increasing and the credit quality of that counterparty improves) are taken into account in the measurement of the valuation adjustment. ING applies an additional ‘Funding Valuation Adjustment’ (FVA) to the uncollateralised derivatives based on the market price of funding liquidity.
The maximum credit risk exposure for items in the statement of financial position is generally the carrying value for the relevant financial assets. For the off-balance sheet items the maximum credit exposure is the maximum amount that could be required to be paid. Reference is made to Note 46
‘Contingent liabilities and commitments’ for these off-balance sheet items. Collateral received is not taken into account when determining the maximum credit risk exposure.
If an embedded derivative is separated, the host contract is accounted for as for a similar freestanding contract.
ING Group applies fair value hedge accounting to portfolio hedges of interest rate risk (macro hedging) under the EU carve-out. The EU carve-out macro hedging enables a group of derivatives
Securities sold subject to repurchase agreements (repos), securities lending and similar agreements continue to be recognised in the consolidated statement of financial position. The counterparty liability is measured at FVPL (designated) and included in Other financial liabilities at FVPL if the asset is measured at FVPL. Otherwise, the counterparty liability is included in Deposits from banks,
Securities purchased under agreements to resell (reverse repos), securities borrowings and similar agreements are not recognised in the consolidated statement of financial position. The consideration paid to purchase securities is recognised as Loans and advances to customers, Loans and advances to banks, Other financial assets at FVPL or Trading assets, as appropriate. The difference between the sale and repurchase price is treated as interest and amortised over the life of the agreement using the effective interest method.
associated with the probability of default (PD) events occurring with the next 12 months (12 months ECL). For those financial assets with a remaining maturity of less than 12 months, a PD is used that corresponds to the remaining maturity;  Stage 2: Lifetime ECL not credit impaired
The main determinate of SICR is a quantitative test, whereby the lifetime PD of an asset at each reporting date is compared against its lifetime PD at the date of origination or purchase. If the delta is above pre-defined absolute or relative PD thresholds, then an asset is considered to have experienced a SICR, which is a trigger for movement between Stage 1 and Stage 2. In these instances, assets will cease reporting a 12 month ECL, and instead report a lifetime ECL. Assets can also return to Stage 1 if there is sufficient evidence that there has been a significant reduction in credit risk.
Financial assets are assessed for credit-impairment at each reporting date and more frequently when circumstances warrant further assessment. Evidence of credit-impairment includes arrears of over 90 days on any material credit obligation, indications that the borrower is experiencing significant financial difficulty, a breach of contract, bankruptcy or distressed restructuring.
ING has established a quarterly process whereby forward-looking macroeconomics scenarios and probability weightings are developed for ECL calculation purposes. ING Group applies data predominantly from a leading service provider enriched with the internal ING Group view. A
baseline, up-scenario and a down-scenario are determined to reflect an unbiased and probabilityweighted ECL amount. As a baseline scenario, ING Group applies the market-neutral view combining consensus forecasts for economic variables such as unemployment rates, GDP growth,
The best estimate of ECL is calculated as the weighted-average of the shortfall (gross carrying amount minus discounted expected future cash flow using the original EIR) per scenario, based on best estimates of expected future cash flows. Recoveries can be from different sources including repayment of the loan, collateral recovery, asset sale etc. Cash flows from collateral and other credit enhancements are included in the measurement of the expected credit losses of the related financial asset when it is part of or integral to the contractual terms of the financial asset and the credit enhancement is not recognised separately. For the individual assessment, with granular
In certain circumstances ING grants borrowers postponement and/or reduction of loan principal and/or interest payments for a temporary period of time to maximise collection opportunities, and if possible, avoid default, foreclosure, or repossession. When such postponement and/or reduction of loan principal and/or interest payments is executed based on credit concerns it is also referred to as forbearance (refer to the Risk Management note for more details). In such cases, the net present value of the postponement and/or reduction of loan and/or interest payments is taken into account in the determination of the appropriate level of impairment loss. If the forbearance results in a substantial modification of the terms of the loan, the original loan is derecognised and a new loan is recognised at its fair value at the modification date. ING Group determines whether there has been a substantial modification using both quantitative and qualitative factors.
Loss allowances for financial assets measured at AC are deducted from the gross carrying amount of the assets. For debt instruments at FVOCI, the loss allowance is recognised in OCI, instead of deducting the carrying amount of the asset. For impaired financial assets with drawn and undrawn components, ECL also reflects any credit losses related to the portion of the loan commitment that is expected to be drawn down over the remaining life of the instrument. The loss allowance on issued financial guarantee contracts, in scope of IFRS 9 and not measured at FVPL, are recognised as liabilities and presented in Other provisions. ECL are presented in profit or loss in Addition to loan loss provision.
The critical judgements are: The use of forward-looking macroeconomic scenarios in both collective and individual impairment assessments. Forward-looking macroeconomic scenarios are subjective and uncertain in nature.
(OE), and subjecting these to internal expert review and challenge to ensure the inputs used in the models reflect ING’s view on the macro economy. Two internal groups, the Macroeconomics
Subsequently, they are carried at AC using the effective interest method less any impairment losses. Interest income from debt securities classified as held-to-maturity is recognised in Interest income in the statement of profit or loss using the effective interest method. Held-to-maturity investments include only debt securities.
ING Group (the Group) comprises ING Groep N.V. (the Parent Company), ING Bank N.V. and all other subsidiaries.
Subsidiaries are entities controlled by ING Groep N.V. Control exists if ING Groep N.V. is exposed or has rights to variable returns and has the ability to affect those returns through the power over the investee. Control is usually achieved through situations including, but not limited to:  Ownership, directly or indirectly, of more than half of the voting power;  Ability to appoint or remove the majority of the board of directors;  Power to govern operating and financial policies under statute or agreement; and
The existence and effect of potential voting rights that are currently exercisable or convertible are considered in assessing whether Group controls another entity.
An operating segment is a distinguishable component of the Group, engaged in providing products or services, whose operating results are regularly reviewed by the Executive Board of ING Group and the Management Board Banking (together the Chief Operating Decision Maker (CODM)) to make decisions about resources to be allocated to the segments and assess its performance. A
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Accounting policies > 1 fair value is determined. Exchange rate differences on non-monetary items measured at fair value through the revaluation reserve are included in the revaluation reserve in equity.
Exchange rate differences in the statement of profit or loss are generally included in ‘Valuation results and net trading income’. Reference is made to Note 23 ‘Valuation results and net trading income’, which discloses the amounts included in the statement of profit or loss. Exchange rate differences relating to the disposal of debt and FVPL equity securities are considered to be an inherent part of the capital gains and losses recognised in Investment income. As mentioned below, in Group companies relating to the disposals of group companies, any exchange rate difference deferred in equity is recognised in the statement of profit or loss in ‘Result on disposal of group companies’. Reference is also made to Note 20 ‘Equity’, which discloses the amounts included in the statement of profit or loss.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Accounting policies > 1 planned nor likely to be settled in the foreseeable future, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
When assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable under Loans and advances to customers or Loans and advances to banks. The difference between the gross receivable and the present value of the receivable is
The initial accounting for the fair value of the net assets of the companies acquired during the year may be determined only provisionally as the determination of the fair value can be complex and the time between the acquisition and the preparation of the Annual accounts can be limited. The initial accounting shall be completed within a year after acquisition. Adjustments to the fair value as at the date of acquisition of acquired assets and liabilities, that are identified within one year after acquisition are recognised as an adjustment to goodwill; any subsequent adjustment is recognised as income or expense. On disposal of group companies where control is lost, the difference between the sale proceeds and carrying value (including goodwill) and the unrealised results (including the currency translation reserve in equity) is included in the statement of profit or loss.
Fair value remeasurement of debt and equity instruments measured at FVOCI and cash flow hedges, are recognised directly in equity. Deferred tax related to this fair value remeasurement is also recognised directly in equity and is subsequently recognised in the statement of profit or loss together with the deferred gain or loss.
Investment properties are recognised at fair value at the balance sheet date. Changes in the carrying amount resulting from revaluations are recognised in the statement of profit or loss. On disposal, the difference between the sale proceeds and carrying value is recognised in the statement of profit or loss.
Property developed and under development for which ING Group has the intention to sell the property after its completion is included in Other assets – Property development and obtained from foreclosures.
When a group of assets that is classified as held for sale represents a major line of business or geographical area the disposal group is classified as discontinued operations. Upon classification of a business as held for sale and discontinued operations the individual income and expenses are presented within the Total net result from discontinued operations instead of being presented in the usual line items in the Consolidated statement of profit or loss. All comparative years in the
ING Group may become involved in legal proceedings. The degree of uncertainty and the method of making the accounting estimate depends on the individual case, its nature and complexity.
Changes in plan assets that effect Shareholders’ equity and/or Net result, include mainly:  Return on plan assets using a high quality corporate bond rate at the start of the reporting period which are recognised as staff costs in the statement of profit or loss; and
Changes in the defined benefit obligation that effects Shareholders’ equity and/or Net result, include mainly:  Service cost which are recognised as staff costs in the statement of profit or loss;  Interest expenses using a high quality corporate bond rate at the start of the period which are recognised as staff costs in the Statement of profit or loss; and
Some group companies provide post-employment healthcare and other benefits to certain employees and former employees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting methodology similar to that for defined benefit pension plans.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Accounting policies > 1 weighted average number of ordinary shares outstanding during the period is not impacted by the non-voting equity securities.
Reference is made to Note 43 ‘Assets not freely disposable’ for restrictions on Cash balances with central banks.
Reference is made to Note 43 ‘Assets not freely disposable’ for restrictions on Loans and advances to banks.
Loans include balances (mainly short-term deposits) with central banks amounting to EUR 4,713 million (2017: EUR 4,032 million).
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Financial assets at fair value through profit or loss > 4 4 Financial assets at fair value through profit or loss
At 1 January 2018, the classification of certain Loans and advances to customers and Debt instruments has changed to financial assets ‘Mandatorily measured at fair value through profit or loss’ due to the implementation of IFRS 9 (SPPI test). As per 1 January 2018 reverse repurchase portfolios that are managed and whose performance is evaluated on a fair value basis, amounting to EUR 54,825 million, were classified as financial assets ‘Mandatorily measured at fair value through profit or loss’, which were previously reported as ‘Trading assets’ and ‘Assets designated as at fair value through profit or loss’. These reverse repurchase agreements are used by ING as part of its own regular treasury activities, but also relate to the role that ING plays as intermediary between different professional customers. The related repurchase financial liabilities, amounting to
Trading assets and Trading liabilities include assets and liabilities that are classified under IFRS as
A significant part of the derivatives in the trading portfolio are related to servicing corporate clients in their risk management to hedge for example currency or interest rate exposures. In addition, ING
As at 31 December 2018, Trading assets include receivables of EUR 12,939 million (2017: EUR
Reference is made to Note 40 ‘Derivatives and hedge accounting’ for information on derivatives used for hedge accounting.
The notional value of the related credit derivatives is EUR 1,364 million (2017: EUR 232 million). The change in fair value of the credit derivatives attributable to changes in credit risk since the loans were first designated, amounts to EUR -23 million (2017: EUR -6 million) and the change for the current year amounts to EUR 17 million (2017: EUR 2 million).
As at 31 December 2018, Loans and receivables designated at fair value through profit or loss does not include any balances with regard to reverse repurchase transactions (2017: EUR 2,095 million).
Reference is made to Note 6 ‘Securities at amortised cost’ for details on ING Group’s exposure to debt securities and for further information on transfers and reclassifications of fair value through comprehensive income and amortised cost investments.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Securities at amortised cost > 6
Held-to-maturity investments 1 n/a 9,343 1 Under IAS 39 these Securities were classified as Held-to-maturity investments, reference is made to Note 5 ‘Financial assets at fair value through other comprehensive income’.
ING Group’s exposure to debt securities is included in the following lines in the statement of financial position: Debt securities at fair value through other comprehensive income 25,616 n/a
ING Group’s total exposure to debt securities of EUR 76,111 million (31 December 2017: EUR 82,193 million) is specified as follows: Debt
The following table show the reconciliations from the opening to the closing balance of the loan loss provision.
The following table provides information on financial assets that were modified while they had a loss allowance measured at an amount equal to lifetime ECL.
Gross carrying amount at 31 December of financial assets for which loss allowance has changed to 12-month measurement during the period 908
December 2018 (2017: EUR 337 million) is included in the loan loss provision. The loan loss provision for finance lease receivables is classified into the following loan loss provision stages; stage 1: EUR 5 million, stage 2: EUR 11 million and stage 3: EUR 134 million.
(2017: EUR 495 million) had property in own use been valued at cost instead of at fair value.
In 2017, disposals of EUR –145 million are mainly attributable to the sale of office buildings in
Changes in the composition of the group and other changes 59 25 52 1 111 26
Goodwill is allocated to groups of cash generating units (CGUs) as follows: Method used for recoverable amount
Wholesale Banking 1 Values in use 7.72% 1.32% 274 110 1 Goodwill related to Growth Countries is allocated across two groups of CGUs, EUR 230 million to Retail Growth Markets and
Wholesale Banking, and EUR 14 million, allocated to Retail Netherland. Other changes in goodwill of the CGU’s Wholesale Banking and Retail Growth Markets relate to changes in currency exchange rates. Reference is made to Note 48 ‘Consolidated companies and businesses acquired and divested’ for further information on the acquisitions that took place in 2018 and the goodwill recognised.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Other assets > 11
(e.g. share price of a listed subsidiary), and the local parameters for CET1, discount rate, and long term growth rates. The model was tested for sensitivity by changing the key parameters in the model to more conservative values. The sensitivity analysis did not trigger additional impairment considerations.
In 2018, Changes in the composition of the group and other changes mainly relates to the recognition of intangible assets following the acquisition of Payvision. Reference is made to Note 48
Amounts to be settled 4,248 4,097 1 As per 1 January 2018 accrued interest is included in the corresponding balance sheet item of the host contract, reference is made to note 1 Accounting policies. The remaining balance consists primarily of prepaid rents.
Disclosures in respect of Net defined benefit assets are provided in Note 37 ‘Pension and other postemployment benefits’.
December 2018 this relates to the intended sale of part of the ING Lease Italy business, for which the transaction was not closed yet.
Reference is made to Note 25 ‘Result on disposal of group companies’ and to Note 48 ‘Consolidated companies and businesses acquired and divested’.
Reference is made to Note 44 ‘Transfer of financial assets’ for information on securities lending as well as sale and repurchase transactions.
As at 31 December 2018, Trading liabilities include funds on deposit of EUR 3,227 million (2017: EUR
These initiatives are implemented over a period of several years and the estimate of the reorganisation provisions is inherently uncertain. The provision at the balance sheet date represents the best estimate of the expected redundancy costs and are expected to be sufficient to cover these costs.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Other liabilities > 17
Subordinated loans issued by ING Groep N.V. include loans issued to raise Tier 1 capital for ING Bank
In May 2018 ING redeemed the EUR 1,000 million 6.125% and the GBP 800 million 6.875% Tier 2
The average interest rate on subordinated loans is 4.44% (2017: 4.73%). The interest expense during the year 2018 was EUR 711 million (2017: EUR 784 million).
In 2018, ING Groep N.V. issued 5.9 million ordinary shares (2017: 7.3 million ordinary shares, 2016: 8.3 million: depositary receipts for ordinary shares, converted into ordinary shares per 26 July 2016). These issues were made in order to fund obligations arising from share-based employee incentive programmes.
Groep N.V. currently consists of 14,729 million ordinary shares. As at 31 December 2018, 3,892 million ordinary shares were issued and fully paid.
In 2016, ING Group proposed to the Annual General Meeting of Shareholders to amend the Articles of Association, which included the abolishment of the depositary receipt structure via Stichting
Following the adoption of the amendments to the Articles of Association, at the Annual General
Meeting on 25 April 2016, the depositary receipt structure was abolished on 26 July 2016. As a result of the amendments to the Articles of Association, a holder of a depositary receipt became entitled to ordinary shares in ING in exchange for depositary receipts previously held.
As per 26 July 2016, more than 99.9% of the issued ordinary shares were held by Stichting ING
Aandelen (ING Trust Office). In exchange for these shares, ING Trust Office issued depositary receipts. These depositary receipts were listed on various stock exchanges. Depositary receipts could be exchanged upon request of the holders of depositary receipts for (non-listed) ordinary shares without any restriction, other than payment of an administrative fee of EUR 0.01 per depositary receipt with a minimum of EUR 25 per exchange transaction.
As at 31 December 2018, 1.1 million ordinary shares (2017: 0.9 million and 2016: 0.6 million) of ING
Following the purchase of VISA Europe by VISA Inc. in 2016, the available-for-sale equity securities were derecognised from the statement of financial position with a corresponding release of the
In 2018, 2017 and 2016 respectively the EUR -2 million, EUR –26 million and EUR –127 million is a transfer of revaluation reserve to retained earnings.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Equity > 20
The hedging strategy is to hedge the CET1 ratio. The net decrease in currency translation reserve of
EUR 380 million is mainly caused by exchange rate differences in TRY and USD, which are not or only partly hedged.
In 2018, a cash dividend of EUR 2,607 million (2017: EUR 2,564 million and 2016: EUR 2,521 million)
In addition to the legal and regulatory restrictions on distributing dividends from subsidiaries, associates and joint ventures to ING Groep N.V. there are various other considerations and limitations that are taken into account in determining the appropriate levels of equity in the
Pursuant to the Articles of Association of ING Groep N.V. the authorised cumulative preference share capital consists of 4.6 billion cumulative preference shares, of which none have been issued.
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
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Net interest income > 21 21 Net interest income
Interest income on financial assets at fair value through OCI 554 n/a n/a Interest expense on customer deposits 2,671 2,665 3,160
Interest income on investments n/a 1,494 1,756 Interest expense on financial liabilities at fair value through profit or loss 1,578 n/a n/a
Interest income on non-trading derivatives (no hedge accounting) 677 594 623 Interest expense on non-trading derivatives (no hedge accounting) 1,005 895 652
Total Net interest income of EUR 13,916 million includes interest income and expense for instruments calculated using the effective interest rate method and other interest income and interest expense. IFRS 9 resulted in changes to IAS 1 for the presentation of Interest income for instruments calculated using the effective interest rate method, which ING reports as a separate line item in the consolidated statement of profit or loss as from current reporting period.
Other, mainly consists of commission fees in respect of bank guarantees of EUR 207 million (2017: EUR 209 million; 2016: EUR 202 million), in respect of underwriting syndication loans of EUR 4 million (2017: EUR 52 million; 2016: EUR 44 million), in respect of structured finance fees of EUR 129 million (2017: EUR 136 million; 2016: EUR 110 million), and in respect of collective instruments distributed but not managed by ING of EUR 165 million (2017: EUR 165 million; 2016: EUR 145 million).
Customers’. Reference is made to Note 35 ‘Segments’ which includes net fee and commission income, as reported to the Executive Board and the Management Board Banking, disaggregated by line of business and by geographical segment.
Securities trading results includes the results of market making in instruments such as government securities, equity securities, corporate debt securities, money-market instruments, and interest rate derivatives such as swaps, options, futures, and forward contracts. Foreign exchange transactions results include gains and losses from spot and forward contracts, options, futures, and translated foreign currency assets and liabilities.
The portion of trading gains and losses relating to trading securities still held as at 31 December 2018 amounts to EUR 396 million (2017: EUR -68 million; 2016: EUR -232 million).
In 2018, Derivatives trading results include EUR -20 million CVA/DVA adjustments on trading derivatives (2017: EUR 47 million; 2016: EUR 36 million).
‘Valuation results and net trading income’ include 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. Reference is made to Note 40 ‘Derivatives and hedge accounting’ for information on derivatives used for hedge accounting.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Investment income > 24 disclosed in Note 15 ‘Financial liabilities at fair value through profit or loss’. Market conditions include in particular credit spread developments.
Income from and fair value gains/losses on investment properties 4 3 4 1 The adoption of IFRS 9 led to new presentation requirements for 2018; prior period amounts have not been restated.
Corporate Line Banking –1 –5 1 The adoption of IFRS 9 led to new presentation requirements for 2018; prior period amounts have not been restated.
In 2017 and 2016 the Result on disposal of group companies included realised deferred profits on divestments in prior periods related to Baring Private Equity Partners.
In 2016 the result on divestments of NN Group and the divestment of Voya were not included above but were included in Net result from disposal of discontinued operations.
ING Australia Holdings Ltd, for which a full reimbursement is expected to be received from NN
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Staff expenses > 27
ING Groep N.V. has granted option rights on ING Groep N.V. shares and conditional rights on shares to a number of senior executives (members of the Executive Board, general managers and other officers nominated by the Executive Board), and to a considerable number of employees of ING
ING grants three types of share awards, deferred shares, performance shares and upfront shares, which form part of the variable remuneration offering via the Long term Sustainably Performance
Options outstanding and exercisable as at 31 December Weighted average remaining contractual life Weighted average exercise price
As at 31 December 2018 the share awards consists of 5,211,339 share awards (2017: 6,416,705; 2016: 7,294,633) relating to equity-settled share-based payment arrangements and 643,660 share awards (2017: 805,574; 2016: 1,088,330) relating to cash-settled share-based payment arrangements.
EUR 268 million (2017: EUR 307 million; 2016: EUR 310 million) in which ING Group is the lessee. No individual operating lease has terms and conditions that significantly affect the amount, timing and certainty of the consolidated cash flows of the Group.
Netherlands and the SRF came into effect resulting in an increase of Regulatory costs. Included in
Regulatory costs for 2018, are contributions to DGS of EUR 364 million (2017: EUR 341 million; 2016: EUR 316 million) mainly related to the Netherlands, Germany, Belgium, Poland, and Spain and contributions to the SRF of EUR 208 million (2017: EUR 179 million; 2016: EUR 176 million) related to the SRF. In 2018 local bank taxes decreased by EUR 6 million from EUR 381 million in 2017 to EUR
In 2018 and 2017, impairment losses on software and intangible assets mainly include software that was impaired to its Value in Use, related to the acceleration of the Think Forward Strategy.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Changes in liabilities arising from financing activities > 33 33 Changes in liabilities arising from financing activities 2017 Cash Flows Non cash changes 2018
Included in Cash and cash equivalents, are minimum mandatory reserve deposits to be held with various central banks. Reference is made to Note 43 ‘Assets not freely disposable’ for restrictions on
The following table specifies the segments by line of business and the main sources of income of each of the segments: Segments of the Banking results by line of business Main source of income
Retail Netherlands Income from retail and private banking activities in the Netherlands, including the SME and mid-corporate segments. The main products offered are current and savings accounts, business lending, mortgages and other consumer lending in the Netherlands.
SME and mid-corporate segments in specific countries. The main products offered are similar to those in the Netherlands. (Challengers and Growth Markets)
Wholesale Banking Rest of World UK, Americas, Asia and other countries in Central and Eastern Europe
Special items include items of income or expense that are significant and arise from events or transactions that are clearly distinct from the regular operating activities. Disclosures on comparative periods also reflect the impact of divestments. Legacy Insurance consists of the results from discontinued operations and the results from Insurance Other. Insurance Other reflects
Underlying result as presented below is a non-GAAP financial measure and is not a measure of financial performance under IFRS. Because underlying result is not determined in accordance with
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices b. ING Group 2018 Income Expenses Taxation
Net result IFRS from continuing operations 18,176 11,338 2,027 108 4,703 17,773 10,505 2,281 82 4,905 17,491 11,588 1,618 75 4,210
Additions to loan loss provision 656 0 656 656 676 676 676 974 974 974
The Netherlands Netherlands ING Bank N.V. Wholesale / Retail 13,600 13,141 13,660 5,911 5,757 5,767 261,466 241,379 295,120 1,754 2,301 1,341 624 639 343
Belgium Belgium ING België N.V. Wholesale / Retail 8,248 8,893 9,348 2,807 2,957 3,154 120,589 119,400 131,431 866 1,009 554 275 408 143
Romania Branch of ING Bank N.V. Wholesale / Retail 2,269 1,968 1,806 403 314 288 7,112 5,940 5,456 183 135 123 25 23 21
Spain Branch of ING Bank N.V. Wholesale / Retail 1,201 1,135 1,116 600 509 498 23,757 23,858 23,309 195 97 197 71 25 51
Italy Branch of ING Bank N.V. Wholesale / Retail 911 838 833 231 336 376 16,991 16,728 15,920 –101 –4 100 –24 7 33
Russia ING Bank (Eurasia) Z.A.O. Wholesale 277 270 276 82 136 118 1,449 1,607 2,008 25 78 69 3 20 7
Hungary Branch of ING Bank N.V. Wholesale 141 146 152 40 32 37 1,227 1,003 1,358 5 –1 3 2 3
Ukraine PJSC ING Bank Ukraine Wholesale 109 106 111 36 30 59 368 321 622 22 9 47 3 2 7
Ireland Branch of ING Bank N.V. Wholesale 47 43 42 68 57 53 2,868 2,337 1,910 65 47 54 8 6 7
Portugal Branch of ING Bank N.V. Wholesale 11 11 11 18 14 14 905 667 642 13 9 10 4 3 3
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Information on geographical areas > 36
Asia China Branch of ING Bank N.V. Wholesale 86 81 72 37 35 36 2,107 2,298 2,049 3 7 7 7 –2 –2
Japan Branch of ING Bank N.V. Wholesale 32 35 33 36 33 36 2,300 2,238 3,702 19 17 22 5 11 9
Singapore Branch of ING Bank N.V. Wholesale 546 512 502 340 297 194 32,222 25,803 25,780 176 133 22 21 9 5
Macau Payvision Macau Ltd. Wholesale n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Hong Kong Branch of ING Bank N.V. Wholesale 122 108 106 110 94 80 6,975 7,850 5,964 52 55 40 8 7 7
Taiwan Branch of ING Bank N.V. Wholesale 33 33 32 23 23 15 2,839 3,910 2,484 7 11 3 0 1
Australia Australia ING Bank (Australia) Ltd. Wholesale / Retail 1,234 1,143 1,053 647 577 505 39,673 37,982 36,691 389 330 309 118 235 90
The relatively high tax charge in the Netherlands is caused by non-deductible expenses based upon the settlement agreement reached with the Dutch authorities on regulatory issues.
Due to the tax reforms in the US and Belgium, which resulted in a tax charge to record a reduction in deferred tax assets, the tax charge is significantly higher.
Actuarial gains and losses arising from changes in demographic assumptions –2 7
Actuarial gains and losses arising from changes in financial assumptions 153 –71
In 2018, EUR -143 million remeasurement of plan assets and EUR 153 million Actuarial gains and losses arising from changes in financial assumptions are mainly due to an increase in discount rates.
For 2019 the expected contributions to pension plans are EUR 36 million.
Financial assets and liabilities at FVPL 419 16 –338 17 1 116
2 Effect of changes in accounting policies refers to IFRS 9 implementation (reference is made to Note 1 ‘Accounting policies -
Changes in the Composition of the Group and other changes include the deferred tax liability (EUR 30 million) regarding the acquisition of Payvision.
 The recapture of previously deducted UK tax losses in the Netherlands due to increased profitability in the United Kingdom, recorded under ‘Current tax from previously unrecognised amounts’.
The effective tax rate in 2016 is almost equal to the weighted average statutory tax rate. This is mainly caused by the fact that the non-taxable income and the recognition of tax benefits from previously unrecognised amounts are almost fully offset by non-deductible expenses, and the write-off of deferred tax assets and the adjustments to prior periods.
Changes in composition of the group and other changes –18 –12 –1
The contingent liability in connection with taxation in the Netherlands refers to a possible obligation arising from the deduction from Dutch taxable profit of losses incurred by ING Bank in the United
Kingdom in previous years. The existence of this obligation will be confirmed only by the occurrence of future profits in the United Kingdom.
– Assets mandatorily as at fair value through profit or loss 64,783 n/a 64,783 n/a
2 Other liabilities do not include, among others: (deferred) tax liabilities, net defined benefit and related employee benefit liabilities, reorganisation and other provisions ,and other taxation and social security contributions.
ING maximises the use of market observable inputs and minimises the use of unobservable input in
 Model risk adjustments reduce the risk of possible financial losses resulting from the use of a misspecified, misapplied, or incorrect implementation of a model.
 Collateral Valuation Adjustment (CollVA) is a derivative valuation adjustment capturing specific features of CSA (Credit Support Annex) with a counterparty that the regular valuation framework does not capture. Non-standard CSA features may include deviations in relation to the currency in which ING posts or receives collateral, deviations in remuneration rate on collateral which may pay lower or higher rate than overnight rate or even no interest at all. Other deviations can be posting securities rather than cash as collateral.
Financial assets at fair value through profit or loss, Financial assets at fair value through other comprehensive income and Securities at amortised cost
This category includes financial instruments whose fair value is based on market observables other than (unadjusted) quoted prices. The fair value for financial instruments in this category can be determined by reference to quoted prices for similar instruments in active markets, but for which the prices are modified based on other market observable external data or reference to quoted prices for identical or similar instruments in markets that are not active. These prices can be obtained from a third party pricing service. ING analyses how the prices are derived and determines
Financial assets at fair value through profit or loss - Assets mandatorily at fair value through profit or loss 141 n/a 63,601 n/a 1,042 n/a 64,783 n/a - Assets designated as at fair value through profit or loss 147 319 1,665 3,558 1,075 365 2,887 4,242
Financial assets at fair value through other comprehensive income 27,218 n/a 1,256 n/a 2,749 n/a 31,223 n/a
3 ‘Revaluation recognised in equity during the year’ has been renamed to ‘Revaluation recognised in other comprehensive income during the period’.
In 2017, financial assets were transferred out of Level 3 on the basis that the valuation is not significantly impacted by unobservable inputs.
Unrealised gains and losses that relate to ‘Financial assets at fair value through other comprehensive income’ (2018) and Available-for-sale investments (2017) recognised in Other comprehensive income are included in the Revaluation reserve – Equity securities at fair value through other comprehensive income or Debt Instruments at fair value through other comprehensive income (2018) respectively Available-for-sale reserve and other (2017).
Financial assets measured at fair value in the statement of financial position as at 31 December 2018 of EUR 152 billion includes an amount of EUR 5.4 billion (3.6%) which is classified as Level 3
December 2017: EUR 1.2 billion, being 1.4%). Changes in Level 3 from 31 December 2017 to 31
Of the total amount of financial liabilities classified as Level 3 as at 31 December 2018 of EUR 0.9 billion (31 December 2017: EUR 1.2 billion), an amount of EUR 0.7 billion (82.0%) (31 December 2017: EUR 0.8 billion, being 66.0%) is based on unadjusted quoted prices in inactive markets. As
Furthermore, Level 3 financial liabilities includes approximately EUR 0.1 billion (31 December 2017: EUR 0.1 billion) which relates to financial liabilities that are part of structures that are designed to be fully neutral in terms of market risk. As explained above, the fair value of each of the
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Fair value of assets and liabilities > 39 components of these structures may be sensitive to unobservable inputs, but the overall sensitivity is by design not significant.
Equity securities 162 4 1 Price based Price – 1 5,475 54
– Rates 57 490 39 485 Option pricing model Interest rate volatility (bps) 23 23 300 300
– Other 2 5 5 Option pricing model Commodity volatility (%) 12% 9% 79% 42%
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 annual accounts 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 reasonably possible alternative input values when valuing these instruments as of 31 December 2018, 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.
Financial liabilities 1 Financial assets and liabilities that are on demand are excluded from the fair value hierarchy as their fair value approximates the carrying value.
3 In 2018, the fair value of the loans and advances to customers as at 31 December 2017 is adjusted by the amount of the accrued interest (EUR 1,522 million). In 2017 the fair value of the accrued interest was reported, separate from loans and advances to customers, under other assets.
respectively and is categorised as Level 3 of the fair value hierarchy on the basis of methods applied in determining the fair values.
As at 31 December 2018, ING Group has no non-financial liabilities measured at fair value (2017: none).
Market risk’. The primary objective of ING Group’s hedging activities is to manage the risks which arises from structural imbalances in the duration and other profiles of its assets and liabilities. The objective of economic hedging is to enter into positions with an opposite risk profile to an identified risk exposure to reduce that exposure. The main risks which are being hedged are interest rate risk and foreign currency exchange rate risk. These risks are primarily hedged with interest rate swaps, cross currency swaps and foreign exchange forwards/swaps.
For the macro hedge on the mortgage portfolio ING Group follows a dynamic hedging strategy. This means that on monthly basis, based on the new portfolio projection, the hedging relationship is renewed. From an operational point of view, the existing hedging relationship is adjusted based on the new portfolio projection and additional hedging instruments are added to the hedging relationship.
ING Group’s approach to manage market risk, including interest rate risk and foreign currency exchange rate risk, is discussed in Note 53 ‘Risk management – Credit risk and Market risk’. ING
ING Group uses the following derivative financial instruments in a cash flow hedge accounting relationship: Assets Liabilities
For the main currencies the average fixed rate for interest rate swaps used in cash flow hedge accounting are 1.21% for EUR, 2.53% for PLN and 2.49% for USD. The average rates for cross currency swaps used in cash flow hedge accounting is EUR 1.14 for EUR/USD.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Derivatives and hedge accounting > 40
A foreign currency exposure arises from a net investment in subsidiaries that have a different functional currency from that of ING Group. The risk arises from the fluctuation in spot exchange rates between the functional currency of the subsidiaries and ING Group’s functional currency, which causes the amount of the net investment to vary in the consolidated financial statements of
Cash flow hedge accounting – impact on the statement of profit or loss and other comprehensive income
ING Group has the following derivative financial instruments used for net investment hedging; Assets Liabilities
The derivatives used for net investment hedge accounting are included in the statement of financial position line-item ‘Financial assets at fair value through profit or loss – Non-trading derivatives’ EUR 41 million (2017: EUR 29 million) respectively ‘Financial liabilities at fair value through profit or loss – Non-trading derivatives’ EUR 17 million (2017: EUR 71 million). The remaining derivatives are offset with other derivatives and collaterals paid or received.
For the main currencies the average exchange rates used in net investment hedge accounting for 2018 are EUR/USD 1.18, EUR/PLN 4.26, EUR/AUD 1.58 and EUR/THB 38.15
Net investments hedge - Discontinued hedges –210 41 Assets by contractual maturity
Net investment hedge accounting – Impact on statement of profit or loss and other comprehensive income
– Mandatorily at fair value through profit or loss 48,240 9,047 5,325 1,238 723 210 64,783
Remaining assets (for which maturities are not applicable) 3 2,889 2,889 1 Includes assets on demand.
3 Included in remaining assets for which maturities are not applicable are property and equipment, and investments in associates and joint ventures. Due to their nature remaining assets consist mainly of assets expected to be recovered after more than 12 months.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Liabilities by maturity > 42 2018 Less than 1 month 1 1–3 months 3–12 months 1–5 years Over 5 years Maturity not applicable Adjustment 2 Total
Coupon interest due on financial liabilities 1,109 1,035 2,852 9,591 8,686 23,273 1 Includes liabilities on demand.
Australia to EUR 3 billion (2017: EUR 2 billion) and in the United States to EUR 1 billion (2017: EUR 1 billion).
Financial assets at fair value through other comprehensive income 168 325 n/a
The following tables include information about rights to offset and the related arrangements. The amounts included consist of all recognised financial instruments that are presented net in the statement of financial position under the IFRS offsetting requirements (legal right to offset and intention to net settle) and amounts presented gross in the statement of financial position but subject to enforceable master netting arrangements or similar arrangement.
Derivatives 1 The line ‘Impact of enforceable master netting agreements or similar arrangements’ contains derivative positions under the same master netting arrangements being presented in different statement of financial position line items.
Estate business including obligations under development and construction contracts. Furthermore other contingent liabilities include a contingent liability in connection with a possible Dutch tax obligation that relates to the deduction from Dutch taxable profit for losses incurred by ING Bank in
Criminal investigations: On 4 September 2018, ING announced that it has entered into a settlement agreement with the Dutch Public Prosecution Service relating to previously disclosed investigations regarding various requirements for client on-boarding and the prevention of money laundering and corrupt practices. Under the terms of the agreement ING has agreed to pay a fine of EUR 675 million and EUR 100 million for disgorgement. As previously noted, in connection with the investigations ING also received information requests from the US Securities and Exchange
Division of Enforcement states that, based on information as of the date thereof, it does not intend to recommend an SEC enforcement action against ING.
District Court issued a decision dismissing all claims against ING Group and ING Capital Markets LLC, but leaving ING Bank, together with several other banks, in the case, and directing plaintiffs to file an amended complaint consistent with the Court's rulings. On 25 October 2018, plaintiffs filed such amended complaint, which asserts claims against a number of defendants but none against ING
Effectenbezitters, “VEB”) issued a writ alleging that investors were misled by the prospectus that was issued with respect to the September 2007 rights issue of Fortis N.V. (now Ageas N.V.) against
Ageas N.V., the underwriters of such rights issue, including ING Bank, and former directors of Fortis
The VEB stated that the impact and the risks of the sub-prime crisis for Fortis and Fortis’ liquidity position were reflected incorrectly in the prospectus. The VEB requested a declaratory decision stating that the summoned parties acted wrongfully and are therefore responsible for the damages suffered by the investors in Fortis. In March 2016, Ageas, VEB and certain other claimants announced that the claim in relation to Fortis had been settled. Ageas agreed to pay EUR 1.2 billion to investors as compensation. On 13 July 2018, the Court of Appeal declared the settlement agreement binding. The settlement also included a third-party release clause, releasing ING and the other underwriting banks from the claims made by VEB on behalf of investors in this matter.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Legal proceedings > 47 framework and has reassessed individual files against this framework. ING has taken an additional provision for the financial consequences of the recovery framework. In 2017, ING has informed the majority of the relevant clients whether they are in scope of the recovery framework, and thus eligible for compensation, or not. Because implementation by ING of the uniform recovery framework encountered delay, ING has previously offered advance payments to customers out of the existing provision. As of December 2018, all customers in scope of the uniform recovery framework have received an offer of compensation from ING.
Interest surcharges claims: ING received complaints and is involved in litigation with natural persons (natuurlijke personen) in the Netherlands regarding increases in interest surcharges with respect to several credit products, including but not limited to residential property
(eigenwoningfinanciering). ING is reviewing the relevant product portfolio. Although the review is still ongoing, a provision has been taken for certain of these complaints.
November 2018, the Spanish Supreme Court clarified the issue regarding Stamp Duty by stating that this tax should be borne by the customer. As for the remaining types of the expenses, in
The following table summarises the acquisition date fair value of consideration transferred.
The incurred acquisition costs amounts to EUR 1 million and are included in the ‘other operating expenses’ in the Consolidated statement of profit or loss.
If the acquisitions had occurred on 1 January 2018, consolidated ‘revenues’ and consolidated net profit for the year ended 31 December 2018 would have been EUR 51 million, and EUR 6 million respectively.
For the majority of ING’s principal subsidiaries, ING Groep 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’s financial interest and its rights from other contractual arrangements which result in control over the operating and financial policies of the entity.
ING’s activities involving structured entities are explained below in the following categories: 1 Consolidated ING originated securitisation programmes; 2 Consolidated ING originated Covered bond programme (CBC); Principal subsidiaries, investments in associates and joint ventures
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Related parties > 51 3. Consolidated ING sponsored Securitisation programme (Mont Blanc)
The types of asset currently in the Mont Blanc conduit include trade receivables, consumer finance receivables, car leases and residential mortgages.
The standby liquidity facilities are reported under irrevocable facilities. All facilities, which vary in risk profile, are granted to the SPV subject to normal ING Group credit and liquidity risk analysis procedures. The fees received for services provided and for facilities are charged subject to market conditions.
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 annual accounts of ING Group, as ING facilitates these transactions as administrative agent by providing structuring, accounting, funding, lending, and operation services.
Assets from ING’s subsidiaries mainly comprise long-term funding. Liabilities to ING’s subsidiaries mainly comprise short-term deposits.
2 Excluding members that are also members of the Executive Board of ING Groep N.V.
3 In the Management Board Banking, excluding the Executive Board members, one member left and one member joined in 2017. The table includes their compensation earned in the capacity as Board members.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 53 Risk Management
The main financial risks ING is exposed to are credit risk (including transfer risk), market risk
The way ING manages these risks on a day-to-day basis is described in this Risk Management section.
The internal audit function forms the third line of defence. It provides an on-going independent (i.e.
ING has a two-tier board structure consisting of a management board (Executive Board (EB) for ING
MBB is responsible for managing risks associated with all activities of ING Bank. The EB and MBB
Compliance and Legal policies, minimum standards, procedures and guidelines, development of tools, methods, and key parameters (incl. major changes) for risk identification, measurement, mitigating and monitoring/ reporting. The minimum frequency of the NFRC Bank is quarterly; and
ING’s regional and/or business unit management have primary responsibility for the management of risks (credit, market, funding and liquidity, operational and compliance risks) that arise in their daily operations. They are accountable for the implementation and execution of appropriate risk frameworks affecting their businesses in order to comply with procedures and processes at the corporate level. The implementation is adapted to local requirements, if necessary. The regional and/or business unit CROs are involved in these activities. The local (regional and BU) CRO is responsible for the analysis, control and management of risks across the whole value chain (from front to back office). The local risks are discussed in local risk committees that roll-up to the key risk
Currently, the global risk function has a two-tier governance structure. The risk officers in Tier 1 focus more on risk management within the local unit and the risk officers in Tier 2 focus on setting risk appetite, policies and monitoring the work in Tier 1 (i.e. more responsibility in managing its own risk issues, and determining and putting in place adequate controls). The organisation chart illustrates the reporting lines in 2018 for the risk organisation: Risk policies, procedures and standards
ING has a framework of risk management policies, procedures, and minimum standards in place to create consistency throughout the organisation, and to define requirements that are binding to all business units. The goal of the governance framework of the local business units is to align with
ING’s framework and to meet local (regulatory) requirements. Senior management is responsible for the implementation and adherence to policies, procedures and standards. Policies, procedures, and standards are regularly reviewed and updated via the relevant risk committees to reflect changes in requirements, markets, products and practices.
ING has organised its Internal Control Framework (ICF) with the objective to improve balance of head office policy and standard setting versus local implementation efforts in line with the Think
The principal role of the independent ICF gatekeeper function is that of a quality assurance role and provide advice for approval to the SB, EB, MBB and NFRC Bank. The ICF gatekeeper challenges the alignment of the internal control documents with the agreed methodology and taxonomy and verifies that the process of development and communication of internal control documents is executed in adherence to the process as described below and is a guardian of the ICF binding principles.
Validation results and capital impacts are reported on a quarterly basis to senior management, the risk committees, and to the supervisor.
ING uses a step-by-step risk management approach to monitor, mitigate, and manage its financial and non-financial risks. The approach consists of a cycle of five recurrent activities: risk identification, risk assessment, risk control, risk monitoring, and risk reporting. In short, this implies: determining what the risks are, assessing which of those risks can really do harm, taking mitigating measures to control these risks, monitoring the development of the risk and if measures taken are effective, and reporting the findings to management at all relevant levels to enable them to take action when needed.
The ING Group Risk Appetite Framework (RAF) combines regulatory requirements, bottom-up risk identification and assessment with the ING’s risk ambitions to set several overarching Risk Appetite
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 line with the IFRS9 calculations and standards integrated in January 2018. The stress testing models are subject to review by the Model Risk Management department.
Committee on Banking Supervision (BCBS). These new prudential rules for banks consist of a revision to the standardised approach to credit risk, the introduction of a capital floor based on standardised approaches, the use of internal models, the limitation of options for modelling operating risks, and new rules for the establishment of risk-weighted items and unused credit lines at the banks. In Europe, this will be implemented through the CRR III / CRD VI in the coming years.
With this long implementation phase and the transposition into EU regulation still pending, some question marks remain on how this will shape up.
and expanding the application to regulatory reporting. ING considers BCBS239 principles as part of its continuous improvement initiatives such that the key risk data aggregation and reporting practices align with the BCBS239 principles.
In order to make capital levels more comparable and to reduce variability in banks’ internal models, the European Central Bank (ECB) introduced the Targeted Review of Internal Models (TRIM) in June 2017 to assess the reliability and comparability between banks’ models. The TRIM aims to create a level playing field by harmonising the regulatory guidance around internal models with the ultimate goal to restore trust in European banks’ use of internal models. The TRIM is expected to be finalised at the end of 2019 and could impact ING through more stringent regulation on internal models as well as increases of RWA.
During 2018, several changes were made to our top and emerging risks. The top risks in 2018 are still related to cybercrime, Brexit negotiations, trade-restrictive measures and persistent low interest rates in Eurozone. Also, climate change risk remains an emerging risk, reflecting the impact a deterioration of the climate may have for the financial position and/or reputation of ING.
UK’s future with the EU. In the Eurozone, the economic momentum slowed but remained strong.
Further, trade-restrictive measures were also sources of uncertainty. The persistence of a low interest rate environment in Europe, where central banks held their rates at very low and even negative levels in some countries, negatively impacted short-term as well as long-term market rates. The persistence of both low interest-rate levels and the small difference between short and long-term rates impact ING’s net interest income.
London following Brexit. Economic growth in the UK has slowed against a background of continued uncertainty about the future relationship with the European Union. Although ING has activities in the UK through the Wholesale Banking (WB) business line, no material asset quality deterioration following the Brexit decision has taken place.
ING can play a role in financing solutions to climate change. In addition to investing billions of euros in wind farms, solar energy and geothermal power production to support the energy transition, ING
There are physical risks associated with climate change such as those caused by changes in the frequency of extreme weather and rising sea levels. Climate-related damage resulting from storms, hail and rain may not be insured in many regions and countries of the world where ING or its clients
Banking. The CCC governs ING’s climate-related risk and opportunity management, strategy and target-setting for the Group.
Credit risk is a Tier 1 level risk function within ING and is part of the second line of defence. It is managed within the CRO organisation by regional and/or business unit CROs, focusing on specific risks in the geographical and/or business areas of their responsibilities. These are the CRO
Credit analysis at portfolio level is monitored using metrics such as economic capital, regulatory capital, exposure at default (EAD), probability of default (PD) and loss given default (LGD). To target effective use of ING’s capital, the risk appetite is monitored and managed at the portfolio level.
 Investment risk: is the credit default and risk rating migration risk that is associated with ING’s investments in bonds, commercial paper, equities, securitisations, and other similar publicly traded securities. This can be viewed as the worst-case loss that ING may incur as a result of holding a position in underlying securities whose Issuer's credit quality deteriorates or defaults.
 Money market (MM) risk: arises when ING places short-term deposits with a counterparty in order to manage excess liquidity. As such, money market deposits tend to be short-term in nature. In the event of a counterparty default, ING may lose the deposit placed. Money market risk is measured as the accounting value of the deposit, excluding any accrued and unpaid interest or the effect of any impairment.
 Pre-settlement (PS) risk: arises when a client defaults on a transaction before settlement and
For the reconciliation between credit risk outstandings categories and financial assets, refer to table below: Credit risk categories Mainly relates to: Notes in the Annual Accounts
Pre-settlement (PS) risk -Financial assets at fair value through profit or loss (trading assets and non-trading derivatives) Note 4 Financial assets at fair value through profit or loss -Financial liabilities at fair value through profit or loss (trading assets and non-trading derivatives) Note 15 Financial liabilities at fair value through profit or loss -Securities financing
 Scenarios and stress tests: Stress testing evaluates ING’s financial stability under severe, but plausible stress scenarios, and supports decision-making that assures ING remains a financially going concern even after a severe event occurs. In addition to the bank-wide stress testing framework as described in the Risk Management section, ING performs regularly sensitivity analysis in order to assess portfolio risks and concentrations. These sensitivity analysis are consistent with the stress scenario established in the group wide credit risk appetite framework.
 Product approvals: the product approval and review process is implemented to assess and manage risks associated with the introduction of new or modified products. It safeguards that sound due diligence is performed by relevant stakeholders and to have the relevant risks (credit, operational, compliance, etc.) adequately addressed in the Product Approval and Review Process
Sector policies may carry various names and/or may have geographical and/or business limitations (e.g. local vs global).
 Credit approval process: The purpose of the credit approval process is that individual transactions and the risk associated with these transactions are assessed on a name-by-name basis. For each type of client there is a dedicated process with credit risk managers specialised along the business lines of ING. The credit approval process is supported by a risk rating system and exposure monitoring system. Ratings are used to indicate a client’s creditworthiness which translates into a probability of default. This is used as input to determine the maximum risk appetite that ING has for a given type of client (reference benchmark). The determination of the delegated authority (the amount that can be approved at various levels of the organisation) is a function of the risk rating of the client and ING’s credit risk exposure on the client.
ING makes a positive contribution to global economic growth and sustainable development by promoting responsible lending and investment practices. The ESR policy framework incorporates assessment tools that are used in ING’s mainstream processes and systems. It is therefore fully integrated into regular client and transaction reviews.
There are two main types of PD, EAD and LGD models used throughout the Bank:  Statistical models are created where a large set of default or detailed loss data is available. They are characterised by a sufficient number of data points that facilitate meaningful statistical estimation of the model parameters. The model parameters are estimated with statistical techniques based on the data set available;  Hybrid models contain characteristics of statistical models combined with knowledge and experience of experts from risk management and front office staff, literature from rating agencies, supervisors and academics. These models are especially appropriate for ‘Low Default
ING recognises that the above approaches are not sufficiently accurate for certain trading products such as highly structured or exotic derivative transactions. For the assessment of risk exposures of such complex products a bespoke calculation is made.
 There are no exposures under the advanced, Internal Model Method (IMM) under Pillar 1. Under
The figure below provides a high level summary of the application of model outcomes (PD, EAD and
systems with internally developed models based on data which is either manually or automatically fed. Under certain conditions, the outcome of a manually fed model can be challenged through a rating appeal process. Risk ratings for non-performing loans (NPL) (20-22) are set by the global or regional credit restructuring department. For securitisation portfolios, the external ratings of the tranche in which ING has invested are leading.
ING recognises that information and underlying data are assets that are key (together with people, processes and IT systems) to further develop its digital profile. Cooperation and mutual agreement on global data management roles and responsibilities in ING are critical success factors to meet this objective. As such ING has embraced multiple data management and governance initiatives triggered by internal and external stakeholders (e.g. Principles for Effective Risk Data Aggregation and Risk Reporting). In the Financial Risk and Risk COO departments, these principles are embedded in credit risk data management and enshrined within the Data Governance framework. The
The credit risk data governance framework used by ING is based on the credit risk data lifecycle.
 Derived data: data derived from other data elements (atomic or derived) as a result of data transformations such as credit risk models, calculations and aggregation. Derived data is hosted in the central credit risk system (Vortex).
A key component of credit risk data is that this data is continuously used throughout all the stages of the credit risk management cycle. By using and re-using data, there is a continuous incentive for all data providers and users to assure high standard data quality with regards to data delivery and data usage.
 Processing & Calculation: processes delivered atomic data and uses it to calculate credit risk derived data. The outcome of this stage is used as an input for credit risk data aggregation in, for example, risk reporting.
 Data Usage: facilitates data aggregation and usage such that it is fit for multiple purposes e.g.
3 Geographic areas are based on country of residence, except for private individuals for which the geographic areas are based on the primary country of risk.
outstandings in Food, Beverages & Personal Care. The NPL decrease in Retail Benelux was mainly seen for residential mortgage loans. The overall exposure for ING remained concentrated in the A,
Outstandings on AAA-rated assets increased by 69%, mainly due to increased central bank exposures in Corporate Line as a result of liquidity management.
Additional decreased outstandings in rating class A within Wholesale Banking was seen with corporates.
The rating distribution for Retail Benelux improved mostly driven by improved risk profile of Dutch residential mortgages shifting outstandings from rating classes BB to BBB. Similar but smaller in volume shift from rating classes BB to BBB was seen with residential mortgages in Belgium. The overall volume growth of Belgium residential mortgages was mainly concentrated in rating class
reduction of AA outstandings for Retail Challengers & Growth Markets (C&G) was seen mainly in
Markets (C&G) mainly in Residential Mortgage Loans with the largest growth seen in Australia and
Challengers & Growth Markets. This was partially offset by an increase in government bond exposures with Spain, USA and Poland. In Retail Benelux a decrease of central government exposures was seen in Belgium.
Banque Centrale du Luxembourg and Bank of England. An increase was also seen with regulatory reserve deposits with Deutsche Bundesbank within Retail Challengers & Growth Markets.
Nostro / Loro exposures in the Netherlands and decreased export finance in China, which was partially offset by increased trade finance in Republic of Korea. Non-Bank Financial Institutions concentration increased in Wholesale Banking mostly due to increased securities financing in the
Growth Markets, driven by the reduction of bond investments with Local / Regional Authorities in
Deutsche Bundesbank and increased residential mortgage lending, which was partly offset by lowered volumes of bond investments and money market assets with Local / Regional Authorities.
2 For a reference to the Notes in the Annual Report we refer to the table ‘Reconciliation between credit risk categories and financial position’.
Restructuring’. To further the insight, also a breakdown of ING’s portfolio by industry and geography is provided. For comparability reasons with previous tables, outstandings is used to show ING’s portfolio.
Total Lending, Investment and Money Market 779,985 695,035 22,678 125,966 112,120 171,627 31.6% 15.3% 53.1%
Total Lending, Investment and Money Market 728,951 647,376 18,923 100,024 116,429 167,536 31.9% 14.6% 53.6%
of the difference from 2017. The decrease in ‘Guarantees’ is primarily attributed to the ‘Rest of
The consumer lending portfolio accounts for 38.3% of ING Bank’s total outstandings, primarily consisting of residential mortgage loans (98.5% of performing loans) and other consumer lending loans, which mainly comprise term loans, revolvers and personal loans to consumers. As a result,
The collateralisation of the consumer lending portfolio continued to improve over the year 2018.
The rise in collateralisation levels (1.0%) was due to improved housing prices observed in different mortgage markets, driven by the Netherlands as the main market.
Business lending accounts for 43.9% of ING Bank’s total outstandings (41.4% in 2017). 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, investment and money market exposures, which are outlined in the next sections.
of which Total Non-performing 7,543 3,578 266 2,350 2,676 2,097 28.8% 3.8% 4.8% 9.0% 15.1% 38.4%
of which Total Non-performing 8,531 4,132 441 3,261 2,947 2,877 23.2% 3.9% 6.1% 7.3% 17.0% 42.4%
The tables above provide the collateralisation of ING Bank’s business lending portfolio. Breakdowns are provided per industry as well as by geographical region or market, which are defined based on the residence of the borrowers. The risk profile of the business lending portfolio increased in 2018 as collateralisation coverage fell by 4.7%. Business lending growth exceeded the increase in total cover value in 2018, with business lending outstandings rising by EUR 45.3 billion while covers increased by EUR 41.2 billion.
3,7billion), but while other industries’ cover levels grew, outstandings grew faster. Eligible financial collateral for Non-Bank financial institutions increased substantially (9.6%), and outstandings grew
ING uses various market pricing and measurement techniques to determine the amount of credit risk on pre-settlement activities. These techniques estimate ING’s potential future exposure on individual and portfolios of trades. Master agreements and collateral agreements are frequently entered into to reduce these credit risks.
ING matches trades with similar characteristics to determine their eligibility for offsetting. This offsetting effect is called ‘compensation’. Therefore, ING reduces the amount by any legal netting that may be permitted under various types of Master Agreements, such as ISDA Master
after netting’ and ‘MtM after netting and collateral’ is the liquid collateral (cash and securities); and
Following the higher credit risk levels seen as a result of the financial crisis and economic downturn, credit quality has been improving since 2014 and also continued the improving trend in 2018.
Netherlands and Netherlands WB portfolio. The increase in the past due but performing portfolio mainly observed in Belgium & Luxembourg Retail portfolio.
Retail Banking continuously measures its portfolio in terms of payment arrears and on a monthly basis determines if there are any significant changes in the level of arrears. This methodology is principally extended to loans to private individuals, such as residential mortgage loans, car loans, and other consumer loans. An obligation is considered ‘past due’ if a payment of interest or principal is more than one day late. ING aims to help its customers as soon as they are past due by communicating (e-mail, SMS, letter or outbound call) to remind them of their payment obligations.
In its contact with the customers, ING aims to solve the (potential) financial difficulties by offering a range of measures (e.g. payment arrangements, restructuring). If the issues cannot be cured, for example because the customer is unable or unwilling to pay, the contract is sent to the recovery unit. The facility is downgraded to risk rating 20 (non-performing) when arrears exceed 90 days past due and to risk rating 21 or 22 (no more cure) when the contract is terminated. The table below captures all past due exposures starting from day 1.
 Financial Institutions and Governments: from day 1, however, a research period of 14 calendar days will be observed in order for ING 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.
 Recovery: A client is classified as in Recovery when ING and/or the client concludes that the client’s financial situation cannot be restored and a decision is made to end the (credit)
The table below represents the breakdown by industry of credit risk outstandings for lending and investment positions that have been classified as non-performing.
Non-performing Loans: ING Bank portfolio, outstandings by economic sectors and geographical area
3 For a reference to the Notes in the Annual Report we refer to the table ‘Reconciliation between credit risk categories and financial position’.
The setting of PD threshold bandings requires management judgement, and is a key source of estimation uncertainty. To demonstrate the sensitivity of the ECL to these PD thresholds bandings, analysis was run on all collectively-assessed assets, which assumed all assets were below the threshold, and apportioned a 12 month ECL. On the same asset base, analysis was run which assumed all assets were above the threshold, and apportioned a lifetime ECL. This gave rise to a hypothetical collective-assessment ECLs of EUR 888 million and EUR 3,333 million respectively.
Default or Recovery status. ING reviews the performance of forborne exposures at least quarterly, either on a case-by-case (business) or on a portfolio (retail) basis.
The main concentration of forborne portfolio in a single country was in the Netherlands with 49%
The monitoring and control of market risk is the responsibility of the Financial Risk (FR) department and Financial Institutions – Financial Markets (FI-FM) Risk. FR and FI-FM Risk are the designated departments of the second line of defence that report to the CRO function and are responsible for the design and execution of the bank’s market risk and counterparty credit risk management functions in support of the ALCO function. FR focuses on the market risks in the banking books, whereas FI-FM is responsible for counterparty credit risk and market risks resulting from the
FR and FI-FM Risk also maintain a limit framework in line with ING’s Risk Appetite Framework. The businesses are responsible for adhering to limits that are ultimately approved by the ALCO Bank.
Systematic risk reporting takes place by the Financial Risk and FI-FM Risk departments to the EB
This market risk paragraph elaborates on the various elements of the risk management framework for:  Market risk economic capital for the trading and banking books;  Market risks in the banking books; and
Economic capital for market risk is the economic capital necessary to withstand unexpected value movements due to changes in market variables and model risk.
For the trading books and the linear interest rate risk and equity investments in the banking books, the Value at Risk (VaR) is taken as a starting point for the economic capital calculations for market risk. The VaR is measured at a 99% confidence interval, a one day holding period.
To arrive at the economic capital for market risk, a simulation based model is used which includes scaling to the required confidence interval and holding period. In determining this scaling factor, several other factors are also taken into account like the occurrence of large market movements
Embedded options, e.g. the prepayment option and offered rate option in mortgages in the banking books, result in non-linear interest rate risk in the banking books. The embedded options are economically hedged using a delta-hedging methodology, leaving the mortgage portfolio exposed to convexity and volatility risk. For the calculation of economic capital for this non-linear interest rate risk, ING performs a Monte Carlo simulation.
Interest rate risk in the banking book is defined as the exposure of a bank’s earnings, capital, and market value to adverse movements in interest rates originated from positions in the banking book.
The NII-at-Risk asymmetry between the downward scenario and upward shock scenarios is primarily caused by the convexity risk in the mortgage and savings portfolio due to the embedded options and pricing constraints.
The full value impact cannot be directly linked to the financial position or profit or loss account, as fair value movements in banking books are not necessarily reported through the profit or loss account or through Other Comprehensive Income (OCI). The value mutations are expected to
The NPV-at-Risk for the Corporate Line decreased in 2018, driven by the own funds long-term investments. The internal view on capital replication of the own funds long-term investments is reflected in the NPV-at-Risk figures as of July 2018. The remaining NPV-at-Risk of EUR -38 million includes the mismatch position from the target investment profile. Further, the change in NPV-at-
Risk for Retail Banking Benelux was driven by updates in the savings model to reflect the most recent market developments in The Netherlands and Belgium.
The regular USD funding to ING Capital LLC was replaced by evergreen funding (a loan without a contractual maturity) which is classified as a Net Investment in Foreign Operation. This brings the
3,228 million (2017: held in the Available-for-sale (AFS) portfolio, under IAS 39 for EUR 3,983 million). The value of equity securities held at FVOCI is directly linked to equity security prices with increases/decreases being recognised in the revaluation reserve. Investments in associates and joint ventures are measured in accordance with the equity method of accounting and the balance sheet value is therefore not directly linked to equity security prices.
The revaluation reserve relating to equity securities at FVOCI moved from EUR 2,474 million per year end 2017 to EUR 1,914 million per year end 2018. In 2018 the securities at FVOCI decreased by
EUR 560 million and is the result of the combined impact of IFRS 9 (EUR 42 million), and the decrease in the value of primarily Bank of Beijing and Kotak Mahindra Bank.
Negative re-measurement –8 n/a 1 The 2017 figures are presented as Available-for-sale under IAS 39. With the introduction of IFRS 9 these have been classified as fair value through other comprehensive income.
Estate Development and Real Estate Investment Management activities. The total Real Estate exposure amounts to EUR 0.9 billion (excluding property from foreclosures and third party interest).
ING has EUR 0.1 billion recognised at fair value through profit and loss and EUR 0.8 billion is recognised at cost or revalued through equity (with impairments going through profit and loss). A
Revaluation reserve equity securities at fair value through other comprehensive income1 Real Estate market risk exposure in banking books (by geographic area and sector type)
Fundamental Review of the Trading Book (FRTB) standards by BCBS. In January 2019, the BCBS
released the final FRTB standards. The requirements and timelines of FRTB capital will be specified in
CRR III regulations, FRTB capital requirements are expected to have a significant impact on the Pillar
VaR of ING. The loss was driven by Foreign Exchange and Equity positions. ING reports the backtesting results on a quarterly basis to the ECB.
The SVaR is intended to replicate a VaR calculation that would be generated on the bank’s current portfolio with inputs calibrated to the historical data from a continuous 12-month period of significant financial stress relevant to the bank’s portfolio. To calculate SVaR, ING uses the same model that is used for VaR with a 10-day horizon. The historical data period used currently includes the height of the credit crisis around the fall of Lehman Brothers, and is reviewed regularly. The historical data period is chosen so that it gives the worst scenario loss estimates for the current portfolio. The same SVaR model is used for management purposes and for regulatory purposes.
ING’s Event Risk policy is based on a large set of possible stress scenarios per risk type. In stress scenarios, shocks are applied to prices (credit spreads, interest rates, equity, commodities, and fx rates) and volatilities. Depending on the type of stress test, additional scenario assumptions could be made, for example on correlations, dividends, or recovery rates. For example, for equity products both a crisis scenario (prices decrease) as well as a bull scenario (prices increase) are assumed. Scenarios are calculated based on events happening independently, jointly by region, or in all countries simultaneously. This way, for each risk type, a large set of scenarios is calculated.
VaR and Event Risk limits are the most important limits to control the trading portfolios.
The risk figures in the table below only relate to the trading books for which the internal model approach is applied.
Capital requirem ents 1 VaR (higher of values a and b) 1,394 112 649 52
Average of the SVaR (Article 365(2) during the preceding sixty business days (sVaRavg) x multiplication factor (ms)
3 Incremental risk charge -IRC (higher of values a and b) 767 61 1,205 96
Most recent IRC value (incremental default and migration risks section 3 calculated in accordance with Section 3
2 Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase in credit spreads. Exposures to supranational institutions are not assigned to a specific country.
2 In order to make sure that all the tables in the Market risk in trading books are aligned, the scope of all the tables has been set to include all portfolios that are part of the trading book regulatory capital for both 2018 and 2017. In the Annual report of 2017 the table above included only the portfolios that are part of ING’s Financial Markets business line.
Funding and liquidity (F&L) risk is the risk that ING Group or one of its subsidiaries cannot meet its financial liabilities when they are due at reasonable cost and in a timely manner. ING incorporates funding and liquidity management in its business strategy and applies a funding and liquidity risk framework in order to manage such risks within pre-defined boundaries.
Funding & liquidity risk management within ING falls under the supervision of the ALCO Bank function which approves the funding and liquidity risk appetite that is subsequently cascaded throughout the organisation. In addition, the ICLAAP Committee focuses on technical liquidity documents and oversees business processes and deliverables concerning ILAAP. The EB and MBB, staff departments from the CRO and CFO domain as well as Group Treasury have oversight of and are responsible for managing funding and liquidity risk.
Furthermore, the Financial Risk function measures funding & liquidity risks, is responsible for stress testing activities and controls the liquidity requirements related to commercial products. The
In 2018, customer lending growth outpaced customer deposit growth. As a result, the reliance on professional funding activities increased as the additional lending growth was funded through short term CD/CP issuance. The Loan-to-Deposit ratio at year-end 2018 has increased to 1.07 from 1.05
ING Group distinguishes several key drivers of future liquidity and funding needs:  The boundaries set by current and future regulatory requirements;  The boundaries set by risk appetite statements (EUR and USD currency);  The findings from various stress tests;  The boundaries regarding the distribution and transferability of liquidity; and
Based on all these perspectives, ING Group assesses the current and future adequacy of its liquidity position and, if deemed necessary, takes steps to further improve the position with the aim to ensure that ING Group has sufficient counterbalancing capacity. That is achieved through the quarterly update of the Liquidity Adequacy Statement and the execution of the ILAAP process.
(i) Through the Stress lens ING considers its ability to withstand a period of prolonged F&L stress, either idiosyncratic, market related or a combination of both, leading to customer deposit outflow or reduced access to funding markets; ii) Through the Sustainability lens ING assesses the extent to which our customers, professional counterparties and investors are comfortable providing funding in tenors, currencies and instruments that ING needs to sustainably fund its business (intraday, short term and long term) in a going concern situation; (iii) Through the Regulatory lens ING ascertains that it is in the position to meet current and forthcoming regulatory requirements.
The Macroeconomic and Market environment are important considerations in the Funding and
Position (NLP) and Time-to-Survive (TTS) are two pre-determined output metrics both of which are affected as a result of the application of specific scenarios and parameters.
The Funding & Liquidity Stress Testing framework distinguishes between idiosyncratic and marketwide scenarios (and a combination of the two) and differentiates between stress events that develop in a gradual or fast manner. The generic design of the Funding & Liquidity Stress Testing framework, which is based on empirical evidence supplemented with expert judgment, can easily be applied to a specific scenario for example as input for the firm-wide stress testing or reverse stress testing.
The outcomes of the stress tests are taken into consideration across all the key aspects of ING’s
In the contingency funding plan, contingency liquidity risk is addressed which specifically relates to the organisation and planning of liquidity management in times of stress. The contingency funding plans are developed in conjunction with the ING Recovery Plan and are tested on a regular basis both centrally and at business unit level.
& Investigations (CSI). The Compliance Risk Management function encompasses the FCC (Financial
The Head of Corporate ORM, Corporate IRM, IVU and CSI report to the Global Head of Non-Financial
Risk. The Head of Financial Crime Compliance and the Head of Regulatory Compliance & Conduct both report to the Chief Compliance Officer (CCO).
The Global Head of Non-Financial Risk is responsible to develop the framework of non-financial risk policies and standards within ING, and for monitoring the quality of non-financial risk management in the ING entities.
Entity level providing input to the Bank NFRC. They are chaired by the first line of defence with the purpose to steer the risk management activities of the first and second lines of defence in their respective scope. Non-financial risk topics are an integral part of the agenda of regular MTs at various levels of the organisation. Since 2018, with the changes in guidelines issued by the EBA, a
Processes aim at identifying key threats, vulnerabilities and the associated risks which might cause adverse events. Event identification is performed and precedes a risk assessment. Different techniques for event identification exist within ING, such as Risk & Control Self-Assessments, business environment assessment, scenario analysis, internal events analyses (e.g. lessons learned based on information from event reporting), external events inventories, and monitoring.
Risk & Control Self-Assessment (RCSA) of non-financial risks inherent to ING products, activities, people, processes and systems provide management with an understanding of the operational risk profile. Based on the identification and assessment, internal controls are designed for the mitigation of risks to remain within the risk appetite.
Risk response can be achieved through several combinations of mitigation strategies, for example, reducing the likelihood of occurrence, reducing the impact, risk avoidance, risk acceptance or through the transfer of risk. Tracking takes place through ING’s global action tracking system iRisk.
The specific Non-Financial Risk appetite (defined as the acceptable and authorised maximum level of non-financial risk) is approved by the MBB based on a proposal made by the Bank NFRC.
Adherence to this risk appetite is monitored quarterly through the NFR Dashboard which reports the key non-financial risk exposures. The NFR Dashboard provides management at country, divisional and bank level with an overview of key risks within the non-financial risk areas including compliance risks, information security risks, continuity risks, control & processing risks, fraud risks, unauthorised activities risks, and personal and physical security risks, enabling management to focus and set priorities.
Dashboard (NFRD) report and a monthly NFRD booklet. The iRisk system serves as the single source of truth for NFR and Compliance risk management information and supports the three lines of defence in their Risk Management and Reporting activities.
ING is currently not using any insurance or risk transfer mechanisms for the mitigation of risk in the context of the AMA capital calculation.
Operational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.
ING categorises operational risks in a number of risk areas:  Information (Technology) risk is the risk of financial loss, regulatory sanctions or reputational damage due to breaches of confidentiality, integrity or availability within business processes or information or lack of information quality;  Continuity risk is the risk of financial loss, regulatory sanctions or reputational damage due to business disruptions (loss of people, processes, systems, data, premises);  Control and processing risk are the risks of financial loss, regulatory sanctions or reputational damage due to ineffective organisation structures and governance procedures (including unclear roles and responsibilities and inadequate reporting structure), failed (transaction) processing
(incl. temporary workers, third party contractors, internships and consultants) who intend to deceitfully or unlawfully benefit themselves or others;  External fraud risk is the risk of financial loss, regulatory sanctions or reputational damage due to deliberate abuse of procedures, systems, assets, products and/or services of ING by external parties (clients, potential clients or other third parties, including vendors and outside agencies)
ING personnel at work, people in ING locations, ING assets or assets entrusted to ING, people at
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 Concerns over the potential impact of insider threat continues to increase but specific information relating to instances or trends in the financial industry remains limited.
Management processes, controls and practices are periodically reviewed, tested, adapted and improved by a dedicated UAM team to address ongoing developments in and outside ING. In 2019 process will continue to mature, with attention to standardization, harmonisation of processes, day to day practices and further automation of UAM controls.
The Compliance Risk Management function established a compliance control framework in which controls are defined based on laws, regulations, and standards that are part of the internal control framework of ING applicable to non-financial risks. To support management in mitigating compliance risks, the Compliance Risk Management function supports training and advises the business in managing compliance risks related to e.g. money laundering, terrorist financing, sanction and export control compliance, conflicts of interests, misselling, corruption and protection of customers’ interests, Financial Account Tax Compliance Act (FATCA), Common Reporting
Those risks are generally defined within ING as Financial Economic Crimes. Furthermore, client conduct refers also to the compliance risks relating to FATCA, CRS, and US withholding tax and information reporting regulations;  Personal conduct refers to the compliance risks arising from the conduct of ING employees;  Financial Services conduct refers to the compliance risks arising from or generated by the conduct of ING when developing, marketing and/or selling products and services to its clients; and
The FEC Policy and Minimum Standards set the requirements for all ING entities to guard against involvement in criminal activity. The requirements in the FEC Policy cover minimum standards and controls related to: money laundering, terrorist financing, export trade controls, proliferation financing, sanctions (economic, financial and trade) and countries designated by ING as Ultra High
Korea, Sudan and Syria. Each of these countries is subject to EU and/or US sanctions regimes. Iran,
Owner (UBO) register (at national level with the potential to share the information within the
On 5 July 2017 the European Commission presented a new proposal for a Directive amending the 4th AML Directive (so called 5th AML Directive). The aim of the proposal is to tackle new means of terrorist financing, increase transparency to combat money laundering and help strengthen the fight against tax avoidance. On 8 June 2018, the EU Council adopted its position on the proposed
(AML) is an ongoing activity. In addition, ING has taken a number of specific measures to strengthen its management of compliance risks and address the root causes of the shortcomings.
 Translation of risk assessment outcomes into scenarios and alert definitions that can be applied in transaction monitoring. This includes the design and definitions of the applicable financial economic crime (FEC) and client activity monitoring (CAM) scenarios per entity, the building of the alert definitions (including data feeds) and migration to a central tool where relevant and possible, and validating and testing the approach from risks to alerts.
and participates actively in various working groups and project teams in this area. As such, ING
Council PPS (‘FEC-RAAD Public Private Cooperation’) in which Dutch authorities and financial institutions cooperate on supervision, control, prosecution or investigation with financial sector parties to strengthen the integrity of the sector. This is done by means of preventative action to identify and combat threats to integrity. ING believes that introducing clear accountabilities and standard processes across the financial industry will allow ING to manage and control KYC activities and integrity risks more effectively.
Common Reporting Standard (‘CRS’) and model competent authority agreement to enable the multilateral and automatic exchange of financial account information. CRS requires financial institutions to identify and report the tax residency and account details of non-resident customers to the relevant authorities in jurisdictions adhering to CRS. As of 29 October 2018, 104 jurisdictions
These measures are in the process of being implemented in local laws. With regard to the mandatory disclosure rules for EU jurisdictions, this was done via the amendment to Directive 2011/16 (“DAC6”). See below.
Forward. Participants are engaged in lively discussions on current topics, take part in workshops and plenary sessions to experience and develop the new ways of working within ING. Participants can connect with colleagues from across the globe and share knowledge and views on the compliance function of the future. Part of the Compliance community was trained in 2017 and in 2018 the remainder has been trained.
As also stated in our Orange Code, balancing the rights and interests of all involved is key to ongoing viability of the bank. ING employees are expected to take the time and effort to reflect on dilemmas or difficult decisions they have to take, and to do so in a sustainable manner. To support this ING enrolled the Orange Code Dilemma Dialogue model. This is a decision making model that takes employees through the steps of analysing an issue or dilemma, defining stakeholders, listing arguments and weighing them to make clear what in the specific case is the right thing to do. The launch of the Dilemma Dialogue model was supported by a mandatory e-learning for all staff and additional training to all compliance staff to enable them to facilitate the dialogue on dilemmas in their own local business unit.
ING applies the following main capital definitions:  Common Equity Tier 1 capital (CET1) - is defined as shareholders’ equity less regulatory adjustments. CET1 capital divided by risk-weighted assets equals the CET1 ratio.
 Tier 1 capital – is defined as CET1 capital including Additional Tier 1 (hybrid) securities and other regulatory adjustments. Tier 1 capital divided by risk-weighted assets equals the Tier 1 capital ratio.
 Common Equity Tier 1 ratio ambition –is built on potential impact of a standardised and predetermined 1-in-10-year stress event (i.e. at a 90% confidence level with a 1-year horizon) as described in the Risk Management section.
 Bail-inable capital – Total capital, Senior HoldCo and Opco debt qualify as Bail-inable capital.
December 2018 positions) and the 2.250% Systemic Risk Buffer (SRB) that are set separately for
The phased-in and fully-loaded Group Tier 1 ratio (including grandfathered securities) are at the same level of 16.2%, as of 31 December 2018. The phased and fully-loaded total capital ratio
ING Bank N.V. has a fully-loaded CET1 ratio and a phased-in CET1 ratio of 12.9%, thereby complying with CRR/CRD IV solvency requirements. ING Bank N.V. paid €2,517 million of dividend to ING Group in 2018. The fully loaded in Tier 1 ratios (including grandfathered securities) decreased from 14.7%
The Total Loss Absorbing Capacity (TLAC) requirement as set out by the Financial Stability Board is in the process of being implemented in EU regulations through amendments to the Capital
Requirements Regulations. Once implemented in EU regulation, as a Global Systemically Important
Adverse planning and stress testing are integral components of ING’s risk and capital management framework. It allows us to (i) identify and assess potential vulnerabilities in our businesses, business model, portfolios or operating environment; (ii) understand the sensitivities of the core assumptions used in our strategic and capital plans; and (iii) improve decision-making and business steering through balancing risk and return following a foresighted and prudent management approach. In addition to internal stress test scenarios reflecting the outcomes of the annual risk assessment, ING
Available common equity Tier 1 capital 40,379 40,576 40,431 40,602 1 The interim profit not included in CET1 capital as per 31 December 2018 (€174 million) includes €44 million for 4Q 2018 (Full year 2018: €2,646 million).
3 Including €8,079 million which is CRR/CRD IV-compliant (2017: €8,995 million), and €168 million to be replaced as capital recognition is subject to CRR/CRD IV grandfathering rules (2017: €2,091 million).
Directives, as implemented by the Dutch Central Bank (Dutch Central Bank until 3 November 2014,
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Revaluation reserve in the consolidated accounts, are presented in the Share of participating interests reserve in the parent company accounts;  The reserve for cash flow hedges within consolidated Group companies, presented in Other reserves – Revaluation reserve in the consolidated accounts is included in the Share of participating interests reserve, in the parent company accounts on a net basis.
Currency translation reserve in the consolidated accounts, is presented in the Share of participating interests reserve in the parent company accounts; and
ING Groep N.V. is a company domiciled in Amsterdam, the Netherlands and is registered at the
As at 31 December 2018 an amount of EUR 30,632 million (2017: EUR 13,965 million) is expected to be settled after more than one year from the balance sheet date.
As at 31 December 2018, the Share of participating interests reserve includes an amount of EUR
1,638 million (2017: EUR 1,478 million) related to the former Stichting Regio Bank and the former
Changes in the composition of the group and other changes –298 –298
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Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Other liabilities > 5 5 Other liabilities
Negative staff expenses relate to a release of provision for cash-settled employee share bases payments.
Included in Valuation results, are valuation results on non-trading derivatives related to warrants on the shares of Voya and NN Group amounting to EUR 90 million (2017: EUR -52 million). As at 31
December 2018 ING no longer holds any warrants on the shares of Voya and NN Group.
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(‘Einlagensicherungsfonds’ or ESF) under section 5 (10) of the by-laws of this fund, where ING Groep
December 2018, EUR 233 million (2017: EUR 193 million) was pledged to ING Groep N.V. as collateral.
Company may make distributions to the extent permitted by law after adoption of the annual accounts by the Executive and Supervisory Boards. The Executive Board subject to approval of the
Any of the risks described below could have a material adverse effect on the business activities, financial condition, results of operations and prospects of ING. Additional risks of which the
Because we are a financial services company conducting business on a global basis, our revenues and earnings are affected by the volatility and strength of the economic, business, liquidity, funding and capital markets environments specific to the geographic regions in which we conduct business. The ongoing turbulence and volatility of such factors have adversely affected, and may continue to adversely affect, the profitability, solvency and liquidity of our business.
See also ‘—Interest rate volatility and other interest rate changes may adversely affect our profitability’, ‘—Continued risk of resurgence of turbulence and ongoing volatility in the financial markets and the economy generally have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations’, and ‘—Market conditions, including those observed over the past few years, may increase the risk of loans being impaired’
Shareholders’ equity and our net result may be significantly impacted by turmoil and volatility in the worldwide financial markets. Negative developments in financial markets and/or economies and changes in the regulatory environment in which we operate have in the past had and may in the future have a material adverse impact on shareholders’ equity and net result, including as a result of the potential consequences listed above. See ‘—Continued risk of resurgence of turbulence and ongoing volatility in the financial markets and the economy generally have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations’
States, political uncertainty (including the recent US government shutdown), US national debt levels and changes in US trade and foreign investment policies (including tensions with China) may result in adverse economic developments. In addition, geopolitical issues, including with respect to the Middle East, Russia/Ukraine and North Korea may all contribute to adverse developments in the global capital markets and the economy generally.
There is also continued uncertainty over the long-term outlook for the fiscal position and the future economic performance of the US within the global economy and potential future budgetary restrictions in the US, with a corresponding perceived risk of a future sovereign credit ratings downgrade of the US government, including the rating of US Treasury securities. A downgrade of
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk factors high-fee financial products. Reduced confidence could have an adverse effect on our revenues and results of operations, including withdrawal of deposits. Because a significant percentage of our customer deposit base is originated via Internet banking, a loss of customer confidence may result in a rapid withdrawal of deposits over the Internet.
Member States, deterioration of the political situation in Turkey, as well as the possible default by one or more Member States could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of European and other financial institutions, including us. Additionally, the possibility of capital market volatility spreading through a highly integrated and interdependent banking system remains elevated. In the event of any default or similar event with respect to a sovereign issuer, some financial institutions may suffer significant losses, following which they would require additional capital, and such capital may not be available.
We are also exposed to the risk of downgrades of European sovereign ratings or corporate ratings, because they may affect our financial costs and, as a result, our profitability. Market disruptions in
EU for those euro clearing activities that may be expected to move from London following Brexit, the possible economic and operational impacts of Brexit on the Group and its counterparties remain highly uncertain.
Concerns regarding other Member States’ potential exit from the EU or the Eurozone also have emerged following the ‘Brexit’ referendum. The possible exit from the EU and/or the Eurozone of one or more European states and/or the replacement of the euro by one or more successor currencies could create significant uncertainties regarding the enforceability and valuation of eurodenominated contracts to which we (or our counterparties) are a party and thereby materially and adversely affect our and/or our counterparties’ liquidity, financial condition and operations. Such uncertainties may include the risk that (i) an obligation that was expected to be paid in euros is redenominated into a new currency (which may not be easily converted into other currencies without incurring significant cost), (ii) currencies in some Member States may depreciate relative to others, (iii) former EU and/or Eurozone Member States may impose capital controls that would make it complicated or illegal to move capital out of such countries, and/or (iv) some courts (in particular, courts in countries that have left the EU and/or the Eurozone) may not recognise and/or enforce claims denominated in euros (and/or in any replacement currency).
Europe may have significant impacts on the main geographic regions where we conduct our business. Our results of operations, liquidity position, capital position and investment portfolio are exposed to these risks and may be adversely affected as a result.
Adverse capital market conditions have in the past affected, and may in the future affect, our cost of borrowed funds and our ability to borrow on a secured and unsecured basis, thereby impacting our ability to support and/or grow our businesses. Furthermore, although interest rates are at or near historically low levels, since the recent financial crisis, we have experienced increased funding costs due in part to the withdrawal of perceived government support of such institutions in the event of future financial crises. In addition, liquidity in the financial markets has also been negatively impacted as market participants and market practices and structures adjust to new regulations.
In the event that our current resources do not satisfy our needs, we may need to seek additional financing. The availability of additional financing will depend on a variety of factors, such as market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of our long- or short-term financial prospects. Similarly, our access to funds may be limited if regulatory authorities or rating
Changes in laws and/or regulations governing financial services or financial institutions, the application of such laws and/or regulations or non-compliance with such laws and/or regulations governing our business may reduce our profitability’, undermining our efforts to maintain this centralised management of our liquidity. These developments may cause trapped pools of liquidity and capital, resulting in inefficiencies in the cost of managing our liquidity and solvency, and hinder our efforts to integrate our balance sheet.
Changes in prevailing interest rates may negatively affect our business, including the level of net interest revenue we earn, and the levels of deposits and the demand for loans. A sustained increase in the inflation rate in our principal markets may also negatively affect our business, financial condition and results of operations. For example, a sustained increase in the inflation rate may result in an increase in nominal market interest rates. A failure to accurately anticipate higher inflation and factor it into our product pricing assumptions may result in mispricing of our products, which could materially and adversely impact our results of operations. On the other hand, recent concerns regarding negative interest rates and the low level of interest rates generally may negatively impact our net interest income, which may have an adverse impact on our profitability.
 result in increased withdrawal of certain savings products, particularly those with fixed rates below market rates,
• lower the value of our equity investments impacting our capital position.
In addition, a failure to accurately anticipate higher inflation and factor it into our product pricing may result in a systemic mispricing of our products, which would negatively impact our results of operations.
(‘FCA’) has authorized ICE Benchmark Administration as administrator of LIBOR, on 27 July 2017 the
Our revenues and profitability and those of our competitors have been and will continue to be impacted by requirements relating to capital, additional loss-absorbing capacity, leverage, minimum liquidity and long-term funding levels, requirements related to resolution and recovery planning, derivatives clearing and margin rules and levels of regulatory oversight, as well as limitations on which and, if permitted, how certain business activities may be carried out by financial institutions.
Regulators around the world have increased their focus on the regulation of the financial services industry. Most of the principal markets where we conduct our business have adopted, or are currently in the implementation phase of, major legislative and/or regulatory initiatives in response to the financial crisis. Governmental and regulatory authorities in the Netherlands, Germany,
Absorbing Capacity (‘TLAC’) standard for G-SIFIs, which aims for G-SIFIs to have sufficient lossabsorbing and recapitalisation capacity available in resolution. In Europe, the TLAC requirements are expected to be implemented into the Capital Requirements Regulation (‘CRR II’) and Capital
Requirements Directive V (‘CRD V’). ING Bank has been designated by the BCBS and the FSB as one of the global systemically important banks (‘G-SIBs’), forming part of the G-SIFIs, since 2011, and by the Dutch Central Bank (De Nederlandsche Bank N.V., ‘DNB’) and the Dutch Ministry of Finance as a domestic SIFI since November 2011. The Basel III proposals and their potential impact are monitored via semi-annual monitoring exercises in which ING Group participates. As a result of such monitoring exercises and ongoing discussions within the regulatory environment, revisions have been made to the original Basel III proposals as was the case with the revised Liquidity
Coverage Ratio in January 2013 and the revised Net Stable Funding Ratio and Leverage Ratio in
January 2014. In December 2017, revisions to Basel III were formally announced by the BCBS. These revisions to Basel III establish new prudential rules for banks, including a revision to the standardised approach to credit risk, the introduction of a capital floor based on standardised approaches, the use of internal models, limitation of options for modelling operating risks, and new rules for the establishment of risk-weighted items and unused credit lines at the banks. With a long implementation phase and the transposition of these revisions into EU regulation still pending, the impact of such revisions on ING’s business and operations is not yet clear.
proposed substantial amendments to the CRR and CRD IV (such amendments being commonly referred to as the CRR II and CRD V), the BRRD and the Single Resolution Mechanism Regulation to, among other things, implement these revisions in the EU legislation. Legislation is expected to be
In November 2014, the European Central Bank (‘ECB’) assumed responsibility for a significant part of the prudential supervision of banks in the Eurozone, including ING Bank, following a year-long preparatory phase which included an in-depth comprehensive assessment of the resilience and balance sheets of the biggest banks in the Eurozone. ING Bank was among the seven Dutch institutions covered by the assessment (out of 130 institutions overall). While the ECB has assumed the supervisory tasks conferred on it by the Single Supervisory Mechanism (‘SSM’) Regulation, the
Dodd- Frank that are having an impact on the Group include the aspects set out below.
ING’s US broker-dealers to increased risk of SEC enforcement actions and liability. In 2011, the SEC
Frank and related rules and regulations. There can be no assurance that these or any other future reforms will not significantly impact our business, financial condition and results of operations.
If the Group is unable to comply with requirements imposed under IGAs or otherwise comply with
FATCA, certain payments to the Group may be subject to withholding under FATCA or other US
The reporting obligations apply to “intermediaries” (financial institutions like ING may fall under this term) or, in some circumstances, the taxpayer itself. There will be a mandatory automatic exchange of information on such reportable cross-border schemes via the Common
Although DAC6 is not effective until 1 July 2020 and has not yet been implemented in domestic law in all Member States, taxpayers and intermediaries have needed to monitor relevant cross-border arrangements from 25 June 2018. Compliance with the terms of DAC6 may substantially increase the Group’s compliance costs. Additionally, there is a risk that ING may fail to timely identify and disclose cross-border arrangements in which it is an intermediary. Failure to comply with DAC6 could harm our reputation and could subject the Group to enforcement actions, fines and penalties, which could have a material adverse effect on our business, reputation, revenues, results of operations, financial condition and prospects.
The second category of measures can be triggered if the stability of the financial system is in serious and immediate danger as a result of the failure of a Dutch financial institution and includes measures intended to safeguard the stability of the financial system as a whole. This set of measures granted authority to the Dutch Minister of Finance to take immediate measures or proceed to expropriation of assets or liabilities, or shares in the capital, of failing financial institutions. Within the context of the resolution tools provided in the Intervention Act, holders of debt securities of a bank subject to resolution could also be affected by issuer substitution or replacement, transfer of debt, expropriation, modification of terms and/or suspension or termination of listings.