Throughout 2015 the regulatory landscape continued to change at an even faster pace. Multiple initiatives were launched on riskweighted asset harmonisation as well as initiatives to further increase the resilience of the financial sector. As such, the Financial Stability Board finalised its work on Total Loss Absorbing Capital (TLAC), which is a framework for global systemically important banks (G-SIBs). The TLAC standard has been designed so that failing G-SIBs will have sufficient loss-absorbing and recapitalisation capacity available in resolution for authorities to implement an orderly resolution that minimises impacts on financial stability, maintains the continuity of critical functions, and avoids exposing public funds to loss. The TLAC standard defines a minimum requirement for the instruments and liabilities that should be readily available for bail-in within resolution at G-SIBs, but does not limit authorities’ powers under the applicable resolution law to expose other liabilities to loss through bail-in or the application of other resolution tools. G-SIBs will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, they will be required to meet a Minimum TLAC requirement of at least 16% of the resolution group’s risk-weighted assets (TLAC RWA Minimum) as from 1 January 2019 and at least 18% as from 1 January 2022. Minimum TLAC must also be at least 6% of the Basel III leverage ratio denominator (TLAC Leverage Ratio Exposure (LRE) Minimum) as from 1 January 2019, and at least 6.75% as from 1 January 2022. Buffer requirements will come on top of the RWA requirement but not on top of the leverage requirement. In addition, the Single Resolution Board has assumed full power as per 1 January 2016. The work plan for the SRB in 2016 will focus on determining the preferred resolution strategy, the resolution entity and the required amount of Minimum Required Eligble Liabilities (MREL).
Dividends from ING Bank to ING Group of EUR 1.0 billion and EUR 1.2 billion, respectively, were paid in May and August 2015 to support our external dividend policy.
Deduction Total capital (cumulative) 1,396 14,147 1 Shareholders’ equity (parent), as at 31 December 2014, is not adjusted as a result of the change in the accounting approach for the NN Group Anchor investment transaction.
ING Group’s transitional common equity Tier 1 ratio was 12.94% per 31 December 2015, which compares favourably to the regulatory common equity Tier 1 requirement for ING Group of 10.25% as per 1 January 2016. The impact from countercyclical buffer requirements was insignificant at the start of 2016. ING Group had a buffer to maximum distributable amount of EUR 8,638 million or 269 basis points per year-end 2015 versus the 1 January 2016 requirement. This is based on risk-weighted assets of EUR 321,135 million per 31 December 2015.
Total equity and liabilities 60,699 65,492 1 Other reserves and Other liabilities, as at 31 December 2014, are adjusted as a result of the change in the accounting approach for the NN Group Anchor investment transaction. Reference is made to the ING Group Consolidated annual accounts, Note 1 ‘Accounting policies’ for information on the Change in accounting approach NN Group Anchor investment transaction.
References relate to the accompanying notes. These form an integral part of the parent company annual accounts.
Basis of presentation The parent company accounts of ING Groep N.V. are prepared in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code. In accordance with subsection 8 of section 362, Book 2 of the Dutch Civil Code, the recognition and measurement principles applied in these Parent company accounts are the same as those applied in the Consolidated annual accounts, reference is made to Note 1 ‘Accounting policies’ of the Consolidated annual accounts. Investments in group companies are accounted for in the Parent company accounts according to the equity method.
A list containing the information referred to in Section 379 (1), Book 2 of the Dutch Civil Code has been filed with the office of the Commercial Register of Amsterdam, in accordance with Section 379 (5), Book 2 of the Dutch Civil Code.
The total amount of equity in the parent company annual accounts equals Shareholders’ equity (parent) in the consolidated annual accounts. Certain components within equity are different, as a result of the following presentation differences between the parent company accounts and consolidated accounts: • Unrealised revaluations within consolidated group companies, presented in the Revaluation reserve in the consolidated accounts, are presented in the Share of associates and joint ventures reserve in the parent company accounts; • Foreign currency translation on consolidated group companies, presented in the Currency translation reserve in the consolidated accounts, is presented in the Share of associates and joint ventures reserve in the parent company accounts; and • Revaluations on investment property and certain participations recognised in income and consequently presented in Retained earnings in the consolidated accounts, is presented in the Share of associates and joint ventures reserve in the parent company accounts.
In 2015, Additions represent the fair value of the investment retained in NN Group at deconsolidation. Further divestments of ING Group’s shareholding in NN Group, subsequent to deconsolidation, is included in Disposals. As at 31 December 2015, Investments in associates and joint ventures represents the remaining interest in NN Group of 25.75%. The investment is measured at the lower of the carrying value and the fair value less cost to sell. Reference is made to the Consolidated annual accounts, Note 54 ‘Other events’.
In 2015, ING Group changed its accounting approach in relation to the NN Group Anchor investment transaction. Total equity, as at 31 December 2014, was adjusted by EUR 920 million from EUR 50,424 million to EUR 51,344 million in the line item Other reserves. Reference is made to the ING Group Consolidated annual accounts, Note 1 ‘Accounting policies’ for information on the Change in accounting approach NN Group Anchor investment transaction and the Parent company annual accounts, Note 4 ‘Equity’ – Other reserves and Note 6 ‘Other liabilities’.
The decrease in the Available-for-sale reserve relates to the divestment of Voya in March 2015. Reference is made to the ING Group Consolidated annual accounts, Note 54 ‘Other events’.
The reserve for cash flow hedges is included in the Share of associates and joint ventures reserve on a net basis. The Revaluation reserve, Share of associates and joint ventures reserve and Currency translation reserve cannot be freely distributed. Retained earnings can be freely distributed, except for an amount equal to the negative balance in each of the components of the Revaluation reserve, Share of associates and joint ventures reserve and the Currency translation reserve. Unrealised gains and losses on derivatives, other than those used in cash flow hedges, are presented in the profit and loss account and are therefore part of Retained earnings and are not included in Share of associates and joint ventures reserve.
Interest rate Year of issue Due date Notional amount in original currency 2015 2014 1 Reference is made to the ING Group Consolidated annual accounts, Note 14 ‘Subordinated loans - Subordinated notes – Anchor investors’.
The number of debentures held by group companies as at 31 December 2015 is 0 with a balance sheet value of nil (2014: 268,920 with a balance sheet value of EUR 28 million).
The Supervisory Board J. (Jeroen) van der Veer, chairman H.J.M. (Hermann-Josef) Lamberti, vice-chairman E.F.C.B. (Eric) Boyer de la Giroday H.W. (Henk) Breukink I. (Isabel) Martín Castellá M. (Mariana) Gheorghe J.C.L. (Joost) Kuiper R.W.P. (Robert) Reibestein
The annual accounts include ING Group’s consolidated annual accounts and the parent company annual accounts. The consolidated annual accounts comprise the consolidated balance sheet as at 31 December 2015, the consolidated profit and loss account, the consolidated statement of comprehensive income, the consolidated statement of cash flows, the consolidated statement of changes in equity for 2015 and the notes comprising a summary of the significant accounting policies and other explanatory information. The parent company annual accounts comprise the parent company balance sheet as at 31 December 2015, the parent company profit and loss account, the parent company statement of changes in equity for 2015 and the notes comprising a summary of the significant accounting policies and other explanatory information.
The ING Group engagement team executed a program of planned visits and regular communication that has been designed to ensure that the audit progress and findings for each of the in-scope locations were discussed between the ING Group engagement team and the EY component team. This gave us appropriate audit evidence regarding the financial information of ING Group as a whole to provide a basis for our opinion on the consolidated annual accounts.
Our key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the annual accounts. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.
The impact of the NN Group divestments on the annual accounts of ING Group is significant. In addition, judgement has been applied in determining when control of NN Group was lost. We have challenged ING’s assessment of control over NN Group as per May 2015 and considered guidance included in IFRS 10 in this regard. Per year-end, the share price of NN Group was above the fair value upon deconsolidation (EUR 25.46 per share), and hence ING has concluded that no impairment is needed. We assessed and tested the impairment assessment through comparison with NN Group’s listed stock price.
The impact of the amendment of the accounting for the ‘anchor investment transaction’ on the 2015 consolidated annual accounts of ING Group is significant. When assessing the materiality of the impact, judgement has been applied. ING concluded that the impact of the amendment was material to the 2015 result from discontinuing operations. The assessment resulted in the IAS 8 based conclusion to change the comparative 2014 figures as included in the 2015 consolidated annual accounts. We have tested management’s assumptions in this regard and independently re-performed the materiality assessment. Finally we have assessed and verified the IFRS-EU accounting treatment of each divestment transaction as well as the amendment of the accounting for the ‘anchor investment transaction’ by involving IFRS-EU specialists. See Note 54 to the 2015 consolidated annual accounts for full details of the NN Group divestments including the amended accounting for the ‘anchor investment transaction’.
We assessed and tested the design and operating effectiveness of the controls over individual and collective impairment calculations including the quality of underlying data and systems. For loan loss provisions calculated on an individual basis we tested the assumptions underlying the impairment identification and quantification including forecasts of future cash flows, valuation of underlying collateral and estimates of recovery on default. This included taking into consideration the impact of forbearance. For loan loss provisions calculated on a collective basis we tested, supported by our specialists, the underlying models including the model approval and validation process. We also tested the appropriateness and accuracy of the inputs to those models, such as recovery and cure rates, and where available, compared data and assumptions made to external benchmarks. Finally we assessed and tested the design and operating effectiveness of the controls over related disclosures including forbearance and cover values.
We assessed and tested the design and operating effectiveness of the controls over valuation, independent price verification, hedge accounting and model approval. We performed additional procedures for areas of higher risk and estimation with the assistance of our valuation specialists. This included a challenge of pre-payment assumptions made for hedge accounting and, where relevant, comparison of judgements made to current and emerging market practice and re-performance of valuations on a sample basis. We also assessed the impact of other sources of fair value information including collateral disputes and gains or losses on disposal. Finally we assessed and tested the design and operating effectiveness of the controls over related disclosures including valuation sensitivity and fair value hierarchy.
• Concluding on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on ING Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the annual accounts or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause ING Group ceasing to continue as a going concern.
For 2015, the Executive Board, with the approval of the Supervisory Board, has proposed a cash dividend of EUR 0.65 per ordinary share of EUR 0.24. In August 2015, an interim dividend of EUR 0.24 per ordinary share of EUR 0.24 was paid. Therefore, a final dividend of EUR 0.41 per ordinary share remains. The final dividend will be paid entirely in cash after ratification of the proposal by the General Meeting of Shareholders.
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. The market price of ING shares could decline due to any of the following risks, and investors could lose all or part of their investments. Additional risks of which the Company is not presently aware could also affect the business operations of ING and have a material adverse effect on ING’s business activities, financial condition, results of operations and prospects. In addition, the business of a multinational, broad-based financial services firm such as ING is inherently exposed to risks that only become apparent with the benefit of hindsight. The sequence in which the risk factors are presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
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. Factors such as interest rates, securities prices, credit spreads, liquidity spreads, exchange rates, consumer spending, changes in client behaviour, business investment, real estate values and private equity valuations, government spending, inflation or deflation, the volatility and strength of the capital markets, political events and trends, and terrorism all impact the business and economic environment and, ultimately, our solvency, liquidity and the amount and profitability of business we conduct in a specific geographic region. In an economic downturn characterised by higher unemployment, lower family income, lower corporate earnings, higher corporate and private debt defaults, lower business investments and lower consumer spending, the demand for banking products is usually adversely affected and ING’s reserves and provisions typically would increase, resulting in overall lower earnings. Securities prices, real estate values and private equity valuations may also be adversely impacted, and any such losses would be realised through profit and loss and shareholders’ equity. We also offer a number of financial products that expose us to risks associated with fluctuations in interest rates, securities prices, corporate and private default rates, the value of real estate assets, exchange rates and credit spreads. 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 observed over the past few years may increase the risk of loans being impaired. We are exposed to declining property values on the collateral supporting residential and commercial real estate lending’ below.
In light of current conditions in the global financial markets and the global economy, 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, Belgium, the United Kingdom, the EU, the U.S. and elsewhere have implemented, or are in the process of implementing measures to increase regulatory control in their respective financial markets and financial services sectors, including, among others, in the areas of prudential rules, liquidity and capital requirements, executive compensation, crisis and contingency management, bank taxes and financial reporting. Additionally, governmental and regulatory authorities in the Netherlands, in the EU as well as in a multitude of jurisdictions where we conduct our business continue to consider new mechanisms to limit the occurrence and/or severity of future economic crises (including proposals to restrict the size of financial institutions operating in their jurisdictions and/or the scope of operations of such institutions). Furthermore, we are subject to different tax regulations in each of the jurisdictions where we conduct business. Changes in tax laws could increase our taxes and our effective tax rates. Legislative changes could materially impact our tax receivables and liabilities as well as deferred tax assets and deferred tax liabilities, which could have a material adverse effect on our business, results of operations and financial condition. One such change relates to the current debate in the U.S. over corporate tax reform for multinational corporations and corporate tax rates. Changes in tax laws could also make certain ING products less attractive, which could have adverse consequences for our businesses and results.
Dodd-Frank Act On 21 July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (‘Dodd-Frank’ or ‘Dodd-Frank Act’) was signed into law in the U.S. The Dodd-Frank Act effects comprehensive changes to the regulation of financial services in the U.S. and has implications for non-U.S. financial institutions with a U.S. presence or that transact with U.S. counterparties, such as ING. Dodd-Frank directs existing and newly created government agencies and bodies to perform studies and promulgate a multitude of regulations implementing the law, many of which are in place. Due to the extended period over which regulations are being implemented, we cannot predict with certainty how Dodd-Frank and such regulations will affect the financial markets generally and impact the Group’s business, credit rating, results of operations, cash flows or financial condition or liquidity. Key aspects of Dodd- Frank that we have identified to date as possibly having an impact on the Group include: Title VII of Dodd-Frank creates a new framework for regulation of the over-the-counter derivatives markets and certain market participants which could affect various activities of the Group and its subsidiaries. ING Capital Markets LLC, a wholly-owned indirect subsidiary of ING Bank N.V., has registered with the Commodity Futures Trading Commission (‘CFTC’) as a swap dealer. The CFTC and the Prudential Regulators recently adopted margin requirements on uncleared swaps, which will begin to come into effect later in 2016. The SEC will in the future adopt regulations establishing margin requirements for uncleared security-based swaps and the CFTC will adopt capital requirements for swap dealers. Other regulatory requirements include business conduct rules imposed on swap dealers and requirements that most swaps be centrally executed on regulated trading facilities and cleared through regulated clearing houses. In addition, new position limits requirements for market participants that may be contained in final regulations to be adopted by the CFTC could limit the scope of hedging activity that is permitted for commercial end users, as well as the trading activity of speculators, limiting their ability to utilize certain of our products. All of the foregoing areas of regulation of the derivative markets and market participants will likely result in increased cost of hedging and other trading activities, both for ING and its customers, which could expose our business to greater risk and could reduce the size and profitability of our customer business. In addition, the imposition of these regulatory restrictions and requirements, could result in reduced market liquidity, which could in turn increase market volatility and the risks and costs of hedging and other trading activities.
On 10 December 2013, various federal agencies approved a final rule implementing Section 619 of Dodd-Frank, commonly referred to as the ‘Volcker Rule’ and which places limitations and restrictions on the ability of U.S. FDIC insured depository institutions and non-U.S. banks with branches or agencies in the U.S. that become subject to the U.S. Bank Holding Company Act, as well as their affiliates, to engage in certain proprietary trading or sponsor and invest in private equity and hedge funds. As a general matter, such organisations have until July of 2017 to comply with the prohibition on certain fund activities and until July of 2015 to comply with the proprietary trading prohibitions. In the event that we or one of our affiliates becomes subject to the Volcker Rule, our investment activities could be so restricted. It is expected that we will experience significant additional compliance and operational costs and may be prohibited from engaging in certain activities we currently conduct if the Volcker Rule becomes applicable to us and our affiliates.
Common Reporting Standard Similarly, the Organisation for Economic Cooperation and Development (‘OECD’) has developed a Common Reporting Standard (‘CRS’) and model competent authority agreement to enable the multilateral and automatic exchange of financial account information. The CRS will require 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 21 December 2015, 78 jurisdictions, including the Netherlands, have signed a multilateral competent authority agreement to automatically exchange information pursuant to the CRS. The majority of countries where ING has a presence has committed to CRS. The EU has made CRS mandatory for all its member states. The first information exchange by the Netherlands (as for most of the signatories) will start in September 2017.
Bank Recovery and Resolution Regimes In June 2012, the ‘Intervention Act’ (Wet bijzondere maatregelen financiële ondernemingen) came into force in the Netherlands, with retroactive effect from 20 January 2012. The Intervention Act mainly amends the Dutch Financial Supervision Act and the Dutch Insolvency Act and allows Dutch authorities to take certain actions when banks and insurers fail and cannot be wound up under ordinary insolvency rules due to concerns regarding the stability of the overall financial system. It is composed of two categories of measures. The first category of measures can be applied if a bank or insurer experiences serious financial problems and includes measures related to the timely and efficient liquidation of failing banks and insurers. This set gives the DNB the power to transfer customer deposits (only in the case of banks), assets and/or liabilities other than deposits and issued shares of an entity to third parties or to a bridge bank if the DNB deems that, in respect of the relevant bank or insurance company, there are signs of an adverse development with respect to its funds, solvency, liquidity or technical provisions and it can be reasonably foreseen that such development will not be sufficiently or timely reversed. The DNB was also granted the power to influence the internal decision-making of failing institutions through the appointment of an ‘undisclosed administrator’. The second category of measures can be applied if the stability of the financial system is in serious and immediate danger as a result of the situation of a Dutch financial institution and includes measures intended to safeguard the stability of the financial system as a whole. This set of measures grants the authority to the Minister of Finance to take immediate measures or proceed to expropriation of assets of or shares in the capital of failing financial institutions.
In February 2013, the EC adopted a proposal setting out the details of a financial transaction tax (‘FTT’), following an original proposal of September 2011, to be levied on transactions in financial instruments by financial institutions if at least one of the parties to the transaction is located in the financial transaction tax zone (‘FTT-zone’) or if the instrument which is the subject of the transaction is issued within the territory of a Member State in the FFT-Zone. 11 Member States envisaged participating in the FTT but following Estonia’s withdrawal in December 2015, only 10 wish to proceed (Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain). The initial proposal foresaw the FTT for the 11 participating Member States entering into effect on 1 January 2014, which would have then required us to pay a tax on transactions in financial instruments with parties (including Group affiliates) located in such FTT-zone. On 6 May 2014, the Economic and Financial Affairs Council noted that 10 out of the then 11 original participating Member States had proposed implementation of the FTT in two stages (Slovenia was not party to that declaration), the earliest stage to be implemented from 1 January 2016. However, agreement has not yet been reached on certain key issues, so implementation was not possible by this date, and in December 2015 a joint statement was issued by several participating Member States indicating an intention to make decisions on the remaining open issues by the end of June 2016. The FTT remains subject to negotiation between the participating Member States and the legality and scope of the proposal is uncertain. It may be further altered prior to implementation. Additional Member States may decide to participate and/or certain of the participating Member States may decide to withdraw (as Estonia did). The implementation date of any FTT will thus depend on the future approval by participating Member States and the European Council, consultation of other EU institutions, and the subsequent transposition into local law. Depending on its final form, the introduction of an FTT in the Netherlands or outside the Netherlands could have a substantial adverse effect on ING’s business and results.
As of 1 October 2012, banks that are active in the Netherlands are subject to bank tax pursuant to a tax regulation that also includes measures to moderate bonuses awarded to executives at such banks. This tax results in increased taxes on ING’s banking operations, which could negatively impact our operations, financial condition and liquidity.
While certain of such conditions have improved during the period between 2011 and 2015, these conditions have generally resulted in greater volatility, widening of credit spreads and overall shortage of liquidity and tightening of financial markets throughout the world. These concerns have since expanded to include a broad range of fixed income securities, including those rated investment grade and especially the sovereign debt of some EEA countries and the U.S., the international credit and interbank money markets generally, and a wide range of financial institutions and markets, asset classes, such as public and private equity, and real estate sectors. As a result of these and other factors, sovereign governments across the globe, including in regions where the Group operates, have also experienced budgetary and other financial difficulties, which have resulted in austerity measures, downgrades in credit rating by credit agencies, planned or implemented bail-out measures and, on occasion, civil unrest (for further details regarding sovereign debt concerns, see ‘ —U.S. Sovereign Credit Rating’ and ‘ —European Sovereign Debt Crisis’ below). As a result, the market for fixed income instruments has experienced decreased liquidity, increased price volatility, credit downgrade events, and increased probability of default. In addition, the confluence of these and other factors has resulted in volatile foreign exchange markets. Securities that are less liquid are more difficult to value and may be hard to dispose of. International equity markets have also continued to experience heightened volatility and turmoil, with issuers, including ourselves, that have exposure to the real estate, mortgage, private equity and credit markets particularly affected. These events and market upheavals, including high levels of volatility, have had and may continue to have an adverse effect on our revenues and results of operations, in part because we have a large investment portfolio and extensive real estate activities around the world.
In addition, downgrades of European sovereign ratings and of corporate ratings generally are of high importance to the Group, because they may affect our financing costs and, as a result, our profitability.
• a decrease in collateral values, 2 result in increased withdrawal of certain savings products, particularly those with fixed rates below market rates, 3 require us, as an issuer of securities, to pay higher interest rates on debt securities that we issue in the financial markets from time to time to finance our operations, which would increase our interest expenses and reduce our results of operations.
ING is exposed to the risk of claims from customers who feel misled or treated unfairly because of advice or information received. Our banking products and advice services for third-party products are exposed to claims from customers who allege that they have received misleading advice or other information from advisers (both internal and external) as to which products were most appropriate for them, or that the terms and conditions of the products, the nature of the products or the circumstances under which the products were sold, were misrepresented to them. When new financial products are brought to the market, ING engages in a product approval process in connection with the development of such products, including production of appropriate marketing and communication materials. Notwithstanding these processes, customers may make claims against ING if the products do not meet their expectations. Customer protection regulations, as well as changes in interpretation and perception by both the public at large and governmental authorities of acceptable market practices, influence customer expectations.
Ratings are important to our business for a number of reasons. A downgrade or a potential downgrade in our credit ratings could have an adverse impact on our operations and net results. Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. Our credit ratings are important to our ability to raise capital and funding through the issuance of debt and to the cost of such financing. In the event of a downgrade, the cost of issuing debt will increase, having an adverse effect on net results. Certain institutional investors may also be obliged to withdraw their deposits from ING following a downgrade, which could have an adverse effect on our liquidity. We have credit ratings from S&P, Moody’s Investor Service and Fitch Ratings. Each of the rating agencies reviews its ratings and rating methodologies on a recurring basis and may decide on a downgrade at any time. For example, on 30 April 2014, S&P affirmed the long-term debt ratings of ING Groep N.V. to A- but revised the outlook from stable to negative.
We also face the risk that the design and operating effectiveness of our controls and procedures may prove to be inadequate. Widespread outbreaks of communicable diseases, such as the outbreak of the Ebola virus, may impact the health of our employees, increasing absenteeism, or may cause a significant increase in the utilisation of health benefits offered to our employees, either or both of which could adversely impact our business. Unforeseeable and/or catastrophic events can lead to an abrupt interruption of activities, and our operations may be subject to losses resulting from such disruptions. Losses can result from destruction or impairment of property, financial assets, trading positions, and the loss of key personnel. If our business continuity plans are not able to be implemented or do not sufficiently take such events into account, losses may increase further. We have suffered losses from operational risk in the past and there can be no assurance that we will not suffer material losses from operational risk in the future.
Adverse publicity, claims and allegations, litigation and regulatory investigations and sanctions may have a material adverse effect on our business, revenues, results of operations, financial condition and/or prospects. We are subject to litigation, arbitration and other claims and allegations in the ordinary course of business, including in connection with our activities as financial services provider, employer, investor and taxpayer. Financial reporting irregularities involving other large and well-known companies, possible findings of government authorities in various jurisdictions which are investigating several ratesetting processes, notifications made by whistleblowers, increasing regulatory and law enforcement scrutiny of ‘know your customer’ anti-money laundering, prohibited transactions with countries subject to sanctions, and bribery or other anti-corruption measures and anti-terrorist-financing procedures and their effectiveness, regulatory investigations of the banking industry, and litigation that arises from the failure or perceived failure by us to comply with legal, regulatory and compliance requirements could result in adverse publicity and reputational harm, lead to increased regulatory supervision, affect our ability to attract and retain customers and maintain access to the capital markets, result in cease and desist orders, claims, enforcement actions, fines and civil and criminal penalties, other disciplinary action or have other material adverse effects on us in ways that are not predictable. Some claims and allegations may be brought by or on behalf of a class and claimants may seek large or indeterminate amounts of damages, including compensatory, liquidated, treble and punitive damages. See ‘—ING is exposed to the risk of claims from customers who feel misled or treated unfairly because of advice or information received’. Our reserves for litigation liabilities may prove to be inadequate. Claims and allegations, should they become public, need not be well founded, true or successful to have a negative impact on our reputation. In addition, press reports and other public statements that assert some form of wrongdoing could result in inquiries or investigations by regulators, legislators and law enforcement officials, and responding to these inquiries and investigations, regardless of their ultimate outcome, is timeconsuming and expensive. Adverse publicity, claims and allegations, litigation and regulatory investigations and sanctions may have a material adverse effect on our business, revenues, results of operations, financial condition and/or prospects in any given period. For additional information with respect to specific proceedings, see Note 48 ‘Legal proceedings’ to the consolidated financial statements of ING Group and the ‘Review processes for setting benchmark rates’ in the ‘Main developments in 2015’ within the Compliance Risk section of the Risk Management section.
We are required under the Restructuring Plan to divest our remaining stake in NN by the end of 2016 and there can be no assurance that we will be able to do so on favourable terms or at all and a failure to complete the divestments on favourable terms and in a timely manner could have a material adverse impact on our assets, profitability, capital adequacy and business operations. As a result of having received state aid through the Dutch State Transactions, we were required to submit a restructuring plan to the EC in connection with obtaining final approval for the Dutch State Transactions under the EC state aid rules (as amended, the ‘Restructuring Plan’). As a result of the Restructuring Plan, we were subject to certain behavioural restrictions and we were required among other things, to divest of a significant part of our operations including our insurance activities and our ING Direct operations in the United States. The behavioural restrictions ceased to apply on 29 May 2015 after ING divested NN for more than 50% and deconsolidated NN under IFRS. As of 31 December 2015, the Restructuring Plan had been fully implemented, except for our obligation to sell our remaining stake in NN Group. On 2 February 2016, ING further reduced its stake in NN Group from 25.8% to 14.1%.
The further divestment of our stake in NN Group may also release less regulatory capital than we would otherwise expect. Any failure to complete the divestment on favourable terms and in a timely manner could have a material adverse impact on our assets, profitability, capital adequacy and business operations. If we are unable to fully complete the required divestment of NN Group in a timely manner, we would be required to find alternative ways to reduce our leverage, and we could be subject to enforcement actions or proceedings by the EC. Additionally, our stake in NN Group continues to be significant and although we no longer have any nominees on the NN Supervisory Board, we are exposed to the insurance market and changes in the results of NN Group may affect us negatively.
The share price of ING shares has been, and may continue to be, volatile. The share price of our bearer depositary receipts has experienced periods of volatility in the past, and the share price and trading volume of our bearer depositary receipts may be subject to significant fluctuations in the future, due, in part, to changes in our actual or forecast operating results and the inability to fulfil the profit expectations of securities analysts, as well as to the high volatility in the securities markets generally and more particularly in shares of financial institutions.
Other factors, besides our financial results, that may impact our share price include, but are not limited to: • market expectations of the performance and capital adequacy of financial institutions in general; • investor perception of the success and impact of our strategies; • investor perception of our positions and risks; • a downgrade or review of our credit ratings; • the implementation and outcome of our Restructuring Plan; • potential litigation or regulatory action involving ING or sectors that we have exposure to; • announcements concerning financial problems or any investigations into the accounting practices of other financial institutions; and • general market circumstances.
Because we are incorporated under the laws of the Netherlands and many of the members of our Supervisory and Executive Board and our officers reside outside of the United States, it may be difficult for you to enforce judgments against us or the members of our Supervisory and Executive Boards or our officers. Most of our Supervisory Board members, our Executive Board members and some of the experts named in this Annual Report, as well as many of our officers are persons who are not residents of the United States, and most of our and their assets, are located outside the United States. As a result, it may not be able to serve process on those persons within the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws.
Assurance/validity The information in this section has not been audited by ING Group’s external auditors. However, the Pillar III disclosures are subject to the ING Group’s internal control assessments and validation mechanisms, to provide reasonable assurance over the information disclosed in this report as well as with regards to compliance with laws and regulations.
The Disclosure Committee (DC), responsible for all ING Group disclosures, considers the content and the accuracy before reporting its conclusions to the Audit Committee (AC) which provides the final review and approval. This process ensures that both Management Board and Supervisory Board are given sufficient opportunity to review and challenge the Group’s financial statements and other significant disclosures before they are made public. In addition, if material is not published in the annual report, for instance in a stand-alone report or as a section on a website, then management (General Manager or Head of department involved) should ensure that appropriate verification and validation of the information takes place.
Market risk Standardised approach 106 1,328 113 1,412 Internal models approach - trading book 665 8,307 745 9,311 Total Market risk 771 9,635 858 10,723
The increase in CRR/CRDIV required regulatory capital was mainly caused by increased impact of external loss data and a model recalibration to improve the tail accuracy in Operational risk, and an increase in Credit risk where volume growth and equity investment were partially offset by reduction in CVA. ONCOA represents assets of non-credit obligation character that are not included in the SA or AIRB calculations. At 31 December 2015, the capital requirement for ONCOA was EUR 1,712 million. The CRR/CRDIV requires Banks to hold own funds of at least 80% of the old Basel I requirement, which was 8% of the RWAs as calculated using the Basel I methodology. This requirement remains at least until the end of 2017.
The capital position table reflects own funds according to the CRR/CRD IV rules. As CRD IV will be phased in gradually until 2019, the table shows the CRD IV positions according to the 2019 end-state rules and the 2015 rules. This makes clear which items phase in directly, which phase in gradually.
ING Group’s phased-in (transitional) common equity Tier 1 ratio at year-end 2015 of 12.94% is well in excess of the 10.25% common equity Tier 1 requirement for ING Group in 2016. This requirement is the sum of (i) 9.5% being the European Central Bank’s (ECB) decision on the 2015 Supervisory Review and Evaluation Process (SREP), including the capital conservation buffer, and (ii) 0.75% for the Systemic Risk Buffer (SRB) which has been set separately for Dutch systemic banks by the Dutch Central Bank. The impact from countercyclical buffer requirements was insignificant at the start of 2016. The fully loaded SRB requirement is currently set at 3% for ING Group and phases in over four years, with a final implementation date of 1 January 2019. With a 12.70% Group CET1 ratio as at 31 December 2015, ING is already in compliance with the current fully-loaded requirement of 12.5%.
Regulatory adjustments: Minority interests, counting as Common equity Tier 1 305 305 305 265 265 265 Goodwill and intangibles deducted from Tier 11 –638 –956 –1,594 –336 –673 –1,682 Provision shortfall2 –454 –681 –1,135 –263 –525 –1,313 Revaluation reserve debt securities –758 –505 –1,597 –958 Revaluation reserve equity securities –1,580 –1,053 –2,095 –1,257 Revaluation reserve real estate –196 –130 –291 –175 Revaluation reserve cash flow hedge –666 –666 –666 –832 –832 –832 Prudent valuation adjustment –91 –91 –91 –83 –83 –83 Investments >10% FI, exceeding 10% threshold –558 –835 –1,389 –2,829 –5,629 –14,103 excess AT1 deductions over AT1 –1,802
Prudential filters: Own credit risk 89 89 89 212 212 212 Defined benefit remeasurement (IAS19R) 244 184 422 338 Net defined benefit pension fund assets –257 –386 –643 –118 –236 –589 Deferred tax assets –113 –169 –282 –54 –108 –271 Own credit risk adjustments to derivatives (DVA) –21 –32 –53 –9 –19 –47 Foreseeable dividend –1,586 –1,586 –1,586 –470 –470 –470 Available capital - Common equity Tier 1 41,554 41,320 40,788 40,543 40,273 31,512
1 Intangibles: mainly capitalised software. 2 In CRR/CRD IV the provision shortfall is deducted fully from Common Equity Tier 1. During the phase-in period (until 2017), the part of the shortfall that is not deducted from CET1 Capital is substracted 50%/50% from additional Tier 1 and Tier 2 Capital. 3 Assuming that non CRR/CRD IV eligible Tier 1 and Tier 2 capital will be replaced by CRR/CRD IV eligible equivalents before they stop to meet the CRR/CRD IV
4 Adjustments for derivative financial instruments1 –140 –140 5 Adjustments for securities financing transactions ‘SFTs’ 15,786 15,786 6 Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) 69,093 69,093 EU-6a (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with
EU-23 Choice on transitional arrangements for the definition of the capital measure Transitional Fully phased in EU-24 Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) NO 575/2013 1 Please note that Tier 1 Capital includes grandfathered hybrids to an amount of EUR 5,187 million.
2 Description of the factors that had an impact on the leverage ratio during the period to which the disclosed leverage ratio refers
Excluding equities and ONCOA. 1 Book size: organic changes in book size and composition (including new business and maturing loans). 2 Book quality: quality of book changes caused by experience such as underlying customer behaviour or demographics including changes to credit quality of portfolios. 3 Model updates: model implementation, change in model scope or any change to address model malfunctions including changes through model calibrations /
• Divestments/ de-consolidations: After the de-consolidation of NN Group, the internal guarantee for the funding of NN Bank has been released decreasing RWA by EUR 0.9 billion. In addition, the transfer of residential mortgages from WestlandUtrecht to NN Bank as part of the overall strategy for WestlandUtrecht, continued over 2015, further reducing RWA by EUR 0.6 billion.
• Foreign exchange movements: The impact of FX movements was significant. The currency fluctuations caused RWA to increase by EUR 5.5 billion due to the appreciation of the US Dollar (11.34%) against the Euro which increased RWA by EUR 5.1 billion. The depreciating Turkish Lira (–10.83%) partially compensated for this increase reducing RWA by EUR 0.7 billion.
• Other: The remaining RWA increase of EUR 0.3 billion was the result of multiple small changes. • CVA RWA movement: RWA attributable to CVA capital movements decreased during 2015 by EUR 1.4 billion to EUR 5 billion. The decrease is due to Securities Financing transactions being excluded from the scope of the calculation as the recently published EBA requirements for CVA RWA for Securities Financing transactions, do not apply for our portfolio .
In the table below, the CRD categories for the AIRB and SA approach are given and are mapped to the ING Bank exposure classes.
Credit risk per exposure type and exposure class The table below shows the total READ and RWA for ING Bank by CRD defined exposure types for both the SA and AIRB portfolio per exposure class. CVA is reported separately.
Includes both AIRB and SA portfolios; excludes equities and ONCOA. Default Fund Contribution to Central Clearing Parties is included under exposure class Institutions.
The Credit RWA (+2.9%) of the portfolio did not increase as significantly as the READ (+5.9%), driven by an improved book quality of the portfolio. This is a result of the improving economies in most of the key retail market countries but also driven by the de-risking efforts especially in the Real Estate portfolio which also contributed to the improved risk profile. This improvement was offset by deterioration of the credit quality of some specific portfolios due to the international and political turmoil in Eastern Europe and the Middle-East, ongoing pressure on emerging markets and the direct and indirect negative effects of continued low oil and other commodity prices. Despite the imbalances in emerging economies and financial markets which continued in 2015, ING’s risk profile overall improved during the year.
Sovereigns Product Type 117,789 103,137 14.2% 8,297 7,926 5% Bond Investments 70,427 73,108 –3.7% 4,373 4,558 –4% Revolving 23,983 12,255 95.7% 776 693 12% Money Market 15,128 9,066 66.9% 2,270 1,973 15% Term Loans 4,414 4,558 –3.2% 390 348 12% Derivatives 2,229 2,695 –17.3% 262 288 –9% Other 1,608 1,455 10.5% 226 66 242%
READ RWA 2015 2014 Delta % 2015 2014 Delta % Institutions Total per rating 107,372 113,407 –5.3% 20,683 25,743 –20% Performing 107,018 112,683 –5.0% 20,477 25,474 –20% Non-performing 354 724 –51.1% 206 270 –24%
READ RWA 2015 2014 Delta % 2015 2014 Delta % Corporate Total per rating 269,558 234,493 15.0% 125,091 108,413 15% Performing 261,661 225,600 16.0% 114,457 97,801 17% Impaired/Non-performing 7,897 8,893 –11.2% 10,634 10,612 0%
Corporate Industry 269,558 234,493 15.0% 125,091 108,413 15% Natural Resources 48,089 44,128 9.0% 19,157 16,624 15% Real Estate 43,999 40,512 8.6% 17,676 17,544 1% Transportation & Logistics 30,377 25,996 16.8% 12,897 11,517 12% Food, Beverages & Personal Care 24,600 18,349 34.1% 11,509 9,284 24% Services 18,189 16,381 11.0% 10,435 9,052 15% Other 104,304 89,126 17.0% 53,417 44,392 20%
Retail credit risk disclosure This table presents the READ and RWA, segmented by relevant factors, and the analysis for the exposure class ‘Retail’.
Although the LTV increased in 2015, Turkey still has a relatively low LTV. Increasing house prices, combined with the willingness of customers to take up higher loans caused a higher LTV in the mortgage origination translating in an increase of the portfolio LTV.
Regulatory Exposure at Default (READ): The second element is the counterparty’s exposure at default. These models are intended to estimate the outstanding amount or obligation at the moment of default in the future. Since the fact that a counterparty will go into default is not known, and the level of outstanding that may occur on that date is also not known, ING Bank uses a combination of statistical, expert and hybrid models to estimate the Exposure at Default. With the exception of guarantees and letters of credit, the EAD is always equal to or higher than the associated credit risk outstanding, under the assumption that counterparties tend to absorb liquidity from available credit resources before financial problems become apparent to the counterparty’s creditors. The EAD is largely a function of the type of credit facility (revolving, overdraft, term) offered to the borrower.
Expected Loss (EL): The expected loss provides a measure of the value of the credit losses that ING Bank may reasonably expect to incur on its portfolio. In its basic form, the expected loss can be represented as: EL = PD * EAD * LGD. ING Bank must maintain a capital buffer against unexpected losses in order to protect itself against credit losses associated with unusual market events outside of the statistical norms.
PD 1 The Government Central PD model is a fully statistical model, containing only quantitative risk drivers.
LGD 1 The LGD model for Sovereigns and other governments is an unsecured recovery model built on assessment of structural factors that influence a country’s performance.
EAD 1 The Low Default EAD model is a hybrid model that pools default information from multiple low default portfolios, including central governments and central banks.
SME Retail other Total 2015 Total 2014 On balance sheet pre CCF 103,297 48,268 109,700 71,843 270,907 16,260 11,618 631,893 600,937 Off balance sheet pre CCF 77,674 71,656 122,905 50,008 11,139 4,622 11,576 349,580 308,886 Counterparties1 2,820 46,816 8,276 2,884 24 15 60,835 61,631 Average CCF2 13.6% 23.0% 40.7% 40.3% 77.1% 84.2% 64.4% 34.9% 29.4% READ 114,884 102,861 167,671 92,758 278,538 19,649 17,787 794,148 754,125 PD 0.1% 0.6% 4.5% 3.9% 2.4% 10.1% 4.5% 2.7% 3.3% No. obligors3 1,485 9,638 134,205 7,368 1,676,070 350,281 6,088,278 8,190,554 8,133,472 LGD 30.3% 27.4% 29.0% 20.9% 16.7% 32.3% 67.1% 24.7% 25.2% Maturity4 30 30 36 37 57 43 29 42 35 CVA RWA 73 4,899 13 4,985 6,369 RWA5 5,958 19,314 83,871 33,099 42,776 7,980 8,969 201,967 198,620 RWA density 5.2% 18.8% 50.0% 35.7% 15.4% 40.6% 50.4% 25.4% 26.3% RECAP 477 1,545 6,710 2,648 3,421 638 718 16,157 15,890 EL 29 65 2,770 1,186 1,002 630 477 6,159 6,359 Provisions 8 21 2,344 997 759 521 389 5,039 5,487 1 Counterparties consists of Securities Financing and Derivative exposures. 2 CCF – Credit Conversion Factor. 3 No. of obligors are in absolute numbers, borrowers can be present in multiple exposure classes. 4 Maturity in number of months. 5 RWA excludes CVA RWA. CVA RWA is reported separately.
Includes the AIRB portfolio only and non-performing loans; excludes securitisations, CVA RWA, equities and ONCOA.
Res. Mortgage Other retail Total Total Average PD 0.09% 0.56% 4.31% 2.43% 7.40% 2.70% 3.26% Average LGD 30.33% 27.42% 26.16% 16.73% 48.84% 24.69% 25.17% READ 114,884 102,861 260,429 278,538 37,436 794,148 754,125 RWA 5,958 19,314 116,970 42,776 16,949 201,967 198,620 RWA density (RWA/READ) 5.19% 18.78% 44.91% 15.36% 45.28% 25.43% 26.34%
Disclosure of estimated and actual loss parameters ING has dedicated AIRB credit risk models per business unit, segment and country. An independent Model Validation department periodically reviews all AIRB models for compliance including back testing when possible. If a model is considered not to be robust or the back-testing indicates insufficient performance, than the model is either re-calibrated or re-developed. All model recommendations from Model Validation department are tracked via iRisk, the same internal database that management uses to track issues detected by the Internal Audit department, incidents and non-financial risk issues. All significant model changes are submitted to the ECB and implemented after regulatory approval. On average, 94% of the AIRB credit risk models in the validation cycle have had ‘No to Remote’ (57%) and ‘Minor’ (37%) model deficiencies.
Res. Mortgage Other retail Total Average PD 2014* 0.08% 0.22% 1.57% 1.00% 3.09% 1.02% Observed Default Rate 2015 0.00% 0.00% 1.29% 0.87% 2.35% 0.82%
Includes the AIRB portfolio only; excludes securitisations, equities and ONCOA. * Average PD 2014 includes performing loans only.
The table below gives insight in the Expected Loss rate and the Observed Loss rate per exposure class. The expected loss as of 31 December 2014 for the performing portfolio is split per exposure class. The 31 December 2014 portfolio is followed through 2015 to determine the defaulted exposures. The models are based on long series of historical data. In the comparison, the expected loss rate is calculated by dividing the expected loss of the performing portfolio as of 31 December 2014 by the READ of the performing portfolio of the same period. The Observed Loss rate is a result of multiplying the observed defaulted exposures by its LGD. This back-test is only representative of the year end 2014 portfolio and can be influenced by small sample sizes or incidents. Nonetheless, the back-test gives a comparison of the Expected Loss rate PD versus the observed Loss rate.
In order to calculate the regulatory capital requirements under the SA approach, ING Bank uses eligible external ratings from Standard & Poor’s, Moody’s and Fitch Ratings. Ratings are applied to all relevant exposure classes in the Standardised Approach. For the mortgage portfolios, the fixed prescribed risk weights are used.
(b/a) Sovereigns and their central banks 2,866 946 39 2,905 2,340 80.5% Non-central government public sector entities 121 107 121 60 49.3% Banks 3,631 1,286 648 4,419 1,318 29.8% Corporates 5,688 7,781 20 6,480 6,310 97.4% Regulatory retail portfolios 7,668 6,954 10 9,564 6,809 71.2% Secured by residential property 6,905 146 6,965 3,157 45.3% Secured by commercial real estate 3,445 1,185 3,587 2,339 65.2% Past due loans 787 28 407 419 102.8% Total 2015 31,111 18,433 717 34,448 22,752 66.1% Total 2014 25,400 17,755 307 28,408 19,522 68.7%
The SA portfolio increased by 21.3% to EUR 34.4 billion in terms of READ, resulting in an RWA increase of EUR 3.2 billion. The majority of the increase is witnessed in Poland and in Turkey. In Poland the Residential Mortgage portfolio grew by EUR 0.8 billion READ while in Turkey the portfolio growth is mainly attributable to the Corporates portfolio which increased by EUR 1.3 billion ( The FX impact is limited as the portfolio is denominated in both Turkish Lira’s and US dollar for which the FX impacts offset each other). The remaining increase in the SA portfolio is mainly related to Nostro exposures which have a short term nature and fluctuate throughout the year.
In 2015 the risk costs have developed favourably and amounted to EUR 1.3 billion compared with EUR 1.6 billion in 2014. The total stock of provisions decreased by EUR 0.2 billion to EUR 5.8 billion. While these signs are encouraging, ING Bank remains vigilant for any potential impact that imbalances in emerging economies and financial markets could have on clients and business units.
The total non-performing exposure decreased from EUR 17.2 billion to EUR 15.0 billion year to date, bringing the NPL based on READ for all product categories down from 2.2% to 1.8%. The decrease in non-performing exposure is mainly in industry types Commercial Banks, Real Estate and Private Individuals and primarily visible in the Netherlands and Other Europe. For Commercial Banks a decrease in non-performing exposure of EUR 0.9 billion is mainly caused by a claim on assets under trusteeship that is now considered performing rating and a partial repayment of a loan by the curator which decreased the non-performing exposure. The nonperforming Real Estate exposure decreased with EUR 0.7 billion years to date. This decrease is mainly due to the decrease in nonperforming loans in the Spanish Real Estate portfolio. The decrease for Private Individuals is mainly due to an improvement in the Dutch non-performing Residential Mortgage portfolio which decreased by EUR 1.0 billion and improved the NPL ratio for this portfolio. The Belgium non-performing Residential Mortgage portfolio increased by EUR 0.2 billion, increasing this portfolio’s NPL ratio. The main reason for this increase is a more conservative approach for the unlikely to pay trigger and a maturing Residential Mortgage portfolio in ING Belgium. In the Natural Resources and Services industry an increase in non-performing loans is observed as these sectors still struggle from the slow recovery of the global economy. The increase in non-performing loans for the Natural Resources industry is mainly seen in Ukraine and in Mining and can be explained from the geopolitical situation and the decline in commodity prices. The developments in this region and the industry are being closely monitored by management.
Off-balance items Undrawn commitments The figures below represent the potential exposure that may be drawn by ING Bank’s obligors under committed facilities. In most cases, the obligors have the right to make use of these facilities unless an event of default has occurred, or another defined event within the associated credit risk agreement has occurred. In most cases, the obligor pays a commitment fee to ING Bank on the unused portion of these facilities. Pre-Settlement, Money Market and Investment limits are generally not committed.
Res. Mortgage Other retail Total Total Under SA approach 1 487 142 3,888 4,518 4,237 Under AIRB Approach 386 5,712 78,715 11,085 9,789 105,687 91,184 – 0% risk weight 13 31 157 5 206 117 – >0% - ≤10% risk weight 233 1,594 12,171 8,785 5,269 28,052 26,065 – >10% - ≤20% risk weight 62 1,523 10,943 1,395 1,672 15,595 13,983 – >20% - ≤35% risk weight 70 1,295 22,102 597 814 24,878 19,702 – >35% - ≤50% risk weight 597 14,700 170 653 16,120 13,758 – >50% - ≤75% risk weight 225 10,033 78 625 10,961 10,141 – >75% - ≤100% risk weight 1 248 4,365 21 442 5,077 3,646 – >100% - ≤150% risk weight 4 144 2,909 19 233 3,309 2,784 – >150% - ≤200% risk weight 3 15 865 6 40 929 497 – >200% - <1250% risk weight 40 470 9 41 560 490 – 1250% risk weight Total 386 5,713 79,202 11,227 13,677 110,205 95,421
Counterparty credit risk The main activities that qualify under counterparty credit risk are derivatives trading activities and securities financing. As part of these activities, ING Bank enters into master agreements such as ISDA master agreements and Global Master Repurchase Agreements (GMRAs). Under the terms contained in sections related to Minimum Threshold Amounts and Minimum Transfer Amounts of Credit Support Annexes (CSA) or other similar clauses, both ING Bank and it counterparties may agree to pledge additional collateral to each other in the event that either party is downgraded by one of the established rating agencies. ING Bank has determined that under prevailing market conditions, a one notch downgrade would only have a limited effect on the amount of additional collateral that ING Bank would be required to pledge under these agreements. However, the actual amount that ING Bank may be required to pledge in the future may vary based on ING Bank's portfolio composition of both derivatives and securities pledged in securities financing transactions, market circumstances, the number of downgrade notches as well as the terms and conditions of future CSAs or other similar agreements entered into.
Res. Mortgage Other retail Total Total Interest Rate Derivatives 1,922 26,611 5,375 22 33,930 33,993 Foreign Exchange Derivatives 286 2,732 2,933 21 5,972 5,649 Equity Derivatives 2,043 126 7 2,176 2,668 Exchange Traded Products 2,094 2,094 1,901 Commodity Derivatives 21 163 813 997 1,327 Credit Derivatives 409 1 410 430 Derivatives 98 89 187 375 Total 2,229 34,150 9,337 50 45,766 46,343
Additional Pillar III information - continued 2015 2014 Notional MtM Notional MtM OTC derivatives – CCP 2,052,351 –2,190 1,824,940 –3,608 – Non-CCP 1,759,442 –1,353 1,723,101 –2,555
Includes both AIRB and SA portfolios; excludes securitisations, equities and ONCOA. ETD Derivatives settle price movements daily. Therefore there is no MtM build-up that generates exposure.
The slight increase in the Bond financing given portfolio is mainly driven by increased business in Asia.
Include both AIRB and SA portfolios; excludes equities and ONCOA. AIRB collateral values are before haircut, SA collateral values used are values after haircut.
Res. Mortgage Other retail Total Total Current Outstandings 108,588 94,235 222,125 273,342 35,590 733,880 701,484 1 month 92,776 69,587 213,664 272,370 34,743 683,140 661,616 3 months 90,030 62,298 202,521 271,464 34,237 660,550 636,955 6 months 88,320 58,232 191,647 269,981 33,397 641,577 615,537 1 year 72,449 48,882 156,338 267,038 28,032 572,739 558,349 2 years 65,139 38,635 126,804 261,821 23,677 516,076 508,671 3 years 60,529 32,634 102,326 256,900 20,373 472,762 466,142 5 years 47,030 18,110 55,571 242,669 14,787 378,167 385,457 7 years 35,743 11,161 30,422 226,761 10,030 314,117 322,096 10 years 12,047 6,894 15,015 199,591 6,765 240,312 250,196
2015 2014 Traditional Synthetic Total Total Retail 6,406 6,406 6,312 - Of which residential mortgage 3,272 3,272 4,025 - Of which credit card - Of which other retail exposures 3,134 3,134 2,287 - Of which re-securitisation Wholesale Banking 36 36 45 - Of which loans to corporates - Of which commercial mortgage 36 36 45 - Of which lease and receivables - Of which re-securitisation Total 6,442 6,442 6,357
Simple risk weight method ING Bank N.V. does not use the simple risk weight method for specialised lending. It uses the PD, LGD and EAD approach instead. A small part of ING’s portfolio – some of the equity exposure – is subject to the simple risk weight method for calculating the regulatory capital. The table below shows more details on the equity exposure for which this method is used.
In April 2015 the merger between ING Vysya Bank (Vysya) and Kotak Mahindra Bank (Kotak) was completed resulting in an increase in the exchanged traded equity position value of EUR 1 billion. Additionally, the merger increased the RWA due to a change in accounting treatment. Before the merger, the Vysya stake was an investment in associates larger than 10%, therefore the Simple Risk Weight Approach was not applied. Since the merger, ING holds a stake of 6.5% in Kotak and therefore this position is treated as a Financial Instruments less than 10% (Available for Sale, AfS) with 290% risk weight, resulting in an increase of CRWA of EUR 3.3 billion.
Key changes Over the year, the ING Bank Market Risk Weighted Assets (MRWA) decreased by EUR 1.1 billion to EUR 9.6 billion. The key changes are the following: • MRWA decreased by EUR 1.1 billion mainly as a result of a decrease in exposures to sovereign issuers that decreased IRC. • A model update comprising a change in Stressed VaR period used in Stressed VaR calculations did not result in material impact on
Impact on capital IFRS-EU Equity –2,634 –1,294 –926 –137 –1,160 Common equity Tier 1 (CRR/CRD IV, fully loaded) –582 –1,514 –926 –137 –1,154 * CRR/CRD IV on a fully loaded basis, no phase in assumed.  Indicates the item has an impact on the capital as indicated in that column.
Revaluation Reserve Impact The revaluation reserve for real estate, debt securities, equity securities and for currency translations will be part of CRR/CRD IV equity. The revaluation reserve for cash flow hedges will not be part of CRR/CRD IV equity. The interest rate sensitivity shown for debt securities is the unhedged interest rate sensitivity, i.e. debt securities in hedge accounting relations are excluded.
To protect ING Bank and its depositors against liquidity risks, ING Bank maintains a liquidity buffer, which is based on the liquidity needs across all entities under stressed conditions. ALCO Bank ensures that sufficient liquidity is maintained, in accordance with Bank and regulatory rules and standards, including a buffer of unencumbered, high quality liquid assets.
Assets of ING Group 104,305 752,873 Equity instruments 6,551 6,551 12,326 12,326 Debt securities 11,477 11,394 106,771 106,697 Other assets 660 70,536 2014 in EUR million
Collateral received by ING Group 61,805 40,506 Equity instruments 3,721 15,787 Debt securities 57,876 24,432 Other collateral received 114 Own debt securities issued other than own covered bonds or ABSs 2015 median in EUR million
Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered Carrying amount of selected financial liabilities 100,935 141,156
ING Group manages it balance sheet prudently whereby a variety of funding sources is readily available. Given this situation, the level of encumbrance of ING Group’s balance sheet is relatively low. Encumbered assets on ING Group’s balance sheet comprise to a large extent mortgages and other loans which are used as cover pool for covered bond programs issued by subsidiaries in the Netherlands, Belgium and Germany, as well as external securitisations and other types of collateralized deposits. Of the total encumbered assets of the Group, EUR 82 billion are loans and advances, mostly mortgages, that serve as collateral for these type of liabilities. The cover pool assets are not considered encumbered when the securities are retained within ING Group. The issued securitisations and especially the covered bonds have over collateralisation, meaning that the assets in the cover pool are higher than the issuance. Furthermore, assets are encumbered as a result of the repo- and securities lending business and cash and securities collateral posted for derivative and clearing transactions in which pledging collateral is a requirement. As part of its normal securities financing and derivatives trading activities ING enters into standard master agreements such as ISDA and Global Master Repurchase Agreements (GMRA), which contain Credit Support Annexes (CSA) or other similar clauses. Under the terms of these contracts ING could be required to provide additional collateral in the event ING is downgraded by one of the established rating agencies. Refer to the paragraph Counterparty Credit Risk. The main part of ING Group’s repo- and reverse repo activities are short-term dated. Repo transactions are mostly conducted with securities which have been obtained as collateral in reverse repo transactions, which are not recognized on the balance sheet. Where securities recognized on the balance sheet have been used in a repo transaction, these remain recognized on the balance sheet and are reported as encumbered. Of the unencumbered other assets included in the table ‘Assets’, the vast majority of the assets is not available for encumbrance. This category comprises assets such as derivative receivables, tax assets, property and equipment, intangible assets and investments in associates and joint ventures.
We aim to achieve the highest net promoter scores in all retail banking businesses compared to our peers We achieved 1st position in 7 out of 13 Retail markets
We will provide 1 million children with access to education by 2015 through our partnership with UNICEF 1 million children reached since 2005
Our sustainable assets under management increased from EUR 1.54 billion to EUR 2.57 billion
The total extrapolated amount of carbon emissions decreased by 6% from 102 to 96 kilotonne CO2e
Economic value generated ING contributes to the economies of more than 40 countries where we operate. In addition to this, we aim to align the disclosures with the Global Reporting Initiative (GRI) G4 guidelines.
Business Most of ING Bank’s activities serve the financing and investment needs of households and companies, other financial institutions and governments. We allocate 39.2% of the balance sheet to private individuals in the form of mortgages and other types of loans; this exposure has minimal environmental risk implications. Some 31.8% of our assets is allocated to meet the financing needs of corporates. In response to what stakeholders and society ask of us with regard to transparency, the tables on the next pages provide insight into the different sectors we finance and the applicability of our Environmental and Social Risk Framework.
Risk Managers: departments that provide control over Front Office activities and generally sign off on the environmental and social impacts for ’Low Risk’ or ‘Medium Risk’ EP deals, which generally refer to Category C projects or Category A and B in designated countries.
People The tables below provide an overview of Human Resources related topics like training and development and diversity.
Children reached 1 The methodology we used to calculate the number of children reached through UNICEF programmes has changed. For historical comparison the number presented in this table is in line with the former calculation method and only includes the number of children reached through UNICEF education programmes supported between 2005-2015. Due to the type of activities carried out by UNICEF from 2013 to 2015, we know the number of children reached is higher than reported here.
Stakeholder engagement We seek external direction and validation of our sustainability priorities by endorsing international standards such as the UN Global Compact. In 2015 ING was present at the launch of the Sustainable Development Goals, which we endorse and contribute to via our sustainability direction. A full overview of partnerships, memberships and endorsements can be found here: On expert-, management - and Board level we actively engage with our customers and other stakeholders such as investors, governments officials and NGOs on relevant topics, issues and challenges. Throughout the year challenges and issues are discussed with and brought to our attention by different stakeholders. In the table below, we provide a snapshot of the key issues from 2015.
Stakeholder Topic of Discussion ING's point of view NGO - The Fair Finance Guide (FFG) Netherlands
Commitments and progress: The report provides a recap from the perspective of the FFG on the progess made by banks as a result of 13 earlier published FFG reports.
Investments in nuclear weapons and cluster munitions: In November, PAX issued a report on investments made in companies producing nuclear weapons. Overall, PAX was positive about the decrease of investments made in these companies by Dutch banks like ING. ING was again included in the runners-up category.
Our elaborate stance towards the defence industry and nuclear weapons in particular can be found on our webpage Our Stance: in-Society/Sustainability/Our-Stance.htm .
Asset-backed security (ABS) A type of bond or note that is based on pools of assets, or collateralised by the cash flows from a specified pool of underlying assets.
Asset Liability Committee (ALCO) ALCO manages the balance sheet of ING, especially regarding the strategic non-trading risk. These are interest rate risk, equity risk, real estate risk, liquidity, solvency and foreign exchange risk and fluctuations.
Available-for-sale financial assets Those non-derivative financial assets that are designated as available-for-sale or are not classified as: • loans and receivables; • held-to-maturity investments; and • financial assets at fair value through profit and loss.
Control Situations in which ING owns, directly or indirectly, more than half of the voting power of a company, or when ING has control of a company’s operating and financial policies through situations including, but not limited to: • ability to appoint or remove the majority of the board of directors; • power to govern such policies under statute or agreement; and • power over more than half of the voting rights through an agreement with other investors.
Convexity The non-linear relationship between changes in interest rates and changes in bond prices and their net present value. It is a very important market risk measure for portfolios containing embedded options.
Depositary receipt of ordinary shares More than 99.9% of the ordinary shares issued by ING Groep N.V. is held by Stichting ING Aandelen (ING Trust Office). In exchange for these shares, the ING Trust Office has issued depositary receipts in bearer form for these shares.
Economic exposure Total of outstandings plus undrawn committed portions calculated on the basis of economic risk principles.
Financial liability Any liability that is: a. contractual obligation: - to deliver cash or another financial asset to another company; or - to exchange financial instruments with another company under conditions that are potentially unfavourable; or b. contract that will or may be settled in the company's own equity instruments.
Fully loaded CET 1 ratio The CRR/CRD IV Common Equity Tier 1 ratio calculated according to the 2019 end-state rule. (See other definitions.)
Held for sale A business or group of assets for which the carrying amount will be recovered principally through a sale transaction rather than through continuing use. When a business or a group of assets are to be sold together in a single transaction, and the sale is considered to be highly probable, these are classified separately in the balance sheet as ‘assets held for sale’. A sale is highly probable when management is demonstrably committed to the sale, which is expected to occur within one year from the date of classification as held for sale. Liabilities directly associated with those assets, and that are included in the transaction, are included in the balance sheet as ‘liabilities held for sale’.
Interim dividend The interim dividend is an advance on the total dividend and distributed before the end of the fiscal year.
Irrevocable facilities This mainly constitutes unused portions of irrevocable credit facilities granted to corporate customers, and commitments made to purchase securities to be issued by governments and private issuers.
Lending risk Lending risk arises when ING Bank grants a loan to a counterparty, or issues guarantees on behalf of a counterparty. This includes term loans, mortgages, revolving credits, overdrafts, guarantees, letters of credit, etc. The risk is measured as the notional amount of the financial obligation that the counterparty has to repay to ING Bank, excluding any accrued and unpaid interest, discount/premium amortisations or impairments.
Liquidity coverage ratio (LCR) Regulatory measure for the liquidity of banks, which compares the amount of high-quality liquid assets with a potential outflow over a one-month period. The measure is introduced under Basel III. LCR is defined as: stock of high quality liquid assets divided by assumed 30-day cash outflow.
Liquidity risk The risk that ING Group, or one of its subsidiaries, cannot meet its financial liabilities when they are due, at reasonable costs and in a timely manner.
Loan to deposit ratio (LtD ratio) Measure for the liquidity of banks. The LtD ratio is defined as: own originated loans divided by own originated deposits.
Marked-to-market (MTM) Valuing a security, portfolio or account against its market value instead of its carrying value.
Over-the-counter instrument A non-standardised financial instrument not traded on a stock exchange, but directly between market participants.
Remuneration Committee The Remuneration Committee, consisting of members of the Supervisory Board, advises the Supervisory Board on aspects such as the terms and conditions of employment of Executive Board members and senior managers of ING and its subsidiaries. This including their remuneration, as well as the policies and principles that the employment terms and conditions are based on.
Return on equity (ROE) The return on equity is the net result as a percentage of average equity. It’s used as a measurement of a company’s profitability and efficiency.
Sub-prime mortgage Mortgage loans made to borrowers who can’t get a regular mortgage because they have a bad credit history or limited income.
Tier 1 capital The Tier 1 capital of an institution consists of the sum of the common equity Tier 1 capital and additional Tier 1 capital.
Tier 2 capital Tier 2 capital shall consist of the following: a. Capital instruments and subordinated loans where the conditions laid down in Article 63 (CRR) are met; b. The share premium accounts related to instruments referred to in point (a.); c. For institutions calculating risk-weighted exposure amounts in accordance with Chapter 2 of Title II of Part Three, general credit risk adjustments, gross of tax effects, of up to 1,25 % of risk-weighted exposure amounts calculated in accordance with Chapter 2 of Title II of Part Three of the CRR; and d. For institutions calculating risk-weighted exposure amounts under Chapter 3 of Title II of Part Three, positive amounts, gross of tax effects, resulting from the calculation laid down in Articles 158 and 159 up to 0.6 % of risk-weighted exposure amounts calculated under Chapter 3 of Title II of Part Three of the CRR.
This Annual Report contains the Reports of the Executive Board and Supervisory Board as well as the Annual Accounts and other information for the financial year 2015 in their original language (English).
Disclaimer Certain of the statements contained in this Annual Report are not historical facts, including, without limitation, certain statements made of future expectations and other forwardlooking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation: (1) changes in general economic conditions, in particular economic conditions in ING's core markets, (2) changes in performance of financial markets, including developing markets, (3) consequences of a potential (partial) break-up of the euro, (4) ING's implementation of the restructuring plan as agreed with the European Commission, (5) changes in the availability of, and costs associated with, sources of liquidity such as interbank funding, as well as conditions in the credit markets generally, including changes in borrower and counterparty creditworthiness, (6) changes affecting interest rate levels, (7) changes affecting currency exchange rates, (8) changes in investor and customer behaviour, (9) changes in general competitive factors, (10) changes in laws and regulations, (11) changes in the policies of governments and/or regulatory authorities, (12) conclusions with regard to purchase accounting assumptions and methodologies, (13) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, (14) changes in credit ratings, (15) ING's ability to achieve projected operational synergies and (16) the other risks and uncertainties detailed in the Risk Factors section contained in this Annual Report.