Net Promoter Score Retail Banking (number of countries with number one ranking, rolling average) 1 7 7 7
Total number of Retail Banking primary relationships (in million, year-end)1, 2 12.5 11.4 10.4
Social Impact Finance (lending outstanding in EUR billion, year-end) 3 0.8 0.5 –
Underlying risk costs in bps of average RWA 21 22 31
Shareholders' equity per share (end of period in euros) 13.09 12.97 12.84
Price/book ratio (end of period) 0.72 1.18 1.04 1 Subject to reasonable assurance by KPMG. Throughout the report indicated with a Ⓐ. See ‘Independent auditor’s assurance report’.
2 A refined definition was applied to customer analytics reported by ING retail markets as of 2016.. In addition, the merger of Record Bank into ING in Belgium was completed in 2Q18; customer numbers were consolidated accordingly as from 2Q18, resulting in an 80k increase in primary customers.
7 The leverage ratio of ING Group according to the Delegated Act (including grandfathered securities) takes into account the impact of grossing up the notional cash pool activities.
ING achieved strong business growth and commercial momentum in 2018 and we continued to transform to provide customers with a differentiating experience now and in the future. To address serious shortcomings in the area of know your customer (KYC), we’re taking robust measures to enhance ING’s compliance culture and capabilities, in line with our commitment to integrity.
Let me be perfectly clear. We take this very seriously and take full responsibility for what happened. As a bank, the trust of our customers and other stakeholders is our licence to operate.
We are taking a number of robust measures to strengthen our management of compliance risks and embed stronger awareness across the whole organisation. This includes enhancing our KYC
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > CEO statement customers, helping us to develop into a go-to platform for financial needs and services beyond banking.
mobile banking app with offerings in the areas of Living, Mobility and Wellness.
Our success in offering a differentiating experience in 2018 showed in the form of net promoter scores (NPS) where customers ranked us number one in seven of our 13 retail markets. And ING
continued to attract new customers: the global retail customer base grew by one million customers over the year to reach 38.4 million, and the number of primary customers – customers who have current accounts with recurrent income and at least one other product – increased 9.9% to 12.5 million. We are on track to reach our goal of 14 million primary relationships by 2020, an important ambition as we further develop our digital universal banking proposition.
To pursue these platform opportunities, we are transforming ING. The goal is to create one global platform providing a uniform, borderless customer experience and one that is easily scalable, so we can grow quickly at low cost. It should be ready for open banking and relevant third-party offerings, capable of interfacing with other digital platforms and support advanced analytics capabilities to turn data insights into benefits for customers. The Unite be+nl programme to build an integrated banking platform combining the strengths of our Belgian and Dutch banks and the Model Bank
A common standard for data security will better safeguard customers' personal data, and artificial intelligence and analytics capabilities will enhance the effectiveness of know your customer (KYC)
Dutch authorities on regulatory issues, which was recorded as a special item. The underlying net result (i.e. excluding special items and Insurance Other) rose 8.7 percent to €5,389 million. Net growth in our core lending book amounted to €36.6 billion, or 6.4 percent, and net growth in customer deposits was €19.3 billion in 2018. The lending growth was well-diversified over regions and business lines, including the Netherlands which turned to growth again. Underlying income increased, driven by continued business growth at resilient interest margins and higher net fee and commission income. Risk costs were slightly lower, supported by the benign credit environment in most markets and the still robust macroeconomic outlook in both Europe (except for Turkey) and the US. Underlying expenses were well-controlled despite a further increase in regulatory costs, and rose 0.8 percent year-on-year. Our capital base remained strong with a fully loaded CET1 ratio of 14.5 percent at year-end 2018. ING’s underlying return on equity improved to 11.2 percent from
The Board proposes to pay a total 2018 dividend of €0.68 per ordinary share, subject to shareholder approval at the AGM in April 2019. This is in line with our goal of paying a progressive dividend over time, while ING is committed to maintaining a CET1 ratio of around 13.5%, taking into account potential RWA inflation from regulatory developments on the current CET1 ratio.
At ING, our empowerment purpose also extends to long-term value creation through helping people to thrive in tomorrow’s world by turning the threats of climate change and fast-changing technology into opportunities. We support the UN’s Sustainable Development Goals, which help
Sustainability Direction we focus on SDG 12 and 8 (see ‘How we create value’ in the Strategy chapter).
In 2018, we continued to pioneer innovative forms of finance that support a better world. These included loans linked to a company’s sustainability performance, an area in which we are one of the leaders. And we are building a reputation for placing green bonds, which companies use to fund environmentally-friendly projects.
One of the goals of our sustainability approach is also to make people more resilient in these times of change by empowering them to take control of their finances and make better financial decisions. In 2018, we continued to provide tools to help customers make informed decisions, for instance through websites, social media campaigns and YouTube channels. ING’s YouTube channel with financial insights became the fifth brand in Poland to reach more than 100 million views.
ING made strides in 2018 not only in terms of commercial growth and strong financial returns, but also in adapting our organisation to meet the evolving needs of customers and seize opportunities in the future. We owe this success to our retail customers and wholesale banking clients and to the
ING employees who work tirelessly every day to empower them with products, services, expertise and an experience that makes the ING brand one of the strongest in banking.
We’re greatly influenced by the world around us, from the economic and regulatory environment, to the evolving competitive landscape and needs of our customers and other stakeholders.
Given differences in monetary policy stances and economic developments, longer-term yields increased in the US and, on balance, moved sideways in the eurozone. However, in Italy, uncertainty about the forthcoming budget led to a considerable increase in sovereign spreads.
It’s clear that the debate on the Economic and Monetary Union is difficult and progress on the completion of the banking union is slow. We are hoping for progress on the European Deposit
Trust is our licence to operate. Our stakeholders agree, as ‘business culture and ethics’ entered the list of most material topics in 2018. That’s defined in our materiality research as ‘fair, transparent and moral code of conduct for the strategic and operational management of business’. Our shared
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Board submitted – and subsequently withdrew – a proposal to amend the Executive Board remuneration policy to bring the remuneration for the CEO position closer to peers within the EURO
Stoxx benchmark. The Supervisory Board stated it underestimated the public response in the
Over the years, ING has been working to meet the needs of our customers by transforming to a global, digital organisation. We’re constantly innovating to provide customers with a personal, instant, relevant and seamless experience. This process is strongly driven by data.
The regulatory framework for personal data is fundamentally shaped by the EU. It seeks to walk the fine line between privacy protection and fostering data sharing. In 2018, two crucial pieces of the new personal data architecture started being rolled out across the EU: the second Payment
The GDPR is a landmark personal data-protection framework that is arguably the world’s most stringent. It gives customers the right to receive their personal data upon request and to allow their data to be directly transmitted to third parties. PSD2 meanwhile implies that banks must share customers’ payments data – with the customer’s explicit consent – with other regulated entities.
ING believes customer data should be accessible in a similar manner for banks and non-banks. This should be adequately reflected in the EU’s regulatory framework. The EU should consider expanding the open access regime pioneered by PSD2 to – in the first instance – financial services platforms, followed by other sectors to create a level playing field, while keeping strong safeguards
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > The world around us for our customers, such as the GDPR, in place.
We believe innovation can flourish within the boundaries of a strong personal data-protection framework, through which we’ll safeguard people’s fundamental right to privacy in the growing data economy.
WeChat have set the standard for what people expect of their online and mobile experience, whether they’re buying things, socialising, being entertained – or banking.
One of the biggest contributors to the success of these platforms is that they work from one source, one set of systems, one way of working, and one way of interacting with customers. ING is working to achieve this, but we’re not there yet.
ING has a history of being innovative, but we have to continue to evolve to earn a place in our customers' lives. We could choose to join existing platforms, but would that offer ING enough room to build meaningful customer relationships? ING’s future also lies in being a platform ourselves.
Celsius requires a major shift in investment patterns. Achieving this goal will require policies that involve unprecedented economic, social and technological transformation, as economies shift towards low-carbon and climate-resilient infrastructure investments.
This is evident in how we approach the energy transition. ING is and aims to remain an important player in the energy sector. We believe that ending finance for fossil fuels immediately is not the best way to contribute to the energy transition. Instead, we aim to contribute in a way that aligns with the International Energy Agency’s Sustainable Development Scenario (IEA SDS). This shows how the world can change course to deliver on the three main energy-related Sustainable
We set up Sustainable Investments in 2018, committing €100 million of capital for sustainable scale-ups with a proven concept and a positive environmental impact. So far we’ve invested in solar-panel-maker Exasun and Black Bear Carbon, which recycles old tyres into a raw material used to make things like pen ink, smartphone covers and new tyres.
ING is looking to capture the opportunities and address the risks of climate change, in line with the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial
“In the early stages of testing the feedback was very encouraging, but when we tried to reach larger audiences we struggled. Our main learning is that consumers do want personalised tips and support in making sustainable lifestyle choices, but it needs to be provided through existing channels where they already spend time and with existing incentives they are familiar with. Perhaps we were ahead of our time. What I like the most about working for ING in this area is the opportunity to be at the forefront of beyond banking – developing digital business models that have the potential to truly empower people and businesses. Being able to choose for sustainability is very empowering.”
Strong and consistent profitability has been driven by the steady increase in our lending business at resilient margins and by growth of fee income. The well-diversified increase in lending spans segments and geographies. In particular, lending to businesses and consumers has grown strongly in our Challengers & Growth Markets. In Wholesale Banking, Industry Lending and Transaction
Cobase, we participate on third-party platforms where other industry players are active.
To achieve our ambition, we are evolving towards one single scalable global platform that will offer a uniform and borderless experience. And one that is open so we can also provide relevant thirdparty and beyond banking offers. This involves standardising IT using a modular approach in order to create a scalable platform that can accommodate growth at low cost. To support this, we are developing standardised processes and shared services, one way of managing data, and one agile way of working across ING. As an intermediate step we are converging businesses with similar customer propositions, such as in the Benelux where we are integrating our platforms and harmonising business models, the Model Bank initiative where we’re developing a common platform to roll out in five European countries and Welcome in Germany where we’re developing a go-to financial platform offering our own and third-party services.
Earning the primary relationship is a strategic priority for ING as it leads to deeper relationships, greater customer satisfaction and, ultimately, customers choose us for more of their banking needs. In Retail banking we define primary customers as those with multiple active ING products, of which one is a current account where they deposit a regular income such as a salary. For Wholesale Banking it means being the lender of choice and having an appropriate volume of flow products in Transaction
With the further digitalisation of banking, data is an important asset that helps us improve the customer experience and earn the strategically important primary relationship. We rely on data to understand what customers want and need. We use these insights to personalise our interactions with customers and empower them to make their own financial decisions. Data skills are also essential to know our customers from a regulatory and risk perspective, to prevent fraud, improve operational processes and generate services that go beyond traditional banking. At ING, we recognise that excelling at data management is a core competency if we are to realise our ambition to create a personal digital experience for customers. We are on course to implement one global approach to data management to ensure we maximise the potential of this key resource. Discussions in society about data privacy and the tightening of data privacy legislation and regulations, such as embodied in the EU’s General Data Protection Regulation (GDPR), are raising awareness of this important issue. At ING, we are committed to handling customer data safely and being open about how we use it.
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 3. Increase the pace of innovation to serve changing customer needs
Evolving customer expectations, new technologies and new competitors are transforming banking. Through innovation, we can increase efficiency, improve the customer experience and gain competitive advantage. We do that, for example, through ING’s own PACE innovation methodology and employeedriven Innovation Bootcamps. To speed up the pace of innovation we also partner with outside parties, including fintechs.
Read more in the ‘Innovation and transformation’, ‘Our business’ and ‘Our people’ chapters.
total of 4,100 leaders and managers have so far participated in TFLP and TFLE
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. The approach focuses on increasing employees’ knowledge and equipping them to make balanced decisions when facing dilemmas in their jobs, to comply with all applicable laws, standards and regulations, and to act with integrity always.
But to do this, we have to break down borders and become one united ING.
ING is preparing for a future in the platform age. In innovation, it’s how we aim to stand out from the competition by offering people a better experience, one that is more personal, instant, relevant and seamless. In our transformation, it is what we are doing to build one ING, one digital bank with one foundation, one way of working and one digital banking platform.
Being where customers are is a big part of what makes any business successful. We have to continue to evolve if we are to earn a place in customers' lives. That means being on these digital platforms and creating our own platforms to be able to understand and serve customers better.
Connecting to existing platforms offers ING little space for building meaningful customer relationships. In making an Amazon purchase, for instance, the payment service is just a click.
To create one user experience for all of our more than 38 million customers, we have to be one ING.
• Model Bank, To move Retail banks in France, Spain, Italy, the Czech Republic and later Austria towards becoming one bank; one borderless, scalable unified customer engagement platform, providing a personalised customer experience.
Highlights: The expertise of several ING countries is being combined to build a best-in-class mobile
applications decommissioned and numerous customer experience process improvements including consistent account opening process for international corporate clients in 18 countries.
Managing ING’s transformation is the task of the chief transformation officer and the Global
Transformation Office. Transformation management is important in connecting all country, business line and function workstreams. In 2017, we launched a bank-wide transformation management method with a set of standardised tools and processes, aimed at ensuring our strategy is executed and ING is united in a seamless way. The way we do that is built on agile principles and introduces one Way of Working for transformation as an enabler for global collaboration and knowledge sharing. It includes quarterly business reviews to improve planning and prioritisation, ‘gated’ processes and 90-day delivery cycles. All are designed to ensure the execution of our Think Forward strategy and ultimately lead to a better impact on customers and other stakeholders.
An excellent customer experience relies on ING always being available when and where customers need us. Given ING’s digital ambitions, we continually strive to improve the availability of online channels (internet and mobile). In 2018, ING recorded 99.7 percent1 weighted system availability towards Retail customers in the Netherlands and Belgium. In addition, system availability for
requirements. To know more about what personal data ING collects, what we do with it and who we share it with, go to our Privacy Statement on www.ing.com/18ar003 or any local ING website.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Innovation and transformation
Some of its achievements in 2018 include designing global mortgage, consumer lending and payment account processes. GPM also put in place a global process infrastructure with global process model tooling.
To respond quicker to changing demands and customer feedback, encourage an innovative mindset and engage employees, ING’s one agile Way of Working (WoW) unites employees in multidisciplinary, cross-functional teams. End-to-end responsibility of tribes and squads empowers them to collaborate more easily and effectively across the organisation.
WoW has been introduced in the Netherlands, Poland, Romania, Belgium, Austria, Spain and
Orange Code. Cultural differences between countries are challenging but not unsurmountable. This new Way of Working, with trust an important component, also tends to be more difficult for leaders and managers than those on the working floor. Special leadership training programmes have been organised for local leaders to prepare them for such behavioural change. We’ve also organised monthly bootcamps to train Way of Working ambassadors from the countries and business units.
‘White hat’- or ethical - computer hackers are invited to share their observations using ING’s
attacks against Dutch banks have increased in magnitude and new techniques continue to surface.
ING is accelerating the integration of robotics and artificial intelligence to help customers and ING
remain a step ahead. Customers increasingly are using AI-supported services such as Amazon’s
The bank established a Global Analytics Unit in 2018 aimed at speeding up analytic capabilities and transforming ING into a truly data-driven company. Examples of recent projects include machine learning in anti-money laundering and transaction monitoring, the use of chatbots and voicebots, the use of text mining techniques to improve efficiency in back-office operations and risk models that drive the efficient use of capital.
In the Netherlands, Kijk Vooruit, or 'look ahead' in English, is a forecasting tool that uses advanced analytics to show planned and predicted transactions, helping customers to keep a grip on their finances and avoid going into the red. The Netherlands also uses ‘Inge’ who provides transactional information and automatically starts a conversation when asked about making a payment request.
Robotic Process Automation (RPA) uses robotic software scripts to digitalise manual activities. ING
Retail, SMEs and Mid-Corps as well as Wholesale Banking. Customers benefit from their use because robots tend not to make mistakes and are able to work 24 hours a day, seven days a week. Some examples of RPA in action include know your customer name screening, opening and closing current accounts and finance report generation.
To ensure consistent use between ING countries, a global scripters community has been formed to share information and best practices.
ING’s annual Innovation Bootcamps encourage employees to come up with new ways to improve the customer experience and compete for a place in one of our ING Labs accelerators. In 2018,
Lawyer Awards on www.ing.com/18ar004. ING in the Netherlands’ Tribe Legal won the FT
(www.ing.com/18ar007), a €300 million fund that invests in fintech companies around the world. It aims to build a portfolio of investments to help ING accelerate the pace of innovation. The fund is available for both seed and scaling-stage investments. As of end of 2018, ING Ventures had made 26 investments. These include fintechs like, Clark, Fintonic, Funding Options, TradeIX, Twisto and
Ventures portfolio companies made it to the CB Insights Top-250 fintechs worldwide.
Not all of ING’s collaborations or innovations lead to new products or services and we have stopped more than 60 partnerships, mostly after unsuccessful or unsatisfactory proofs of concept. Failing fast leads to less waste and avoids prolonging investment in unsuccessful projects.
“ We want to be the go-to API platform for financial needs
Belgium. We are combining our strengths in Belgium and the Netherlands under the Unite be+nl programme and building an integrated banking platform. This is part of our strategy to enhance operational excellence, create greater cost-efficiency and provide a consistent, digital-first banking experience for our customers. For example, customers in Belgium will benefit from new functionalities on the ING mobile banking app. ING is also the first major bank in Belgium to offer same-day payments processing.
One of the ways we are harmonising our products is by standardising the look and feel. For example, we have globally reduced more than 95 bank card designs to just eight. In 2018, we introduced the new-look cards in Belgium and the Netherlands. These have a ‘clear and easy’ look with a symbolic orange ‘heart’. This follows the roll-out of the new cards in France in 2017, then
Our Challengers markets are Australia, Austria, Czech Republic, France, Germany, Italy and Spain.
In 2018, we expanded our retail offering in the Czech Republic, which became the first country to go live on the Model Bank platform. We will start integrating customers in Spain, France and Italy onto the platform from 2019. To broaden our activities, we also started testing a mobile-only retail offering in the Philippines.
In September 2018, ING reached a settlement agreement with the Dutch Public Prosecution
in Australia helped introduce instant payments to the market, in collaboration with NPP Australia and 12 other financial institutions. NPP is an innovative payments infrastructure that contributes to an easy, instant and seamless experience for our customers by providing real-time clearing and settlement, removing the usual two- to three-day wait for transfers to go through.
HCE. We also introduced an ING-specific keyboard for our Moje app to simplify mobile commerce and peer-to-peer transactions.
Polish SME customers control over which invoices they want to pre-finance and when.
Innovative Product by Visa. At the end of 2018, it had 470,200 active customers, of which 183,000 were primary customers and 120,500 were spenders on the programme with Orange Extra cards.
Across ING, digital channels account for more than 97 percent of contacts with retail customers, of which more than 72 percent are via a mobile phone, compared to 63 percent in 2017. Given the rise of digitalisation, and growing competition from disruptive newcomers to our sector, we want to do more than just live up to our Customer Promise. We want to surpass people’s expectations.
It is vital that we know our customers from a regulatory and risk perspective. As a bank we have a responsibility to comply with the rules and regulations that secure the integrity of our own operations and that of the financial system. Not meeting these standards is unacceptable. It is sincerely regrettable that serious shortcomings were identified in customer due diligence to prevent financial economic crime at ING Netherlands in the period investigated (2010-2016). This had a big impact in the form of a €775 million settlement agreement. It was a failure to meet the standard of integrity that we set for ourselves – and more importantly – a failure to live up to the expectations of our customers and society.
We are committed to conducting our business with integrity and are taking robust and structural measures to restore trust in ING. These measures aim to strengthen the way we manage compliance risks and to improve compliance risk management across the bank. For more information about these measures see the ‘Risk and capital management’ chapter.
Yolt is a smart money app that helps users to manage their personal finances with a one-stop overview of their accounts at most major banks. It was launched in the UK in June 2017 and now has more than 500,000 registered users.
On the Wholesale Banking side we invested €7.5 million in Cobase, an international multibank platform that allows corporate clients to manage multiple bank accounts and arrange payments, cash management and treasury services in one place. Since its commercial launch it has accelerated new clients and bank connections, attracting more than 10 beta clients in its first four months, adding to its paying client base. Cobase was included in the CB Insights 2018 Fintech 250 list of the most promising fintech companies. And in January, we acquired 75 percent of international payments platform Payvision, which facilitates more than 80 payment methods in 150 currencies, giving corporate customers more options for making international payments. This is an important step towards becoming the preferred platform for business customers and strengthens ING’s digital payments business, especially in e-commerce. In addition, we are teaming up with fintechs to develop open-source blockchain-based platforms that will disrupt banking as we know it (see Blockchain section below).
At the same time, banks have a duty of care – and a legal obligation – to protect their customers’
May. In 2018, ING updated its privacy statement globally, empowering customers to take control of their own data in line with GDPR. It lets people choose what information they share and with whom. Although GDPR should have created a level playing field across the EU, we’ve noticed this is not necessarily the case. Local interpretations of the laws in different countries and their differing views on privacy and cybersecurity have made it more challenging to apply one global policy.
Throughout 2018 we continued to empower our customers with better solutions and we innovated for the future. To speed up the path to market for disruptive ideas that will benefit clients we also partner with others (see the ‘Innovation and transformation’ chapter).
To improve the way retail customers contact us, we introduced Contact Centre 2.0. This is a cloudbased platform that can switch between channels to give customers the same experience whatever way they get in touch. It provides support by video chat, WhatsApp and telephone.
Germany, Belgium and Luxembourg, it expands our retail offering in these markets.
To help Wholesale Banking clients stay a step ahead we implemented our new Strategic
Initial results show faster pricing decisions for 90 percent of trades and a 25 percent reduction in trading costs.
To help buildings become more energy-efficient, ING Real Estate Finance introduced the ING
Distributed ledger technologies are disrupting the financial industry, making traditional paperbased processes more efficient and secure. ING contributes to the evolution of this nascent technology both by working with partners like the R3 consortium and Enterprise Ethereum Alliance and through our own in-house research. This approach led to a number of blockchain breakthroughs in 2018.
Building on the success of ING’s Easy Trading Connect platform, which demonstrated the potential of blockchain to revolutionise energy and soft commodities trading, is komgo. Launched in Geneva in 2018, it digitalises the processes involved in the financing of commodity trades, such as know your customer and letters of credit, making them simpler and more trustworthy. Originating in ING
In October, we open-sourced our zero-knowledge set membership (ZKSM) solution to tackle the challenge of privacy on the blockchain. ZKSM allows alphanumeric data to be shared without identifying personal details. So for example, it can validate that someone lives in a European Union country without revealing which one, or that a new mortgage applicant’s salary falls within a required range without revealing the exact figure.
To help us accurately measure our portfolio we co-developed a measurement approach with the 2˚
We were well on track in 2018. Climate Finance rose 13 percent to €16.5 billion, Social Impact financing was 66% higher at €775 million and lending to industry ESG leaders grew by 29% to €7.1 billion. Read more in the ‘Non-financial appendix’.
That said, we do still finance clients in the oil and gas industry. ING has already taken a big step in committing to zero exposure to thermal coal – the most polluting fossil fuel. But the world still relies on fossil fuels for power because as yet there’s not enough renewable energy being generated to meet the global demand. Nor is there an affordable and efficient way for storing it.
Deepening our commitment to responsible finance, we introduced a made-to-measure sustainability improvement loan. It links the interest rate of the loan directly to the borrower’s own sustainability targets rather than to an external rating (as was the case with the sustainable
To help young companies active in areas such as the energy transition, circular economy and water, ING launched Sustainable Investments in January 2018. With this we committed €100 million to support scale-ups that don’t yet fulfil the criteria for all-in senior financing. The first recipients include Exasun, maker of solar roof tiles, and Black Bear Carbon, which recycles old tyres into smartphone covers and pen ink.
November 2018 with Asia’s first social-covered bond. The proceeds of the €500 million bond will be used by the Korea Housing Finance Corporation to extend accessibility to affordable housing in
In addition to clear and easy products and services, it’s about providing people with the right information and tools to be financially self-sufficient. This could be financial loans, such as microfinance for SME clients in Turkey, as well as education and research. In line with ING’s own digital ambitions, ING in Turkey extended its financial literacy programme to promote science and maths at school, encouraging youngsters to innovate and become digitally savvy.
CommunityArancio (over 23,000 members), and Aktion pro Aktie in Germany, we provide tools to help customers make informed decisions, while in Belgium we offer tools such as an audible card reader help to make banking accessible to everyone.
Its aim is for every young person (and especially girls) to be in education, training or employment by 2030. The partnership provides mentorship and funding to put young people at the forefront of change. ING CEO Ralph Hamers is a member of the board of Generation Unlimited.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Our business
The underlying result before tax increased 11.9 percent to €972 million, compared with €869 million in 2017, mainly due to higher income and a higher net release in risk costs.
Retail Other consists of the other Challenger countries & Growth Markets, including the stakes in
Italy, Romania and Poland, while risk costs in Turkey remained on the same high level as in 2017.
Payvision as from the second quarter of 2018, was offset by increased expenses (partly due to payment innovation initiatives and higher regulatory costs) and slightly higher risk costs.
Italian lease run-off portfolio were significantly lower than in the previous year.
“Komgo follows a number of successful blockchain experiments in energy and soft
While traditional banking capabilities remain important, we also need to strengthen our competencies around customer intelligence and data.
We are committed to conducting our business with integrity. We are guided in this by the values and behaviours in our Orange Code, which puts integrity above all.
The ING behaviours that differentiate us are: we take things on and make them happen, we help others to be successful and we are always a step ahead. Our behaviours are the commitments we make to each other and the standards by which we measure each other’s performance. That’s why they are included as part of the performance management process.
We also invite all employees worldwide to participate in our Promoting Integrity Programme (PIP).
In addition to the PIP modules, all employees were invited to participate in an online module to enhance their awareness of know your customer (KYC). And there was a global e-learning on whistleblowing.
We believe there are strong links between employee engagement, customer engagement and business performance. This is why we continually improve our performance culture by creating a differentiating employee experience and enhancing the capabilities of our leaders.
The Think Forward Leadership Programme (TFLP) aims to develop greater leaders and better managers who can engage staff and enhance team performance. The first phase of the programme was introduced in 2017, initially to senior leaders. It focused on the Orange Code, individual purpose and the Think Forward strategy. In 2018 it was extended to people managers globally as the TFL Experience (TFLE), a four-day programme with follow-up learning activities.
One of the challenges ING faces is finding, attracting and retaining people with the skills we need to build a digital, data-driven bank. A large proportion (more than half) of vacancies at ING are currently related to data or technology skills, and this is expected to grow in the coming years.
However, these skills are highly sought after and competition for this talent is fierce.
At the same time, to enhance the well-being of our employees and improve the way HR serves the business, we are introducing a new people services organisation. This includes rolling out one global
Data provides valuable insights that help us to better understand and respond to both business and employee needs. Naturally, our employees expect us to keep their data safe and comply with the new data privacy rules introduced in Europe in 2018 (GDPR). To this end, we updated our employee privacy statement in 2018 and empowered them to take control of their own data.
Like many other financial organisations, getting the right mix of people remains a challenge in parts of the business and there is more to be done to redress imbalances that still exist. Women in leadership positions remained stable at 38 percent of managers (39 percent in 2017) and 30 percent of managers of managers (29 percent in 2017 and 2016). Initiatives to improve the gender balance include having more female candidates on succession lists and more representative decision panels and interviewers during the recruitment process.
Nevertheless, we continue to be recognised for our efforts in this area. In an independent genderequality report by Amsterdam-based interest group Equileap, ING ranks among the top 200 companies in the world and among the top five in the Netherlands. The 2018 report compared more than 3,000 companies from 23 countries on a wide range of criteria around gender issues in the workplace. It found the financial sector to be the strongest performer. Banks were the highest performing group in any sector.
 Poland: an internal website with tips on how to recognise and prevent burnout.
 Relaxation classes in various locations, yoga and help for employees to stop smoking.
ING is recognised by the Top Employers Institute and Great Place to Work. In 2018, we retained Top
“I’m working on Interhyp Home, a new personal mortgage platform for customers that provides a digital home for all their mortgage-related documents and information. It makes their life easier, for example they can calculate various mortgage scenarios or get personal advice. This empowers customers and makes them feel more secure about their mortgage.
“Customers appreciate the easy way they can send documents via Interhyp Home. Around 30,000 documents are uploaded a month, giving our mortgage advisors easy digital access to them.
Risk and capital management focuses on maintaining our risk profile within our risk appetite and strengthening our capital base.
After assessment of the impact of Basel IV and IFRS 9 on ING’s capital and earnings, we have set
ING Group’s CET1 and ROE ambitions. The underlying ROE ambition of 10-12% applies to the current average IFRS-EU shareholder’s equity, excluding interim profit, which is not included in CET1 capital.
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. Compared with previous year, the phased-in and fully-loaded total capital ratio (including grandfathered securities) decreased from 18.5% to 18.4%
ING Group’s overall approach to capital management is intended to ensure that capital is adequate to cover the (economic) risks at all levels and to ensure compliance with regulations. ING Group constantly challenges capital positions at subsidiary levels to ensure its optimal use. The continued strength of ING’s capital position, the adequacy of our financial position and our risk management effectiveness are essential in order to achieve our purpose to empower people and businesses to realise their goals, as well as to support ING’s commercial activities, to pay dividends on common shares to shareholders and to invest in new technologies and best practices. In this way, ING aims to deliver shareholder returns while investing in the innovation of products and services.
One specific element of Basel III is the possible restriction on distributable items. This limits the ability of the bank to pay dividends, hybrid coupons and/or management remuneration if its capital drops below the sum of its Pillar 1, Pillar 2 and combined buffer requirements, often referred to as the Maximum Distributable Amount (MDA) trigger. The Pillar 2 requirement in the supervisory review and evaluation process (SREP) 2018 decision is split into:  Pillar 2 requirement (P2R), which is binding and therefore breaches have direct legal consequences.
The Single Resolution Board (SRB) confirmed to ING in 2017 that a single-point-of-entry (SPE)
strategy is ING’s preferred resolution strategy, with ING Groep N.V. as the resolution entity.
In 2018, ING Group received a formal notification from De Nederlandsche Bank (DNB) of its binding minimum requirement for own funds and eligible liabilities (MREL). The MREL requirement has been established to ensure that banks in the European Union have sufficient own funds and eligible liabilities to absorb losses in the case of potential bank failure. The MREL requirement is set for ING
requirement has been set at 10.89% of total liabilities and own funds.
N.V. instruments. In order to build up our MREL capacity, ING Groep N.V. issued multiple transactions (excluding above mentioned Tier 2 issuances) for a total amount of €11.5 billion in 2018. These transactions will not only allow us to support business growth, but will also help to meet future MREL and TLAC requirements with ING Groep N.V. instruments only.
Regulations. Once implemented in EU regulation, as a global systemically important institution (G-
SII) ING is expected to meet the TLAC requirement alongside the other minimum regulatory requirements set out in EU regulation. The TLAC requirement is expected to consist of 16% of the resolution group’s risk weighted assets (TLAC RWA Minimum) and 6% of the leverage ratio denominator (TLAC Leverage Ratio Exposure (LRE) Minimum), excluding buffer requirements, as of 1 January 2019. From 1 January 2022 TLAC is required to be at least 18% of the resolution group’s risk-weighted assets and 6.75% of the leverage ratio denominator.
(2018-2020). The stress test was carried out applying a static balance sheet assumption as of
Tier 1 (CET1) ratio in excess of prevailing requirements remains. Under the hypothetical baseline scenario and EBA’s methodological instructions, ING Group would have a fully loaded CET1 ratio of 13.99% in 2020. Under the hypothetical adverse scenario and EBA’s methodological instructions,
Besides financial risks, ING is subject to non-financial risks associated with IT and cybersecurity, daily operations, compliance with laws and regulations, and adherence to socially accepted ethical norms. Non-financial risks can also arise through relationships with our clients, should issues emerge that are irreconcilable with our Environmental and Social Risk framework.
Executive Board, defines our desired forward-looking risk profile, and informs the strategic and financial planning process. It is designed to be able to withstand market volatility and stress, while meeting regulatory requirements. This framework is complemented by a Non-Financial Risk
Framework that includes compliance risk, operational risk and IT risk. Both frameworks, including underlying assumptions and metrics, are regularly reviewed such that they stay relevant in the ever-evolving financial environment. They combine various financial and non-financial risk disciplines into a single coordinated approach to provide the businesses with a clear overview of their risks and the way they are managed. This view allows the Executive Board and senior management to form an opinion on the adequacy of internal risk management and control systems for the risks ING faces while pursuing the Executive Board’s strategy. ING also has a process in place for the internal control over financial reporting.
Tax policies, procedures and a tax control framework have been implemented to support management in mitigating potential tax risks in a prudent manner. Internal monitoring, control and reporting of tax-related risks take place on a continuous basis with regular reporting to various stakeholders. Tax risk management is subject to Corporate Audit testing and evaluation. In the
While we are vigilant in our efforts to comply with applicable laws and regulations, it remains a significant operational challenge for banks to meet all these requirements within the strict timelines. ING faces the risk of failures in compliance, including in areas where the applicable regulations are unclear, subject to multiple interpretations or under development, are in conflict with each other, or where regulators revise their guidance or courts overturn previous rulings.
In the area of compliance risk, the Compliance Risk Management function has established a control framework based on laws and regulations, as well as on the standards for non-financial risk set out in ING’s internal control framework. To support management in mitigating compliance risks, it trains and advises the business on the management of these risks. Topics include money laundering, terrorist financing, sanction and export control compliance, conflicts of interest, misselling, corruption, protection of customers’ interests, the Foreign Account Tax Compliance Act
(FATCA), the Common Reporting Standard (CRS), and US withholding tax and information reporting regulations.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk and capital management and/or any law, regulation or code, our Whistleblower Policy provides for anonymous reporting, via internal or external channels, alongside normal reporting channels. In 2018, ING recorded 75 alleged irregularities in accordance with its Whistleblower Policy, including 45 reports of suspected breaches of Orange Code or unethical behaviour.
To help us create a culture of integrity across the bank, we invite all employees to participate in our
ING has designed controls to mitigate the compliance risks associated with the above-mentioned risk areas. Their effectiveness is tested periodically, and senior management is responsible for ensuring our processes comply with applicable laws and regulations, ING’s internal policies and procedures and the Orange Code.
In connection with the introduction of the ING Way of Working, Operational Risk Management
User Access Management (UAM) remains an important element of our control framework to mitigate unauthorised and/or inappropriate access to our data and information. ING is building on its cybercrime resilience, further enhancing the control environment to protect, detect and respond to e-banking fraud, DDoS and targeted attacks.
ING’s most important risks and control measures are regularly reported to and discussed by the
Banking, risk remains a continuing topic for the leadership team. The second line of defence’s role is to properly identify, measure, manage and report risks. In order to achieve that goal, the second line develops policies and guidelines, implements and operates control frameworks, and decides on risk acceptance. It also aims to achieve compliance with internal and external requirements on an individual and consolidated basis. Furthermore, the second line supports the commercial departments and acts where necessary to keep the risk profile within the defined risk appetite.
department. The chief compliance officer (CCO) is now responsible solely for the compliance function across the entire institution. The CCO is a permanent member of the Supervisory Board's
In September 2018, ING was impacted by the €775 million settlement agreement with the Dutch
The structural solutions comprise five pillars:  Development and global roll-out of KYC risk appetite statements, KYC risk assessments on clients, capability structure and maturity assessments. Setting acceptance criteria based on which clients are on-boarded, transactions are processed or taxes are withheld. This pillar covers also the use of a uniform risk assessment methodology for KYC-related integrity risks and a common taxonomy to measure effectiveness.
 Set up central KYC organisation that defines standards and drives global execution and improvements. This includes the set-up of the new KYC organisation now in place. As of 4Q 2018, we have strengthened the KYC governance by including the heads of the business lines in the
As previously noted, in connection with the above-mentioned investigations ING also received information requests from the US Securities and Exchange Commission (SEC). ING has received a formal notification from the SEC that it has concluded its investigation and, based on the information at that time, the Division of Enforcement does not intend to recommend SEC
The ESR policy framework helps ING to stay a step ahead as new environmental, social and human rights regulations and standards are implemented globally. The framework is regularly updated to reflect ING’s risk appetite and regulatory demands, and to help ING and our clients gradually enhance the implementation of key standards, including the UN Guiding Principles on Human
In 2018, 3,544 wholesale engagements were assessed under the ESR policy framework.
The ESR policy framework follows mainstream approval processes and is applied by trained and mandated people. In 2018, 306 of our risk, front-office and compliance colleagues participated in
This was done with the active participation of internal stakeholders (per ESR sector policy) and
Other specific sector policy changes include:  New tobacco exit policy: In April 2018, ING announced that it will withdraw from the tobacco industry by 2023. We underlined our commitment by signing up to the Tobacco Pledge in
 Defence and related activities policy: ING’s restrictive approach will be further strengthened for companies involved in the manufacturing or trade of white phosphorus manufacturers and traders of small arms and light weapons whose client bases extend to private individuals or nongovernment agencies. We will not finance any custodial service itself where it is provided by a private sector security company.
 Energy policy: In keep with ING’s existing position, ING will not finance any company involved in arctic offshore oil and gas exploration and production, pipeline infrastructure dedicated to exclusive use of oil from oil sands, trading of such oil or any mining, exploration or upgrading of shale gas in Europe.
also co-leads the capacity building and training working group, which resulted in the roll-out of an online EP learning tool to ING risk and front-office employees. The tool will also be used by other EP banks globally.
“My job is to ensure we implement the functionalities and solutions Czech customers want, and at the same drive global standardisation. We’re working on a full set of retail banking products (current account, loans, cards) for customers in all four Model Bank countries. When all the countries are on board it will bring ING even closer to its customers, allowing us to serve their needs quickly and provide innovations faster."
The authorised share capital of ING Groep N.V. consists of ordinary shares and cumulative preference shares. Currently, only ordinary shares are issued, while a right to acquire cumulative preference shares has been granted to the ING Continuity Foundation. Each share in the capital of
In drawing up content for this report we have taken into account the topics that can have a material impact on our business, including risks, opportunities, regulations and sector trends.
We continuously listen to our stakeholders and adapt our strategy and reporting to meet their evolving expectations. As part of our materiality analysis in 2018 we consulted key stakeholder groups - retail customers, business clients, investors, academia, civil society organisations, financial regulators, employees and senior management – in a qualitative and quantitative engagement process. The results of our materiality analysis were used to define the content of this report. The report including materiality disclosures is reviewed and approved by the Executive Board.
The Framework of the International Integrated Reporting Council (IIRC) served as a reference in drawing up the content for this report, including for our value creation model. Moving to the Core option will allow us to focus on improving our report integration as per the IIRC framework.
The scope and data collection process of key performance indicators is detailed in ING’s nonfinancial data reporting protocol on www.ing.com/18ar028.
Board, including the accompanying Non-financial appendix, is provided by KPMG Accountants N.V.
KPMG audited the financial statements 2018 of ING Group. See the ’Independent auditor’s report’.
Continuous learning is important, not only for ING’s employees, but also for Supervisory Board members so that we have a deep understanding of ING and the developments both within and outside of the financial sector that are relevant to the bank. We worked hard during the year to strengthen the knowledge and expertise of the Supervisory Board, especially in the areas of regulation and talent development.
The Executive Board and Management Board Banking were present during each regular Supervisory
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Report of the Supervisory Board necessary actions cascaded down into the organisation and were followed up, including those related to culture and behaviour. Hans Wijers took over the chairman’s role from Jeroen van der
The Supervisory Board noted the reactions of various Dutch stakeholders following the proposal to amend the Executive Board remuneration policy, as set out in the Annual Report 2017 and as initially tabled for the 2018 Annual General Meeting, to bring the remuneration for the CEO position closer to peers within the Euro Stoxx benchmark. In light of this, the Supervisory Board reconsidered the proposal and decided not to put it up for a vote at the Annual General Meeting. The Supervisory
In addition, following the settlement and in consultation with the Supervisory Board, Koos
Timmermans stepped down from his position as CFO and member of the Executive Board and
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Report of the Supervisory Board integrated banking platform being designed to offer a consistent experience across multiple ING
In 2018, ING continued to work on implementing its Think Forward strategy focused on long-term value creation and based on our purpose to empower people to stay a step ahead in life and in business.
Throughout 2018, the Supervisory Board discussed the progress of the strategy and its transformation programme and, as part of this, had an active dialogue with the Executive Board and the Management Board Banking.
The Executive Board has prepared the annual accounts and discussed these with the Supervisory
Board’s assessment of the adequacy and effectiveness of the risk management and control
KPMG, in its role as ING’s external auditor, audited ING’s 2018 accounts and financial statements.
Supervisory Board and attend Supervisory Board meetings. In general, the performance of the
In addition to financial results and accounts, the Audit Committee’s regular deliberations included financial reporting, auditor’s independence and fees, the overall internal control environment, the internal controls over financial reporting, the internal and external auditor reports, review of the internal audit function, and matters related to the financing of the company, including the assessment of ING’s capital and liquidity position. The Audit Committee also reviewed the press releases related to the periodic results, the Annual Report, the 6-K and 20-F forms and the SOX 404
The Risk Committee met six times in 2018, compared with five times last year. On average, 93 percent of the members were present at the scheduled meetings. As with the meetings of the other committees, all relevant items discussed by the Risk Committee were reported to the
Risk Committee spent considerable time discussing financial and non-financial risk, compliance risk, money laundering risk, including updates of the bank-wide Know Your Customer enhancement programme, and IT risk within risk appetite, GDPR/GDPP and MiFID II. The Risk Committee also spent considerable time, before the instalment of a special committee on the matter, on the investigation by the Dutch authorities, as well as the related information request from US authorities, regarding various requirements related to client on-boarding, money laundering and corrupt practices.
Framework. As in 2017, the Risk committee held an additional meeting to allow it to deal with an increased number of high priority issues. During this extra meeting in 2018, the Risk Committee discussed several non-financial risk and compliance risk topics, including the know your customer policy and the implications for ING of the political and economic situation in Turkey.
The Nomination and Corporate Governance Committee met 10 times in 2018. On average, 93 percent of the members were present at the scheduled meetings. The Nomination and Corporate
Governance Committee discussed future succession planning for the Executive Board and the
into account. With regard to the Supervisory Board, the Nomination and Corporate Governance
Committee continued its search for suitable successors so as to maintain a balanced Supervisory
Board composition, following the early resignation of Ann Sherry as Supervisory Board member in 2017 and with Henk Breukink’s final term ending in 2019. Finding suitable candidates remains challenging, as numerous requirements must be met to enhance the composition of the
Supervisory Board including regulatory requirements, diversity, banking and other industry knowledge, outside positions, independence, no conflicts of interest, availability, etc.
The Nomination and Corporate Governance Committee has initiated a continuing conversation on
New this year were periodic conversations that took place outside regular meetings to consider talented ING employees with the potential of taking on more senior and complex roles over time.
Meeting and the proposed topics for the 2019 Annual General Meeting, including the publication of the booklet on the application of the Dutch Corporate Governance Code and Dutch Banking Code.
During the year, the committee also discussed the (implementation of the) EBA Guidelines on
remuneration were discussed, including the follow-up actions resulting from the Supervisory
Annual General Meeting agenda. For further details, see the ‘Remuneration report’ of this Annual
Report (that has taken into account considerations of the Risk Committee), the 2018 AGM minutes and the press release of 13 March 2018 on www.ing.com. The remuneration proposals for Identified
Throughout the year the Remuneration Committee approved Identified Staff/High Earner-related remuneration matters, based on ING’s accompanying governance framework.
Supervisory Board member. Furthermore, Jeroen van der Veer stepped down as Supervisory Board member as per the end of the 2018 Annual General Meeting following which Hans Wijers succeeded him as chairman. Margarete Haase’s membership of the Supervisory Board became effective as per 1 May 2018, following the period from 1 October 2017 during which she was present as an observer at the meetings of the Audit Committee, Supervisory Board and Internal
Supervisory Board. Read more in the ‘Corporate governance’ chapter on the composition of the
The members of the Supervisory Board are requested to assess annually whether or not they are independent as set out in the Corporate Governance Code 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. Eric Boyer de la Giroday is considered not independent because of his position as chairman of the Board of Directors of ING
Furthermore, as mentioned earlier, on 7 February 2019 Tanate Phutrakul was appointed as CFO and member of the Management Board Banking, succeeding Koos Timmermans. The Supervisory Board will nominate Tanate Phutrakul for appointment as a member of the Executive Board of ING Group at the Annual General Meeting on 23 April 2019. The appointments have been approved by the
Ralph Hamers (EB/MBB) 1966 M Dutch • • • • • • • • •
Koos Timmermans (EB/MBB) 1960 M Dutch • • • • • • • •
Steven van Rijswijk (EB/MBB) 1970 M Dutch • • • • • • •
Roland Boekhout (MBB) 1963 M Dutch • • • • • • • • •
Isabel Fernandez (MBB) 1968 F Spanish • • • • • • • •
Mr Lamberti (vice-chair) 1956 M German • • • • • • • •
Mr Balkenende 1956 M Dutch • • • • • • •
Ms Haase 1953 F Austrian • • • • • • • • •
Mr Reibestein 1956 M Dutch • • • • • • •
Corporate Governance Code. Under this code, Eric Boyer de la Giroday is considered not to be independent. The current members of the Supervisory Board are: Hans Wijers
ING’s application of the Dutch Corporate Governance Code is described in the 2019 publication
‘ING’s application of the Dutch Corporate Governance Code’, available on the website of ING Group www.ing.com/18ar013. This is to be read in conjunction with this section and is deemed to be incorporated into this section.
Group’s remuneration policy for the Executive Board and senior management is compliant with the
ING Groep N.V. is a public limited liability company (naamloze vennootschap) organised under the laws of the Netherlands and qualifies as a foreign private issuer under SEC rules and for the purposes of the New York Stock Exchange (‘NYSE’) listing standards. Under NYSE listing standards, listed companies that are foreign private issuers are permitted to follow home-country practice in some circumstances in lieu of the provisions of the corporate governance rules contained in Section 303A of the NYSE Listed Company Manual that are applicable to US listed companies. In accordance with the requirements of the SEC and NYSE, ING Group must disclose in its Annual Report on Form 20-F any significant differences between its corporate governance practices and those applicable to
US companies under NYSE listing standards. ING Group believes the following to be the significant differences between its corporate governance practices and the NYSE corporate governance rules applicable to US companies: Corporate Governance
(either on its website or in its annual proxy statement or annual report filed with the SEC) that the board of directors has determined that this simultaneous service would not impair the director’s service to the company. Dutch law does not require the Supervisory Board to make such a determination.
Group is not aware of the existence of any agreement pursuant to which the transfer of ordinary shares or American depositary receipts for such shares is restricted.
Pursuant to the Dutch Financial Supervision Act (‘Wet op het financieel toezicht’), any person who, directly or indirectly, acquires or disposes of an interest in the voting rights and/or the capital of ING
If the share capital percentage or the voting rights percentage of a person changes as a result of
ING Group is not aware of any investors (or potential shareholders) with an interest of three percent or more in ING Group other than those shown in the ‘ING shares’ chapter as per year-end 2018.
ING Group strives to maintain an open and constructive dialogue with current and potential investors, and with industry analysts. The scope of such bilateral communication may range from single investor queries via email, to more elaborate discussions with analysts or institutional investors that take place via telephone or face to face. ING Group’s Investor Relations department is the main point of contact for these communications. Executive Board members or Management
Board Banking or divisional management members may also participate in investor meetings.
These meetings are not announced in advance, nor can they be followed by webcast or any other means. Information provided during such occasions or in any contacts with the press is limited to what is already publicly available.
Conference presentations and face-to-face meetings with investors and/or analysts took place in 34 different cities across the globe.
Pursuant to Dutch law, the record date for attending a general meeting and voting on the proposals at that general meeting is the 28th day before the day of the general meeting. Only those who hold shares at the record date are entitled to attend the general meeting and to exercise other rights related to the general meeting in question on the basis of their holding at the record date, notwithstanding any subsequent sale or purchase of shares. The record date is published in the notice for the general meeting. If the shortened convocation of 10 days is applicable (see above, paragraph: ‘Frequency, notice and agenda of General Meetings’), the record date is two days after the convocation date.
Shareholders may attend a General Meeting in person, or may grant a proxy in writing to a third party to attend the meeting and to vote on their behalf. Prior to a General Meeting, ING will make proxy forms available on its website. For logistical reasons, attending the General Meeting, either in person or by proxy, is subject to the requirement that ING Group is notified in advance. Instructions to that effect are included in the notice for the General Meeting.
Netherlands) who will vote according to the instructions expressly given on the proxy form. The submission of these forms is subject to additional conditions specified on such forms.
Banking and its committees, formulating and implementing ING’s strategy and acting as main contact for the Supervisory Board. He is also responsible for the following departments: Innovation,
ING’s financial strategy, including internal and external reporting, budgeting, procurement, forecasting, capital management, tax management, investor relations and business performance reporting and analysis, among which measuring adherence to financial targets. Furthermore he was responsible for Bank Treasury, Sustainability, and Regulatory & International Affairs. Before becoming CFO, he was head of Market Leaders, responsible for ING’s operations in the Benelux, and between 2007 and 2011 he was CRO of ING Group. Before joining ING in 1996 he worked for IBM’s
European treasury in Ireland and ABN AMRO Bank in the area of financial markets. Koos
B.V. and member of the Supervisory Board of Nederlandse Financierings-Maatschappij voor
Member of the Supervisory Board Stadsherstel Amsterdam N.V. and member of the Supervisory
CRO on 1 August 2017. He is also a member and CRO of the Management Board Banking. Before becoming a member of the Executive Board, Steven van Rijswijk was global head of Client Coverage within ING Wholesale Banking. Steven van Rijswijk joined ING in 1995 in the Corporate Finance team holding various positions in the areas of Mergers & Acquisitions and Equity Markets. Steven van
Members of the Supervisory Board are appointed, suspended and dismissed by the General
 refrain from supporting one interest without regard to the other interests involved.
As a general rule, Supervisory Board members step down from the Supervisory Board in the fourth, eighth, 10th and 12th year after their initial appointment. They are eligible for re-appointment in the fourth year after their initial appointment and, with explanation, also in the eighth and 10th year.
Eric Boyer de la Giroday is not considered independent because of his former position as Chairman of the Board of Directors of ING Belgium S.A./N.V. and his former positions as member of the
(chairman), Eric Boyer de la Giroday, Jan Peter Balkenende Mariana Gheorghe and Hermann-Josef
Corporate Governance Committee were: Hans Wijers (chairman), Henk Breukink and Mariana
(Born 1951, Dutch nationality, male, appointed in 2017, term expires in 2021)
Member of the Supervisory Board of ING Groep N.V./ING Bank N.V., chairman of the Supervisory
Heineken N.V. and member of the Supervisory Board of Hal Investments Plc.
(including senior business adviser of Advent International GmBH) and director of Frankfurt
Netherlands), external senior adviser to EY, member of the Supervisory Board of Goldschmeding
Former position: managing director of F&C and country head for F&C Netherlands (asset management firm).
Member of the Supervisory Board of ING Groep N.V./ING Bank N.V., non-executive director of Brink
(Born 1956, Romanian nationality, female, appointed in 2015, term expires in 2019)
Chairwoman of the Employers Association of Kölnmetall and member of the German Corporate
(Born 1956, Dutch nationality, male; appointed in 2012 as an observer, full member as of 2013, term expires in 2021)
Member of the Supervisory Board of Stichting World Wildlife Fund (the Netherlands).
CFO. ING assesses the effectiveness of internal control over financial reporting, based on the criteria of the Committee of Sponsoring Organisations of the Treadway Commission (‘COSO’) in Internal
states that it is responsible for the design, implementation and functioning of ING’s internal risk management and control systems.
Code;  Safeguarding of assets, identification and management of liabilities; and
The Risk and Capital Management section as part of the Report of the Executive Board and the Risk
Management paragraph as part of the consolidated annual accounts elaborate on ING’s identified financial and non-financial risks (such as credit risk, market risk, operational risk, compliance risk, funding & liquidity risk and business risk) and how these risks are managed. These sections provide insight into the potential impact on the results of ING Groep N.V. that come forth from these identified risks. The design and functioning of the internal risk management and control systems is based on the Risk Appetite Framework and the Non-Financial Risk Framework. Both frameworks, explained in detail in the Risk Management paragraph as part of the consolidated Annual Accounts, combine various financial and non-financial risk disciplines into a single converged approach and provide the businesses with a overview on their risks and the way these are managed.
Following the settlement we reached with Dutch authorities in September 2018, we are continuing our know your customer (KYC) enhancement programme, emphasising regulatory compliance as the key priority. The organisation continues to work hard on enhancing our customer due diligence files and on a number of structural solutions to bring our anti-money laundering activities to a sustainably better level.
Executive Board has made an assessment of the effectiveness of the ING Groep N.V.’s internal control and risk management systems. Based on this assessment, the Executive Board states that during the year under review:  the report of the Executive Board in the ING Group Annual report 2018 provides sufficient insights into shortcomings in the effectiveness of the internal risk management and control systems;  those systems provide reasonable assurance that the ING Group Annual report 2018 does not contain material inaccuracies;  based on the current state of affairs, it is justified that the ING Group Annual report 2018 is prepared on a going concern basis; and
If new shares other than cumulative preference shares are subsequently issued, ING Continuity
In 2018 the board of ING Continuity Foundation (the ‘Board’) held two meetings, on 6 April and 7
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Conformity statement
ING’s global remuneration policy is designed to ensure that we offer well-balanced remuneration so we can recruit, engage and retain highly qualified staff as well as live up to our responsibilities towards our different stakeholders.
At the same time, the 2018 settlement agreement with the Dutch Public Prosecution Service also has consequences for remuneration. In the light of this settlement agreement, the members of the Executive Board of ING Group, in consultation with the Supervisory Board, find it appropriate to forego their variable remuneration related to performance year 2018.
Our global remuneration policy comprises the following principles: ING’s global remuneration policy principles
ING’s global remuneration policy is aligned with business strategy and company goals.
Our remuneration approach is strongly linked to performance management. Outcomes of performance evaluations are a direct input for remuneration.
Guidelines, the Management Board and the Supervisory Board approved a new Variable Remuneration
The second risk-adjustment measure lies in the performance assessment. ING applies an extensive assessment of the performance of staff members before variable remuneration is proposed and awarded. Every manager carefully assesses the performance delivered by his or her individual team members on the basis of pre-agreed performance priorities. In addition, the manager has the discretionary power to adjust a variable remuneration proposal downwards in case of perceived inappropriate risk taking. In this way, variable remuneration is aligned with additional risks that have been identified throughout the performance year.
In addition, up to three risk requirements apply to Identified Staff that are considered Material
Risk Takers. These risk requirements set the minimum standards to be met during the performance year. Deviation from these standards may lead to downward adjustment of variable remuneration, a so-called risk modifier. This is a process run independently by the Risk function for which the CRO is ultimately responsible. The Supervisory Board and Risk
To ensure the autonomy of staff in control functions (positions within Legal, Risk, Finance, Compliance,
• Prior to the settlement agreement, a post-award risk assessment was been performed at the initiative of the Supervisory Board and with the help of an external legal counsel. As a result, various holdbacks have been applied throughout the organisation, including a (partial)
holdback of the outstanding deferred variable remuneration of one Executive Board member1. For more information we refer to the 2018 Executive Board variable remuneration section on page 133.
The Executive Board’s remuneration policy is compliant with applicable laws and regulations and is in line with the remuneration principles that apply to all staff.
Amendments to this policy were adopted at subsequent AGMs: • On 9 May 2011 in response to new regulatory requirements
• On 8 May 2017 by extending the deferral period of the variable remuneration from three to five years.
The performance priorities for the Executive Board are annually pre-determined by the
Supervisory Board to ensure alignment between ING's strategy and performance objectives. In the year following the performance year, 40% of variable remuneration is paid upfront. The remainder is subject to tiered vesting over a period of five years.
Variable remuneration is fully paid out in shares. To all share awards granted to Executive
Contribution (CDC) pension plan with respect to their salary up to EUR 105,075 per year for 2018. As is the case for all participants in the Dutch pension scheme who earn a salary above this amount per year, the Executive Board members are compensated for the lack of pension accrual by means of a savings allowance to be annually determined (see Benefits on page 129).
All current members of the Executive Board have a commission contract for an indefinite period of time including an appointment or reappointment term of four years as approved at the AGM and a six months’ notice period. In the case of an involuntary exit, Executive Board members are eligible for an exit arrangement. These arrangements are subject to specific requirements (e.g. limited to a maximum of one year of base salary, no reward for failure).
Board members based on the advice given by the Remuneration Committee of the Supervisory Board.
Executive Board. Remuneration proposals for the individual Executive Board members are drawn up in accordance with the applicable Executive Board remuneration policy and cover the following aspects: remuneration structure, the amount of the fixed and variable remuneration components, the performance criteria used, scenario analyses that are carried out and, if and when considered appropriate, the pay ratios within the company and its affiliated enterprise. The Remuneration Committee takes note of individual Executive Board members’ views with regard to the amount and structure of their own remuneration, including the aspects as mentioned above.
The Executive Board’s remuneration for 2018 should be in accordance with the Executive
Following the settlement agreement and in consultation with the Supervisory Board, Koos
• The acceleration of the Think Forward strategy: improving customer experience and enabling commercial growth.
• Increasing ING's social and environmental impact through our sustainability activities.
customer experience. In Belgium all former Record Bank mortgages and consumer loans were migrated to an external provider which is an important step towards the decommissioning of systems.
 Model Bank: in the Czech Republic, over 400,000 customers were migrated to a new Retail platform that will later be used in most of
4,957 million), notwithstanding persistent pressures from the low interest rate environment.
• Grew net core lending by EUR 36.6 billion (+6.4%); increased customer deposits by EUR 19.3 billion (+3.6%).
The tables below (i.e. total direct compensation, pension costs and other emoluments) show the remuneration awarded to the individual Executive Board members with respect to the performance years 2018, 2017 and 2016. Please note that the 2018 figures reflect an entire year for all three members of the Executive Board, whereas the 2017 figures reflect a partial year as an Executive Board member for Koos Timmermans and Steven van Rijswijk.
Variable remuneration (fully in shares)¹ - - 293,000 18,547 316,000 23,092
Management Board and as being end-responsible for ING Netherlands for several years.4 4 To be effectuated in 2019.
Outstanding as at 31 December 2018 Grant price in euros Vesting date Expiry date
Steven van Rijswijk 2,770 0 2,770 0 € 16.66 13 March 2011 12 March 2018
Steven van Rijswijk¹ LSPP 27 March 2015 27 March 2018 15,088 12,572 2,516 0 € 13.68 1 Shares granted to Ralph Hamers in March 2014, to Koos Timmermans in May 2015, May 2016 and May 2017 and Steven van Rijswijk in March 2015, March 2016, March 2017 and March 2018 were awarded for their performance in positions prior to their appointments to the
4 The (partial) holdback of the outstanding deferred variable remuneration of one Executive Board member will be effectuated in 2019.
As recognised in the profit or loss statement of 2018, the expenses per Executive Board
The table below presents the loans and advances provided to Executive Board members and
In this context, also bearing in mind the settlement, the Supervisory Board has decided not to change the remuneration of the CEO and the other Executive Board members with effect from 1 January
Loans and advances to the individual members of the Executive Board – 2018
The Supervisory Board remuneration policy for 2018, similar as to 2017, is shown below: Annual remuneration Amount in euros
In addition, members of the Supervisory Board are reimbursed for their travel and business related expenses relating to ING.
Employee stock options on ING Groep N.V. shares held by members of the Supervisory Board at 31 December 2018
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Netherlands: Maarten Kramer (secretary), Judith Roosken, Wim van Huizen, Jeroen van der Veer,
Parent company annual accounts Parent company statement of financial position 369
Cash and balances with central banks 2 49,987 21,989 Deposits from banks 13 37,330 36,821
Loans and advances to customers 7 592,196 574,535 Debt securities in issue 18 119,751 96,086
Investments in associates and joint ventures 8 1,203 1,088 Subordinated loans 19 13,724 15,968
Valuation results and net trading income 23 1,124 628 1,134 Net result (before non-controlling interests) 4,811 4,987 4,726
Share of result from associates and joint ventures 8 143 178 88
Result on disposal of group companies 25 –123 1 1 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.
Net result attributable to Equity holders of the parent from discontinued operations 441
Remeasurement of the net defined benefit asset/liability 37 6 –29 –65
Net change in fair value of debt instruments at FVOCI –163 n/a n/a
Realised gains/losses on debt instruments at FVOCI reclassified to the statement of profit or loss –56 n/a n/a
References relate to the accompanying notes. These are an integral part of the Consolidated annual accounts. This includes Note 1 ‘Accounting policies’, which contains information on Changes in accounting principles, estimates and presentation of the Consolidated annual accounts and related notes.
Net change in fair value of equity instruments at fair value through other comprehensive income –518 56 –461 0 –461
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices in EUR million
Remeasurement of the net defined benefit asset/liability 37 –29 –29 –29
Unrealised revaluations available-for sale investments and other revaluations 80 80 –19 61
Realised gains/losses transferred to the statement of profit or loss –146 –146 –146
Remeasurement of the net defined benefit asset/liability 37 –65 –65 –65
Total amount recognised directly in other comprehensive income 4 –265 –261 –75 –336
Adjusted for: – Depreciation and amortisation 520 520 536 – Available-for-sale investments n/a 32,788 32,540
– Other –1,763 703 1,495 – Financial assets at FVOCI 15,657 n/a n/a
Taxation paid –1,602 –1,691 –1,603 – Securities at amortised cost 18,709 n/a n/a
Cash flows from investing activities Repayments of debt securities –131,170 –96,837 –123,748
– Associates and joint ventures –97 –79 –49 Purchase/sale of treasury shares 4 7 10
Effect of exchange rate changes on cash and cash equivalents 204 260 155
2 Result before tax includes results from continuing operations of EUR 6,838 million (2017; EUR 7,268 million; 2016: EUR 5,903 million) as well as results before tax from discontinued operations of nil (2017; nil; 2016: EUR 439 million).
The cash flows of 2016 included the following impact of the divestment of NN Group in 2016;  Disposal and redemptions - Associates and joint ventures; EUR 1,016 million proceeds on the further sale of NN Group shares in January 2016 resulting in loss of significant influence over
Dividend paid –2,607 –2,564 –2,521 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, refer also to note 21 ‘Net interest income’.
The ING Group Consolidated annual accounts, as at and for the year ended 31 December 2018, were authorised for issue in accordance with a resolution of the Executive Board on 4 March 2019.
The Executive Board may decide to amend the annual accounts as long as these are not adopted by the General Meeting of Shareholders. The General Meeting of Shareholders may decide not to adopt the annual accounts, but may not amend these.
The ING Group Consolidated annual accounts have been prepared in accordance with International
with some limited modifications such as the temporary ‘carve-out’ from IAS 39 ‘Financial
Amounts may not add up due to rounding 1 Accounting policies
The impact of the adoption of IFRS 9 is disclosed in note 1.3.1.1 ‘IFRS 9 Financial instruments –
Financial instruments - Accounting policies applied from 1 January 2018’. The other standards and amendments, including IFRS 15 (refer to note 1.3.2 ‘IFRS 15 Revenue from Contract with
Customers’), did not have a significant impact on the Group’s accounting policies.
ING Group has not early adopted any standard, interpretation or amendment which has been issued, but is not yet effective.
SIC-15 ‘Operating Leases- Incentives’ and SIC-27 ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The new requirements are effective for annual periods beginning on or after 1 January 2019 and will be applied by ING as of that date.
The IFRS 16 implementation project commenced in 2017 with a data gathering exercise in a preliminary impact assessment.
The implementation project’s main focus was on: Performing two ‘parallel runs’ over the course of 2018, to test readiness of systems, processes and a number of controls for transition to IFRS 16 as per 1 January 2019;  Technical interpretation of the Standard;  Developing and validating the lease calculation models;  Updating the policies and governance impacted by IFRS 16;  Preparing the IFRS 16 transition disclosures.
As per 31 December 2018 ING has a number of lease contracts for buildings, cars and other leases such as IT equipment that are currently accounted for under IAS 17 as operating leases. As a result of the new IFRS 16 requirements, ING estimates that the Right-of-use assets and Lease liabilities to be recognised will amount to approximately EUR 1.3 billion. This amount is marginally lower than the future rental commitments to be paid under non-cancellable operating leases, as disclosed in
ING Group has applied the classification, measurement, and impairment requirements of IFRS 9 retrospectively as of 1 January 2018 by adjusting the opening balance sheet and opening equity at 1 January 2018. ING Group has not restated comparative periods as permitted by the standard.
would create or enlarge an accounting mismatch in profit or loss.
Loans and advances to customers B, C 574,535 -8,372 -761 565,402
Reconciliation of carrying amounts on the date of initial application of IFRS 9
Amortised Cost (AC) and a portfolio at FVOCI; the reclassification from AFS to AC resulted in a reduction of the unrealised revaluation gains in equity at transition date.
E. Certain reverse repurchase portfolios are classified as financial assets ‘Mandatorily at FVPL’
Securities at amortised cost - From Loans and advances to banks 264 264 - From Loans and advances to customers 5,099 5,099 - To Financial assets at FVPL -753 -753 - Recognition of expected credit losses -5 -5
Financial assets at FVPL - in EUR million IAS 39 Reclassfication1 Remeasurement IFRS 9
Financial assets at FVOCI - in EUR million IAS 39 Reclassfication1 Remeasurement IFRS 9
Available-for-sale - To Equity securities at FVOCI -3,800 -3,800 - To Debt securities at FVOCI -30,033 -30,033 - To Equity securities at FVPL -183 -183 - To Debt securities at FVPL -735 -735 - To Securities at amortised cost -34,979 -34,979
Carrying amount 31 December 2017 - Recognition of expected credit losses -20 -20
Financial liabilities at AC - in EUR million IAS 39 Reclassfication¹ Remeasurement IFRS 9
Trading liabilities - To Financial liabilities designated at FVPL -37,161 -37,161
Total financial liabilities at FVPL 87,142 2,228 89,370 1 Includes the reclassification of accrued interest from other liabilities to the corresponding balance sheet item of the host contract
Investments2 - equity securities (AFS) FVOCI 3,983 n/a - debt securities (AFS) FVOCI 65,747 n/a - debt securities (HTM) Amortised cost 9,343 n/a 5 Financial assets at FVOCI
Deposits from banks 13 Amortised cost 36,821 36,929 Amortised cost Deposits from banks
Other liabilities 17 Amortised cost 19,279 15,832 Amortised cost Other liabilities
Debt securities in issue 18 Amortised cost 96,086 96,826 Amortised cost Debt securities in issue
Contingent Liabilities and Contingent Assets’ as at 31 December 2017; to
The following table analyses the impact, net of tax, of transition to IFRS 9 on reserves and retained earnings. The impact relates to the liability credit reserve, the fair value reserve, retained earnings and share of associates, joint ventures and other reserve. There is no impact on other components of equity.
Expected Credit Losses loans and advances to customers per stage as at 1 January 2018
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Reclassification of investment securities (debt) from Available-for-sale to amortised cost -568
Reclassification of loans and advances to debt instruments at FVOCI 175
1.3.1.2 IFRS 9 ‘Financial instruments’ - Accounting policies applied from 1 January
Impact (net of tax) of transition to IFRS 9 on reserves and retained earnings
Impact (net of tax) of adopting IFRS 9 on 1 January 2018
Financial assets are recognised in the balance sheet when ING becomes a party to the contractual provisions of the instruments. Equity investments, debt securities financial assets and financial assets measured at fair value through profit or loss that require delivery within the time frame established by regulation or market convention (‘regular way’ purchases and sales) are recognised using trade date accounting. Trade date is the date on which ING commits to purchase or sell the asset. Loans and advances and repurchase agreements are recognised using settlement date accounting.
Financial liabilities are recognised on the date that the entity becomes a party to the contractual provisions of the instrument.
From 1 January 2018, ING Group classifies its financial assets in the following measurement categories:  those to be measured subsequently at fair value (either through OCI, or through profit or loss); and
At initial recognition, ING Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in the statement of profit or loss.
Business models are classified as Hold to Collect (HtC), Hold to Collect and Sell (HtC&S) or Other depending on how a portfolio of financial instruments as a whole is managed. ING Group’s business models are based on the existing management structure of the bank, and refined based on an analysis of how businesses are evaluated and reported, how their specific business risks are managed and on historic and expected future sales. Sales are permissible in a HtC business model when these are due to an increase in credit risk, take place close to the maturity date, are insignificant in value (both individually and in aggregate) or are infrequent.
FVOCI: Debt instruments that are held for collection of contractual cash flows and for selling the financial assets under a HtC&S business model, where the assets’ cash flows represent SPPI, are measured at FVOCI. Movements in the carrying amount are recognised in OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in
Investment income or Other income, based on the specific characteristics of the business model.
CVA. The CVA is of a bilateral nature as both the credit risk on the counterparty as well as the credit risk on ING are included in the adjustment. All input data that is used in the determination of the
Credit risk management disclosures are provided in Note 53 ‘Risk management – Credit risk’
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently measured at fair value. Fair values are obtained from quoted market prices in active markets, including market transactions and valuation techniques (such as discounted cash flow models and option pricing models), as appropriate. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Fair value movements on derivatives are presented in profit or loss in Valuation result and net trading
At the inception of the transaction ING Group documents the relationship between hedging instruments and hedged items, its risk management objective, together with the methods selected to assess hedge effectiveness. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items.
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity and the gain or loss relating to the ineffective portion is recognised immediately in the statement of profit or loss. Gains and losses accumulated in equity are included in the statement of profit or loss when the foreign operation is disposed.
Derivative instruments that are used by the Group as part of its risk management strategies, but which do not qualify for hedge accounting under ING Group’s accounting policies, are presented as non-trading derivatives. Non-trading derivatives are measured at fair value with changes in the fair value taken to the statement of profit or loss.
Financial assets and financial liabilities are offset, and the net amount reported, in the statement of financial position when the Group has a current legally enforceable right to set off the recognised amounts and intends to either settle on a net basis or to realise the asset and settle the liability simultaneously. Offsetting is applied to certain interest rate swaps for which the services of a central clearing house are used. Offsetting is also applied to certain clients subject to cash pooling arrangements where the intention to settle net is demonstrated via a physical transfer of cash balances into a single netting account on a period end basis.
Financial assets are classified in any of the below 3 Stages at each reporting date. A financial asset can move between Stages during its lifetime. The Stages are based on changes in credit quality since initial recognition and defined as follows:  Stage 1: 12 month ECL
(company or deal-specific) scenarios, specific factors can have a larger impact on the future cash flows than macroeconomic factors.
Some of these judgements involve estimation. Given they are subjective and complex in nature, and because the LLP and the underlying exposures subject to impairment assessment are material,
The latter team consists of senior management representatives from the Business, Risk and
1.3.1.3 Financial instruments prior to 1 January 2018 under IAS 39
Classification and measurement of financial assets and financial liabilities (IAS 39)
Certain derivatives embedded in other contracts are measured as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the host contract is not carried at fair value through profit or loss, and if a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. These embedded derivatives are measured at fair value with changes in fair value recognised in the statement of profit or loss. An assessment is carried out when ING Group first becomes party to the contract. A reassessment is carried out only when there is a change in the terms of the contract that significantly modifies the expected cash flows.
Non-derivative financial assets with fixed or determinable payments and fixed maturity for which
 The borrower has sought or has been placed in bankruptcy or similar protection and this leads to the avoidance of or delays in repayment of the financial asset;  The borrower has failed in the repayment of principal, interest, or fees and the payment failure has remained unsolved for a certain period;  The borrower has demonstrated significant financial difficulty, to the extent that it will have a negative impact on the expected future cash flows of the financial asset;  The credit obligation has been restructured for non-commercial reasons. ING Group has granted concessions, for economic or legal reasons relating to the borrower’s financial difficulty, the effect of which is a reduction in the expected future cash flows of the financial asset; and
For further discussion of the significant judgements and critical accounting estimates and assumptions in these areas, reference is made to the relevant parts in sections 1.3.1.2 ‘IFRS
ING Group Annual Report 2018 valuation and determination of results’ and the applicable notes to the Consolidated annual accounts.
 Power over more than half of the voting rights through an agreement with other investors.
geographical area is a distinguishable component of the Group engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments.
The net defined benefit asset or liability recognised in the statement of financial position in respect of defined benefit pension plans is the fair value of the plan assets less the present value of the defined benefit obligation at the balance sheet date.
Plan assets are measured at fair value at the balance sheet date. For determining the pension expense, the return on plan assets is determined using a high quality corporate bond rate identical to the discount rate used in determining the defined benefit obligation.
The defined benefit obligation is calculated by internal and external actuaries through actuarial models and calculations using the projected unit credit method. This method considers expected future payments required to settle the obligation resulting from employee service in the current and prior periods, discounted using a high quality corporate bond rate. Inherent in these actuarial
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Accounting policies > 1 models are assumptions including discount rates, rates of increase in future salary and benefit levels, mortality rates, trend rates in health care costs, consumer price index and the expected level of indexation. The assumptions are based on available market data as well as management expectations and are updated regularly. The actuarial assumptions may differ significantly from the actual results due to changes in market conditions, economic and mortality trends, and other assumptions. Any changes in these assumptions could have a significant impact on the defined benefit plan obligation and future pension costs.
Remeasurements recognised in other comprehensive income are not recycled to profit or loss. Any past service cost relating to a plan amendment is recognised in profit or loss in the period of the plan amendment. Gains and losses on curtailments and settlements are recognised in the statement of profit or loss when the curtailment or settlement occurs.
Interest results on instruments classified at Amortised Cost, assets measured at FVOCI and derivatives in a formal hedge accounting relationship is presented in ‘Interest income using effective interest rate method’. Interest result on derivatives in so called economic hedges and instruments designated at fair value are presented in ‘Other interest income’.
(especially with regard to coupons and voting rights) are significantly different. Therefore, the
The statement of cash flows is prepared in accordance with the indirect method, classifying cash flows as cash flows from operating, investing and financing activities. In the net cash flow from operating activities, the result before tax is adjusted for those items in the statement of profit or loss and changes in items per the statement of financial position, which do not result in actual cash flows during the year.
The parent company accounts of ING Groep N.V. are prepared in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code. In accordance with subsection 8 of section 362, Book 2 of the Dutch Civil Code, the recognition and measurement principles applied in the Parent company accounts are the same as those applied in the
No individual loans and advances to banks have terms and conditions that significantly affect the amount, timing or certainty of consolidated cash flows of the Group. For details on significant concentrations, refer to Note 53 ‘Risk management – Credit risk’ paragraph ‘Credit Risk Appetite and
Mandatorily measured at fair value through profit or loss 64,783 n/a
EUR 37,161 million, were classified as financial liabilities ‘Designated at fair value through profit or loss’.
Derivatives used in - hedges of net investments in foreign operations 41 29
Included in the ‘Financial assets designated at fair value through profit or loss’ is a portfolio of loans and receivables which is economically hedged by credit derivatives. The hedges do not meet the criteria for hedge accounting and the loans are recorded at fair value to avoid an accounting mismatch. The maximum credit exposure of the loans and receivables included in ‘Financial assets designated at fair value through profit or loss’ approximates its carrying value. The cumulative change in fair value of the loans attributable to changes in credit risk is not significant.
Prior year, applying IAS 39, the majority of the equity and debt securities were classified as
As at 31 December 2018, Loans and receivables mandatorily measured at fair value through profit or loss includes EUR 63,022 million with regard to reverse repurchase transactions.
In the fourth quarter of 2018, ING reduced its stake in Kotak Mahindra Bank by 0.67% to 3.07% with the sale of 12.7 million shares for EUR 177 million. The fair value of the investment at the date of derecognition was EUR 984 million and the gain on disposal was EUR 3.6 million.
Loans to, or guaranteed by, public authorities 24,547 26,975 17,257 19,397 41,803 46,372
As at 31 December 2018, Loans and advances to customers includes receivables with regard to securities which have been acquired in reverse repurchase transactions amounting to EUR 266 million (2017: EUR 421 million).
Opening balance as at 1 January IFRS 9 438 955 3,916 7 5,316
Transfer into lifetime ECL not credit impaired –62 501 –56 383
Increase in loan loss provisions 80 9 599 –0 688 676
Foreign exchange and other movements –18 –38 –386 –4 –446 –136 1 At the end of December 2018, the stock of provisions included provisions for loans and advances to central banks (EUR 3 million), loans and advances to banks (EUR 9 million), financial assets at FVOCI (EUR 11 million), securities at amortised cost (EUR 11 million), provisions for loans and advances to customers (EUR 4,491 million) and provisions for contingent liabilities (credit replacements) recorded under Provisions (EUR 42 million).
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Loans and advances to customers > 7 2 The 2018 changes in loan loss provision presents IFRS 9 expected credit losses (excluding IAS 37 provisions for non-credit replacement positions (1 January 2018: EUR 107 million), The IAS 39 comparative 2017 amount includes IAS 37 provision for all off balance positions.
Loans and advances to customers and Loans and advances to banks include finance lease receivables and are detailed as follows: Maturities of gross investment in finance lease receivables - more than 1 year but less than 5 years 5,959 6,215
Maturities of net investment in finance lease receivables - more than 1 year but less than 5 years 5,581 5,652
ING Group does not hold any interests in Investments in Associates and joint ventures that are individually significant to ING Group. Other investments in associates and joint ventures represents a large number of associates and joint ventures with an individual statement of financial position value of less than EUR 50 million.
In 2017, Disposals of EUR 245 million is mainly attributable to the sale of Appia Group Ltd UK of EUR
Assets subject to operating leases have been reclassified to finance lease, as the contracts of the operating lease portfolio includes purchase options at prices sufficiently lower than the expected market values at the end of the lease periods. These contracts meet the definition of a finance lease in terms of IAS 17 and have been accounted for at their net investment value as part of finance lease receivables.
Gross carrying amount as at 31 December 1,346 1,275 2,305 2,249 3,651 3,524
Accumulated depreciation as at 31 December –1,055 –983 –1,716 –1,623 –2,771 –2,606
Accumulated impairments as at 31 December –1 –1 –0 –1 –1
EUR 67 million to Wholesale Banking (2017: EUR 307 million to Retail Growth Markets and EUR 90 million to Wholesale
Makelaarsland resulted in a recognition of goodwill of respectively EUR 188 million, allocated to
The recoverable amount exceeds the carrying value of the CGUs for 2018 and 2017 and therefore no impairment is required.
Software, includes internally developed software amounting to EUR 624 million (2017: EUR 477 million).
Other assets - Other relates mainly to other receivables in the normal course of business and include, amongst others, accruals for mortgage and credit card repayments. For 2018, this also
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As at 31 December 2018, the change in the fair value of financial liabilities designated at fair value through profit or loss attributable to changes in credit risk is EUR 18 million (2017: EUR 248 million)
on a cumulative basis. This change has been determined as the amount of change in fair value of the financial liability that is not attributable to changes in market conditions that gave rise to market risk (i.e. mainly interest rate risk based on yield curves). In 2018, in accordance with IFRS 9, the changes in own credit risk are recognised in OCI net of tax.
EUR 122 million, of which EUR 42 million relates to credit replacement facilities and EUR 80 million relates to non-credit replacement facilities. As at 31 December 2018 amounts expected to be settled within twelve months, amount to EUR 194 million. The amounts included in Other provisions are based on best estimates with regard to amounts and timing of cash flows required to settle the obligation.
Included in Other provisions – Litigation in 2018 and 2017, is a provision related to floating interest rate derivatives that were sold in the Netherlands. Also included in this column in 2018 and 2017, is a provision recognised for reimbursement of expenses associated with the formalisation of mortgages at ING Spain.
Amounts to be settled 6,098 5,017 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.
Other liabilities – Other relates mainly to year-end accruals in the normal course of business. This represents mainly balances on margin accounts or amounts payable to customers.
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Debt securities in issue relate to debentures and other issued debt securities with either fixed interest rates or interest rates based on floating interest rate levels, such as certificates of deposit and accepted bills issued by ING Group, except for subordinated items. Debt securities in issue do not include debt securities presented as Financial liabilities at fair value through profit or loss. ING
Group does not have debt securities that are issued on terms other than those available in the normal course of business. The maturities of the debt securities are as follows: Fixed rate debt securities
More than 2 years but less than 3 years 10,267 7,629
More than 3 years but less than 4 years 8,228 8,369
More than 1 year but less than 2 years 4,134 3,932
N.V. Under IFRS these bonds are classified as liabilities and for regulatory purposes, they are considered capital. Subordinated loans issued by ING Group companies comprise, for the most part, subordinated loans which are subordinated to all current and future liabilities of ING Bank N.V.
During the Annual General Meeting of Shareholders in 2016, it was decided to reduce the par value per ordinary share from EUR 0.24 to EUR 0.01. As a result of this, EUR 891 million is attributed to the
All ordinary shares are in registered form. No share certificates have been issued. Ordinary shares may be transferred by means of a deed of transfer. A transfer of ordinary shares requires written acknowledgement by ING Groep N.V. Ordinary shares are listed on various stock exchanges. The par value of ordinary shares is EUR 0.01 as of 26 July 2016, the date of amendment of the Articles of Association of ING Groep N.V. (2015: EUR 0.24). The authorised ordinary share capital of ING
The increase in share premium, is a result of the issuance of ordinary shares related to share-based employee incentive programmes.
Changes in composition of the group and other changes –56 –2 –26 –127
Changes in composition of the group and other changes –96 22
The following equity components cannot be freely distributed: Revaluation reserves, Net defined benefit asset/liability remeasurement reserve, Currency translation reserve, Share of associates and joint ventures reserve, and the part of the Retained earnings that relate to the former Stichting
Cumulative preference shares - Restrictions with respect to dividend and repayment of capital
Negative interest on liabilities 453 500 175 Negative interest on assets 412 407 184
To further enhance the relevance of the interest disclosures, ING Group changed its separate presentation of interest (income and expenses) for trading derivatives, trading securities and trading loans / deposits (mainly repo’s) to presenting the full fair value movements in ‘Valuation results and net trading income’. The change in presentation is in line with the changed presentation of accrued interest in the balance sheet that is no longer separately presented, but included in the corresponding balance sheet item of the host contract.
To explain the impact of this change in presentation the table below provides a reconciliation between the ‘Net interest income’ and ‘Valuation results and net trading income’ as reported in 2017 and the comparable amounts applying the 2018 accounting policies.
Valuation results on assets and liabilities designated at FVPL (excluding trading) 257 –56 –79
The fair value movements on the derivatives are influenced by changes in the market conditions, such as stock prices, interest rates and currency exchange rates. In addition, ‘Valuation results and net trading income’ include the results on assets and liabilities designated at fair value through profit or loss. Furthermore, as of 1 January 2018, fair value changes on financial assets mandatorily measured at fair value through profit or loss are included.
In 2018, Valuation results and net trading income include 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; 2016: EUR 33 million). As at 31 December 2018 ING no longer holds any warrants on the shares of Voya and NN Group. Reference is made to Note 4 ‘Financial assets at fair value through profit or loss’.
Interest income from trading assets in 2018 amounted to EUR 13,924 million.
Realised gains/losses on disposal of Available-for-sale debt securities n/a 64 107
Realised gains/losses and impairments of Available-for-sale equity securities n/a 42 223
Share-based compensation arrangements include EUR 46 million (2017: EUR 69 million; 2016: EUR
Plan (LSPP). The entitlement to the share awards is granted conditionally. If the participant remains in employment for an uninterrupted period between the grant date and the vesting date, the entitlement becomes unconditional, with the exception of the upfront shares which are immediately vested upon grant. In addition to the employment condition, the performance shares require a performance condition that needs to be satisfied before a vest can occur. The number of
The fair value of share awards granted is recognised as an expense under Staff expenses and is allocated over the vesting period of the share awards. As of 2016, ING Group no longer has share awards containing a market based performance condition. Previously, the fair values of share awards containing a market based performance condition have been determined using a Monte
Carlo simulation based valuation model. The model takes into account the risk free interest rate, the current stock prices, expected volatilities and current dividend yields of the performance peer group used to determine ING’s Total Shareholder Return (TSR) ranking.
Impairments and reversals on property and equipment and intangibles 19 18 107
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375 million (2016: EUR 351 million) due to a prior year adjustment (credit) on the UK bank tax of
Included in Addition/(unused amounts reversed) of other provisions in 2018, is a release for the provision recognised in relation of a discontinued business in ING Luxembourg. Reference is made to Note 16 ‘Provisions’ and Note 47 ‘Legal proceedings’.
Other operating expenses - Other includes, amongst other, the settlement with the Dutch
Dividends on ordinary shares: In respect of 2016 - Interim dividend, paid in cash in August 2016 0.24 931 - Final dividend, paid in cash in May 2017 0.42 1,629
– Deposits from banks, not payable on demand 566 6,320 –342
– Assets designated at fair value through profit or loss –725 441 –3,400
– Assets mandatorily at fair value through profit or loss –6,968 n/a n/a
Total Liabilities from financing activities 120,457 97,789 –99,180 – 178 –40 –1,009 –6,141 112,054 34 Cash and cash equivalents
Cash and cash equivalents at end of year 47,529 18,977 16,164
Treasury bills and other eligible bills included in securities at AC 142 n/a n/a
Luxembourg), including the SME and mid-corporate segments. The main products offered are similar to those in the Netherlands. (Market Leaders)
Austria). The main products offered are current and savings accounts, mortgages and other customer lending. (Challengers and Growth Markets)
(former) insurance related activities that are not part of the discontinued operations.
Net result IFRS (continuing operations) 4,607 6 4,614 90 4,703 5,019 –62 4,957 –52 4,905 4,227 –50 4,177 33 4,210
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices c. Banking activities
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Information on geographical areas > 36 36 Information on geographical areas
Rest of Europe, North America, Latin America, Asia and Australia. A geographical area is a distinguishable component of the Group engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of geographical areas operating in other economic environments. The geographical analyses are based on the location of the office from which the transactions are originated. The Netherlands is
Colombia ING Capital Colombia S.A.S. Wholesale 3 2 2 1 1 2 2 1
Management 1 Public subsidies received, as defined in article 89 of the CRD IV, amounts to EUR 0.5 million (2017: EUR 0.5 million; 2016: EUR 1 million).
The UK has a high tax charge due to changes in tax law and prior year adjustments. Russia, China,
Austria has an inverse tax charge due to the recognition of a tax asset for previously unrecognised tax losses.
Additional notes to the Consolidated annual accounts 37 Pension and other post-employment benefits
Netherlands, the premium paid is also dependant on the interest rate developments and the methodology of the Dutch Central Bank for determining the ultimate forward rate. These plans do not give rise to provisions in the statement of financial position, other than relating to short-term timing differences included in other assets/liabilities.
Changes in the fair value of plan assets for the period were as follows: Remeasurements: Return on plan assets excluding amounts included in interest income –143 52
No plan assets are expected to be returned to ING Group during 2019.
Remeasurements: Actuarial gains and losses arising from changes in financial assumptions –153 71 –11
Changes in the composition of the group and other changes –1
Amounts recognised in the statement of profit or loss related to pension and other staff related benefits are as follows:
– Deferred tax assets 818 841 1 Financial assets FVOCI refers to the Investments Available for Sale under IAS 39.
The deferred tax balance recorded under 'Other provisions' declined in 2018 by EUR 187 million change through net result of which EUR 90 million relates to the decline of the Belgian reorganisation provision.
Presented in the statement of financial position as: – Deferred tax liabilities –919 –752
The Global Price Testing and Impairment Committee is responsible for the oversight and the approval of the outcome of impairments (other loan loss provisions) and valuation- (price-testing)
processes. It oversees the quality and coherence of valuation methodologies and processes. The
Valuation Adjustments. The combination of Credit Valuation adjustment and Debt Valuation adjustment for derivatives is called Bilateral Valuation Adjustment (BVA).
 Bilateral Valuation Adjustment (BVA) is the valuation component for the counterparty credit risk of the derivative contracts. It has bilateral nature, where both counterparty’s credit risk and ING’s own credit risks is taken into account. The calculation is based on the estimation of the expected exposure, the counterparties’ risk of default, and taking into account the collateral agreements as well as netting agreements. The counterparties’ risk of default is measured by probability of default and expected loss given default, which is based on market information including credit
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 default swap (CDS) spread. Where counterparty CDS spreads are not available, relevant proxy spreads are used. 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 included in the adjustment.
 ING applies Debt Valuation Adjustment (DVA) to own issued financial liabilities that are measured at fair value through profit or loss, if the credit risk component has not been included in the prices. In the DVA calculation, the default probability of the institution are estimated based on the ING Funding spread.
 ING applies an additional ‘Funding Valuation Adjustment’ (FVA) to address the funding costs associated with the collateral funding asymmetry on uncollateralized or partially collateralized derivatives in the portfolio. This adjustment is based on the expected exposure profiles of the uncollateralized or partially collateralized OTC derivatives and market-based funding spreads.
If quoted prices in an active market are not available, fair value is based on an analysis of available market inputs, which may include consensus prices obtained from one or more pricing services or by a valuation technique that discounts expected future cash flows using a market interest rate curves, referenced credit spreads, maturity of the investment, and estimated prepayment rates where applicable.
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 whether the prices are liquid tradable prices or model based consensus prices taking various data as inputs.
Financial liabilities at fair value through profit or loss - Financial liabilities designated as at fair value through profit or loss 1,166 1,285 57,305 9,829 708 101 59,179 11,215
Financial assets carried at fair value decreased compared to 31 December 2017 mainly as a result of the reclassification of EUR 34,980 million available-for-sale debt securities to amortised cost due to the transition to IFRS 9.
There were no significant transfers between Level 1 and Level 2.
Maturity/settlement –42 –141 –2 –78 – –1 –882 –24 –1,002 –168
Early repayment of liabilities –87 –399 –1 –20 –21 –106 –421
Amounts recognised in the statement of profit or loss relating to unrealised gains and losses during the year that relates to Level 3 assets and liabilities are included in the line item ‘Valuation results and net trading income’statement of profit or loss.
(31 December 2017: EUR 2.0 billion, being 1.1%). Changes in Level 3 from 31 December 2017 to 31
December 2018 are detailed above in the table Changes in Level 3 Financial assets.
Furthermore, Level 3 financial assets includes approximately EUR 1.1 billion (31 December 2017: EUR 0.4 billion) which relates to financial assets that are part of structures that are designed to be fully neutral in terms of market risk. Such structures include various financial assets and liabilities for which the overall sensitivity to market risk is insignificant. Whereas the fair value of individual components of these structures may be determined using different techniques and the fair value of each of the components of these structures may be sensitive to unobservable inputs, the overall sensitivity is by design not significant.
The remaining EUR 0.1 billion (31 December 2017: EUR 0.3 billion) of the fair value classified in Level 3 financial liabilities is established using valuation techniques that incorporates certain inputs that are unobservable.
Loans and advances 1,047 20 15 Price based Price (%) 1% 0% 102% 101%
– FX 477 479 Present value techniques Inflation rate (%) n/a 4% n/a 4%
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
Loans and advances to banks1 445 633 7,152 9,855 20,742 16,577 28,339 27,065
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 b) Non-financial assets and liabilities
Other non-financial assets (Property in own use, and Investment properties) are recognised at fair value at the balance sheet date.
Amounts recognised in the statement of profit or loss relating to unrealised gains and losses during the year that relate to Level 3 non-financial assets are included in the statement of profit or loss as follows:  Impairments on Property in own use are included in Other operating expenses - Impairments and reversals on property and equipment and intangibles ; and
For amounts recognised in the Statement of profit or loss and other changes in non-financial assets during the year, reference is made to Note 9 ‘Property and equipment’ and Note 11 ‘Other assets’.
Use of derivatives ING Group uses derivatives for economic hedging purposes to manage its asset and liability portfolios and structural risk positions as described in Note 53 ‘Risk management – Credit risk and
‘Accounting policies’ in the section ‘Financial instruments’ – ‘Accounting policies applied from 1
ING Group’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate instruments due to movements in market interest rates. ING Group’s approach to manage market risk, including interest rate risk, is discussed in Note 53 ‘Risk management – Market risk’. ING Group’s exposure to interest rate risk is disclosed in paragraph ‘Interest rate risk in banking book’.
EUR 650 million (2017: EUR 685 million) respectively ‘Financial liabilities at fair value through profit or loss – Non-trading derivatives’ EUR 1,035 million (2017: EUR 1,090 million). The remaining derivatives are offset with other derivatives and collaterals paid or received.
The main sources of ineffectiveness are:  differences in maturities of the hedged item(s) and hedging instrument(s);  different interest rate curves applied to discount the hedged item(s) and hedging instrument(s);  differences in timing of cash flows of the hedged item(s) and hedging instrument(s).
1,012 million (2017: EUR 617 million) respectively ‘Financial liabilities at fair value through profit or loss – Non-trading derivatives’ EUR 458 million (2017: EUR 339 million). The remaining derivatives are offset with other derivatives and collaterals paid or received.
Carrying amount cash flow hedge reserve at the end of the reporting period
Total combined interest and exchange rate risk 18 –13 –378 – 347 –1
Remaining assets (for which maturities are not applicable) 3 2,861 2,861
The tables below include all financial liabilities by maturity based on contractual, undiscounted cash flows. Furthermore, the undiscounted future coupon interest on financial liabilities payable is included in a separate line and in the relevant maturity bucket. Derivative liabilities are included on a net basis if cash flows are settled net. For other derivative liabilities the contractual gross cash flow payable is included.
– Non-trading derivatives 339 121 226 715 886 44 2,331 – Designated at fair value through profit or loss 413 838 1,353 3,700 5,058 –147 11,215 Debt securities in issue 3,296 14,657 26,434 37,717 12,249 1,733 96,086 Subordinated loans 10,601 5,176 191 15,968
Non-financial liabilities 9,773 1,915 4,240 2,147 1,204 – – 19,279 Total liabilities 550,755 49,319 59,973 81,663 43,426 5,176 4,783 795,095
3 Includes Other liabilities, Current and deferred tax liabilities, and Provisions as presented in the Consolidated statement of financial position.
Financial assets at fair value through profit or loss 1,620 1,072
In some jurisdictions ING Bank N.V. has an obligation to maintain a reserve with central banks. As at 31 December 2018, the minimum mandatory reserve deposits with various central banks amount to EUR 9,359 million (2017: EUR 8,503 million).
The table does not include assets relating to securities lending as well as sale and repurchase transactions. Reference is made to Note 44 ‘Transfer of financial assets’.
Financial liabilities at fair value through profit or loss n/a n/a n/a n/a 2,373 2,148 2,225 2,599 1 Amounts have been restated to conform to the current year presentation.
Deposits from banks Repurchase, securities lending and similar agreements 36 –36
In the normal course of business, ING Group is party to activities where risks are not reflected in whole or in part in the consolidated annual accounts. In response to the needs of its customers, the
Less than 1 month 1–3 months 3–12 months 1–5 years Over 5 years
Reference is made to Parent company annual accounts – Notes to the parent company annual accounts, Note 12 ‘Other’ for further information on Guarantees issued by ING Groep N.V.
Other contingent liabilities include acceptances of bills and are of a short-term nature. Other contingent liabilities also include contingent liabilities resulting from the operations of the Real
Tax cases: Because of the geographic spread of its business, ING may be subject to tax audits, investigations and procedures in numerous jurisdictions at any point in time. Although ING believes that it has adequately provided for all its tax positions, the ultimate resolution of these audits, investigations and procedures may result in liabilities which are different from the amounts recognised. ING has also identified issues in connection with its U.S. tax information reporting and withholding obligations in respect of prior periods. While a provision has been recognised, the review of such issues is ongoing.
Rate (‘SIBOR’) filed a U.S. class action complaint in the New York District Court alleging that several banks, including ING, conspired to rig the prices of derivatives tied to SIBOR and the Singapore Swap
(‘MAS’) and other regulators, including the U.S. Commodity Futures Trading Commission (‘CFTC’), in relation to rigging prices of SIBOR- and SOR based derivatives. In October 2018, the New York
Bank as a defendant. If the Court allows plaintiffs to file that complaint, ING Bank will continue to defend itself against the allegations. Currently, it is not possible to provide an estimate of the
Insurance Fund (SDIF’) prior to the acquisition of ING Bank Turkey in 2007 from OYAK. SDIF has also filed various lawsuits against ING Bank Turkey to claim compensation from ING Bank Turkey, with respect to amounts paid out to offshore account holders so far. ING Bank had initiated an arbitration procedure against OYAK in which ING Bank sought to be held harmless for these claims.
N.V. According to the VEB the prospectus shows substantive incorrect and misleading information.
The aggregate financial impact of the current and future litigation could become material.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Consolidated companies and businesses acquired and divested > 48 repayment of the bridge financing. At this moment it is not possible to assess the outcome of these claims nor to provide an estimate of the (potential) effect of these claims.
ING Bank obtained control over Payvision Holding B.V. (Payvision), a fast-growing, leading international omnichannel payments service provider, by acquiring 75% of its shares on 13 March 2018. This is in scope of IFRS 3 ‘Business combinations’.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Consolidated companies and businesses acquired and divested > 48
The amount of the non-controlling interest is determined based on the proportionate share of the subsidiary’s identifiable net assets.
Goodwill arising on these acquisitions is not expected to be deductible for tax purposes.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Principal subsidiaries, investments in associates and joint ventures > 49 49 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 > Structured entities > 50
1 During 2018, ING merged Record Bank into ING Belgium S.A./N.V.
ING Group’s activities involve transactions with various structured entities (SE) in the normal course of its business. A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. ING Group’s involvement in these entities varies and includes both debt financing and equity financing of these entities as well as other relationships. Based on its accounting policies, as disclosed in the section Principles of valuation and determination of results of these annual accounts, ING establishes whether these involvements result in no significant influence, significant influence, joint control or control over the structured entity.
The structured entities over which ING can exercise control are consolidated. ING may provide support to these consolidated structured entities as and when appropriate. However, this is fully reflected in the consolidated annual accounts of ING Group as all assets and liabilities of these entities are included and off-balance sheet commitments are disclosed.
ING Group originated various securitisations, as at 31 December 2018 these consisted of approximately EUR 66 billion of senior and subordinated notes, of which approximately EUR 5 billion were issued externally. The underlying exposures are residential mortgages and SME loans.
Dutch Covered Bond Companies 24,336 27,382 1 Amounts have been restated to conform to the current year presentation.
In addition, subsidiaries of ING in Germany, Belgium and Australia also issued covered bonds with pledged mortgages loans of approximately EUR 14 billion in total.
Corp. with short-term liquidity facilities. Once drawn these facilities bear normal credit risk.
Subsidiaries 1 Amounts have been restated to conform to the current year presentation.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Related parties > 51
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Subsequent events > 52
Total number of shares and stock options 440,097 487,433 95,707 325,118
Key management personnel compensation is generally included in Staff expenses in the statement of profit or loss. The total remuneration of the Executive Board and Management Board Banking is disclosed in the table above. Under IFRS, certain components of variable remuneration are not recognised in the statement of profit or loss directly, but are allocated over the vesting period of the award. The comparable amount recognised in Staff expenses in 2018 and included in Total expenses in 2018, relating to the fixed expenses of 2018 and the vesting of variable remuneration of earlier performance years, is EUR 12 million.
Number of ING Groep N.V. shares and stock options to key management personnel
Risk management supports the Executive Board in formulating the risk appetite, strategies, policies, limits and provides a review, oversight and support function throughout ING on risk-related items.
(including interest rate, equity, real estate, credit spread, and foreign exchange risks), funding & liquidity risk and business risk. Furthermore, ING is also exposed to non-financial risks, e.g.
The risk management section is part of the notes to the consolidated financial statements in which the nature and the extent of the risks as required by IFRS-EU standards are disclosed. This section also includes additional disclosures beyond those required by IFRS-EU standards, such as certain legal and regulatory disclosures. Not all information in this section can be reconciled back to the primary financial statements and corresponding notes, as it has been prepared using risk and capital data that differs to the accounting basis of measurement. Examples of such differences include the exclusion of accrued interest and certain costs and fees from risk and capital data, and timing differences in exposure values (IFRS 9 models report ECL on underlying exposures).
Disclosures in accordance with Part Eight of the CRR and CRD IV, and as required by the supervisory authority, are published in our ‘Additional Pillar III Report’, which can be found on our corporate website ing.com.
The purpose of ING’s risk management function is to support the ambition of ING to be the primary bank for our customers, empowering the business through an integrated enterprise-wide risk management platform. The following principles support this purpose:  The risk management function is embedded in all levels of ING’s organisation and is part of the daily business activities and strategic planning to have a sustainable competitive advantage;  Products and portfolios are structured, underwritten, priced, approved and managed properly and compliance with internal and external rules is monitored;  Delegated authorities are consistent with the overall bank strategy and risk appetite; and
outside of the businesses and the risk organisation) and objective assessment of the effectiveness of internal controls of the first two lines, including financial and non-financial risk management.
Group and Management Board Banking (MBB) for ING Bank) and the Supervisory Board (SB); both tiers play an important role in managing and monitoring the risk management framework.
 The Risk Committee, which assists and advises the SB in monitoring the risk profile and approving the overarching risk appetite of the company as well as the structure and effective operation of the internal risk management and control systems.
responsibilities include ensuring that internal risk management and control systems are effective and that ING Group and ING Bank comply with relevant legislation and regulations. On a regular basis, the EB and MBB report on these issues and discuss the internal risk management and control systems with the SB. On a quarterly basis, the EB and MBB report on ING’s risk profile versus its risk appetite to the Risk Committee, explaining changes in the risk profile.
committees on ING’s risk appetite levels and on ING’s risk profile. In addition, the CRO briefs the SB
committees on developments in internal and external risk related issues and ensures the SB
(CIRCs) have been set-up. These CIRCs have a final decision on client acceptance or client offboarding, from a risk-based perspective, in the areas of Financial Economic Crime (FEC), FATCA,
The scope of ICF is the development and maintenance or update of global internal control documents: policies, minimum standards, product control frameworks, support control frameworks and process-related control standards. These global documents are designed by head office functions, that entities and support functions have to adhere to. Domain ownership of policies and minimum standards is with the 2nd Line of Defence, whereas product and support control frameworks are owned by the 1st Line of Defence and are approved by 2nd line of Defence. Process control standards can be owned by both 1st and 2nd Line of Defence, related to the underlying processes involved.
All policies, procedures and control standards are published on ING’s intranet and new and updated documents are periodically communicated by means of a policy update to all country Chief
The introduction of social regulations, the revision of the Dutch Banking Code, and the implementation of a Banker’s Oath (with the associated rules of conduct and disciplinary law), are a way for Dutch banks to show society what they stand for and are accountable for, as both individual banks and as a sector.
Lastly, ING aims to align its remuneration policy with its risk profile and the interests of all stakeholders. For more information on ING’s compensation and benefits policies and its relation to the risk taken, please refer to the “Capital Requirements Regulation (CRR) Remuneration disclosure”
This chart provides high level information on the risks arising from ING’s business activities.
Its goal is to detect potential new risks and determine changes in known risks. Regular risk identification is essential for effective risk management. Potential risks that are not identified, will not be controlled and monitored and may lead to surprises later. Known risks may have changed over time and as a consequence the existing mitigating measures and monitoring may be inadequate or obsolete.
The importance of a risk is assessed based on the likelihood the risk materialises and the subsequent financial or reputational impact that may occur should the risk arise. Unlikely risks with a potentially high impact need to be controlled. A risk that is likely to happen regularly, but is expected to have a modest financial impact, may not be mitigated and have the consequences accepted based on the decision of business management.
Statements. The ING RAF is embedded in the ING’s planning process via Risk Appetite Statements that are used as a boundary for setting ING’s strategic and financial planning. An assessment how these plans compare vis-à-vis these boundaries is part of the quarterly review cycle of the Dynamic
ING has the ambition to be and remain a strong bank, resilient to possible adverse events on a standalone basis, and able to address such developments based on its own strengths and resources. To be able to execute the strategy, ING has formulated the following risk and capital targets:  have a rating strong enough to support the execution of ING’s Funding & Capital issuance plan;  be able to restore the capital and liquidity position following a stress situation on its own strength;  be in a position to meet current and forthcoming regulatory requirements and targets; and
à-vis its limits on a regular basis to senior management committees. The Quarterly Risk Update reflecting the exposure of ING against the risk appetite targets is submitted quarterly to the EB and the MBB and to the (Risk Committee of the) SB.
In Europe, some changes are currently made to the CRR/CRD IV, among others the formal introduction of the Leverage Ratio and of Pillar 2 Guidance. This will be implemented in EU
The BCSB239 principles are applied in the group risk data and risk reporting chain. In addition, the principles are incorporated in ING’s bank-wide internal control framework. This framework is rolledout bank-wide, expanding the application of the principles to key local entities (including D-Sibs)
The topics have emerged either as part of the annual Risk Assessment that is performed as part of the Stress Testing Framework and the Risk Appetite Framework. The sequence in which the risks are presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
The climate is changing and this is an unparalleled challenge to our world. The causes of climate change are complex but ING understands that it is attributed directly or indirectly to anthropogenic factors. As a financial institution, ING too has a responsibility to address climate-related risks which may affect our clients or ING.
In order to have board-level oversight of strategic climate-related risk and opportunity management, in 2018, ING established the Climate Change Committee (CCC). This executive committee is chaired by ING’s CRO and co-chaired by the board member responsible for Wholesale
The credit risk function encompasses the following activities:  Measuring, monitoring and managing credit risks in the bank’s portfolio;  Challenging and approving new and modified transactions and borrower reviews;  Managing the levels of provisioning and risk costs, and advising on impairments; and
 The ING Provisioning Committee (IPC) is the approval authority for loan loss provisions (LLP) for all entities.
All investments in the banking book are classified in the investment risk category. The primary purpose of ING’s investments in the banking books is for liquidity management.
 Settlement risk: is the risk that arises when there is an exchange of value (funds or instruments)
Note 4 Financial assets at fair value through profit or loss
Settlement 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
 Single name and industry sector concentration: Using the same concepts of boundaries and instruments mentioned earlier, ING has established a concentration risk framework in order to identify, measure and monitor single name concentration and industry sector concentration
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 the internal business mandate and requires an approval from the designated approval authority.
(maximum) internal capital consumption for credit risk. It is used as a reference amount in the credit approval process and can be waived on the basis of proper credit risk arguments.
plus regulatory-based add-on. For internal capital purposes ING uses a combination of the below mentioned methodologies to calculate its PS exposures:  MtM plus model based add-on approach: In this approach, the PS risk is calculated as the sum of the MtM of the trade and a model-based add-on. The MtM fluctuates through the life of the contract. The model-based add-on is product-specific, and takes into account the remaining time to maturity, profiling per time-buckets etc. Add-ons are updated with a frequency that takes into account major market changes. This methodology is used for pre-deal exposure assessment of all ING financial markets products. Furthermore, it is used for post-deal risk calculations in the case of financial markets portfolios that do not justify the computational efforts and costs associated with implementation of a Scenario Simulation approach;  Scenario Simulation approach (Monte Carlo approach): This approach is the more complex of the methods for PS risk calculations. It takes into account daily market conditions, including correlations between the risk factors and portfolio benefits. This Monte Carlo approach is currently used in ING for the largest volume of derivative products such as foreign exchange (FX)
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 validation is focused on the following four key elements: process verification, conceptual soundness, outcome analysis and review of developmental evidence.. Each model has both a credit risk and a front office co-sponsor. Both the MDC and the CTRC have participation from senior credit risk management as well as the front office to ensure maximum alignment within the organisation.
In principle all risk ratings are based on a Risk Rating (PD) Model that complies with the minimum requirements detailed in CRR/CRDIV, ECB Supervisory Rules and EBA guidelines. This concerns all borrower types and segments.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53
Risk ratings assigned to clients and reviewed, at least annually with the performance of the underlying models monitored regularly. Over 90% of ING’s credit exposures have been rated using one of the in-house developed PD rating models. Some of these models are global in nature, such as models for Large Corporates, Commercial Banks, Insurance Companies, Central Governments,
Local Governments, Funds, Fund Managers, Project Finance and Leveraged Companies. While other models are more regional or country specific, such as PD models for Small Medium Enterprise (SME)
Rating Models for retail clients are predominantly statistically driven and automated, such that ratings can be updated on a monthly or bi-monthly basis. Models for large corporates, institutions and banks are manually updated and are individually monitored on at least an annual basis.
The customer-centric data model conforms to the three core business needs of ING:  To transact efficiently with our clients;  To be compliant with our internal and external obligations; and
The credit risk data lifecycle describes the interlinked stages of the lifecycle from data definition to data usage as shown in the next figure:  Data Definitions: this process step aims that atomic and derived credit risk data terms have a single definition and definition owner throughout the organisation. It also facilitates that defined data is fit for the purpose it will be used for.
 Exchange: purpose of this step is that data exchange is executed as agreed between data owner and data user.
based financial institutions. Secured bonds, such as mortgage backed securities and asset backed securities are secured by the underlying diversified pool of assets (commercial or residential mortgages, car loans and/or other assets) held by the securities issuer. The last major credit risk source involves pre-settlement exposures which arise from trading activities, including derivatives, repurchase transactions and securities lending/borrowing transactions. This is also identified as counterparty credit risk.
Unless specifically stated, the figures in the tables in the credit risk section includes ‘intercompany loans’ to ING Group.
Risk rating buckets are defined based upon the quality of the exposures in terms of creditworthiness, varying from investment grade to non-performing loan ratings expressed in S&P,
ING uses a common industry classification methodology based on the NAICS system (North
Overall the rating class concentration improved. Increased outstandings was observed for
Investment grade rating classes (+13.1%), while the concentration in Non-Investment and
Real Estate, Transportation & Logistics and Utilities, partially offset by an increased NPL
The main concentration in Private Individuals is related to mortgage lending. Mortgage volume increased, mainly in Germany, Spain, Belgium and Poland, which was partially offset by a decline of mortgage lending in the Netherlands. Overall the main contributor for the increased outstandings in Private Individuals was Retail Challengers & Growth Markets.
Within Central Banks, the increase in concentration in Corporate Line was solely driven by increased deposits with the Dutch central bank, while in Wholesale Banking increased outstandings was seen with Banque Nationale de Belgique SA, partially offset by a reduction in exposures with
Commercial Banks concentration decreased within Wholesale Banking, largely due to decreased
Within Wholesale Banking: Real Estate concentration increased mainly due to increased lending exposures in United States, Luxemburg and Australia; Transportation & Logistics outstandinsg increased mostly in Japan; Food, Beverages & Personal Care outstandings increased mainly in
United States, Switzerland and Luxembourg; Chemicals, Health & Pharmaceuticals outstandings increased mostly in Germany and United States, while a decreased outstandings was seen in the
Market Assets with Central Bank and due to residential mortgage volume growth. These were slightly offset by a reduction of exposure with Belgian Central Government.
Romania, while it decreased in France and Turkey. The increase of outstandings in the Americas was largely driven by higher exposures to Corporates and Non-Bank Financial Institutions in the
This section provides insight in the types of covers and to which extent exposures benefit from collateral or guarantees. The disclosure differentiates between the risk categories (Lending,
Total Bank 831,605 1 More information on the credit risk mitigants can be found in the Pre-settlement section.
A significant part of ING’s residential mortgage portfolio is provided in the Netherlands (39.5%), followed by other main markets such as Germany (24.8%), Belgium & Luxembourg (13.5%) and
When a mortgage loan is granted in the Netherlands, the policy dictates maximum loan to market value (LTMV) for an existing property and for construction property financing of 100% (in 2017: 101%). The cover values are captured in the local systems which are subsequently fed into a central data system.
Estate Agents), VBO (Vereniging Bemiddeling Onroerend Goed – Association of Real Estate Brokers),
VastgoedPRO (Association of Real Estate Professionals) or NVR (Nederlandse Vereniging van
Non-performing 1 Consists mainly of residential mortgages to small one man business clients
(234.6%), mainly driven by a growth in Regulatory Reserve Deposits at the Dutch Central Bank. The largest decrease in outstandings was observed in Commercial Banks (-8.8%), due primarily to a fall in Nostro balances.
Cover values including guarantees received - Business lending portfolio – 2017
The use of Central Clearing Parties (CCPs) for the settlement of derivative transactions continues to grow and consequently the credit risk shifts more and more from the trading Counterparties to the
 The outstandings column represents CEM exposure (MtM after netting plus the Potential Future
During 2018 the pre-settlement portfolio increased when expressed in terms of outstandings. The pre-settlement portfolio was mainly concentrated in rest of Europe to a central counterparty clearinghouse and commercial banks in the UK, mostly consisting of Interest Rate Derivatives, FX
Derivatives, Securities Financing and Credit Derivatives. The outstandings increase was due to security financing to Belgian National Bank.
(4) There is doubt as to the borrower’s ability to generate stable and sufficient cash flows to service its debt.
 ING has granted concessions relating to the borrower’s financial difficulty, the effect of which is a reduction in expected future cash flows of the financial asset below current carrying amount.
Wholesale Banking has an individual name approach, using Early Warnings indicators to signal possible future issues in debt service.
deteriorating credit risk profiles, i.e. there is doubt as to the performance and the collectability of the client’s contractual obligations:  Watch List: Usually, a client is first classified as Watch List when there are concerns of any potential or material deterioration in the credit risk profile that may affect the ability of the client to adhere to its debt service obligations or to refinance its existing loans. Watch List status requires more than usual attention, increased monitoring and quarterly reviews. Some clients with a Watch List status may develop into a Restructuring status or even a Recovery status.
Front Office, GCR, and the respective Credit Risk Management executives, at which time it may be decided to change the status of an account from Watch List to Restructuring or Recovery or vice versa.
Non-performing Loans: ING Bank portfolio portfolio, outstandings by economic sector and business lines
IFRS 9 can be found in ‘Note 1 Accounting policies’ under part b) IFRS 9 ‘Financial instruments’ -
% stage 1 and 12.4% stage 2. Substandard grade is 96.8% stage 2, while 94.2% of NPL grade outstandings is classified as stage 3 (the rest of the NPL outstandings is not eligible for IFRS 9).
The introduction IFRS 9, with its inherent complexities and potential impact on the carrying amounts of our assets and liabilities, represents a key source of estimation uncertainty. In particular, the Group’s reportable ECL numbers are most sensitive to the forward-looking macroeconomic forecasts used as model inputs, the probability-weights applied to each of the three scenarios, and the criteria for identifying a significant increase in credit risk. As such, these crucial components require consultation and management judgement, and are subject to extensive governance.
The downside scenario sees a relatively synchronized global downturn with economic growth in advanced economies falling close to zero, and emerging markets suffering a pronounced slowdown. The upside scenario sees economic growth returning to rates not seen since the financial crisis and a return to pre-crisis unemployment rates.
 Probability weights applied to each of the three scenarios The alternative scenarios are based on the forecast errors of the OEGEM. To understand the baseline level of uncertainty around any forecast, Oxford Economics keeps track of all its forecast errors of the past 20 years. The distribution of forecast errors for GDP, unemployment, house prices and share prices is applied to the baseline forecast creating a broad range of alternative outcomes.
For the downside scenario, ING has chosen for the 90th percentile of that distribution because this corresponds with how within risk management earnings at risk is being defined. The upside scenario is represented by the 10th percentile of the distribution. The distribution of the scenarios for economic growth, taking into account the applicable percentile of the distribution, is resulting in the upside scenario to be weighted at 20%, the downside scenario to be weighted at 20% and consequently, the base case scenario to be weighted at 60%.
Based on the above two sources of estimation uncertainty, analysis on the sensitivity of key forward-looking macroeconomic inputs used in the ECL collective-assessment modelling process and the probability-weights applied to each of the three scenarios is presented below. The countries included in the analysis are for the Group’s most significant geographic regions, in terms of both gross contribution to reportable ECL, and sensitivity of ECL to forward-looking macroeconomics. Accordingly, the Group considers these portfolios to present the most significant risk of resulting in a material adjustment to the carrying amount of financial assets within the next financial year. The Group also observes that, in general, the Wholesale business is more sensitive to the impact of forward-looking macroeconomic scenarios.
Real GPD, Unemployment rate and HPI (in that order) are considered the variables with the largest impact on the LLP. This is supported by statistical analysis. These forward-looking macroeconomics
To identify forbearance, ING assesses clients with Early Warning Signals, Watch List, Restructuring,
For corporate customers, ING applies forbearance measures to support clients with fundamentally sound business models that are experiencing temporary difficulties with the aim to maximise the client’s repayment ability.
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Wholesale Banking forborne portfolio decreased by EUR 1.0 billion compared to 2017, of which the non-performing forborne portfolio decreased by EUR 1.4 billion which was partially offset by the increase in the performing forborne portfolio by EUR 0.3 billion.
(2017: 54%) of the total Retail Banking forborne portfolio and 44% (2017: 51%) of the nonperforming forborne portfolio. Retail banking forborne portfolio decreased by EUR 0.6 billion compared to 2017, of which EUR 0.4 billion driven by the consumer portfolio.
ING primarily plays three roles in its exposure to securitisations programs which are: Wholesale Banking: Forborne assets by economic sector1
In the normal course of business, ING structures financing transactions for its clients by assisting them in obtaining sources of liquidity by selling the client’s receivables or other financial assets to a special purpose vehicle (SPV). Senior positions in these transactions are often funded by the ING
Market risk is the risk that movements in market variables, such as interest rates, equity prices, foreign exchange rates, credit spreads and real estate prices negatively impact the bank’s earnings, capital, market value or liquidity position. Market risk either arises through positions in banking books or trading books. The banking book positions are intended to be held for the long-term (or until maturity) or for the purpose of hedging other banking book positions. The trading book positions are typically held with the intention of short-term trading or in order to hedge other positions in the trading book. This means that financial instruments in the trading books should be free of trade restrictions. Policies and processes are in place to monitor the inclusion of positions in either the trading or banking book as well as to monitor the transfer of risk between the trading and banking books.
ALCO Bank monitors ING’s adherence to the risk appetite for market risk and sets additional limits where appropriate. These limits are cascaded through the organisation through lower level ALCOs.
The main concepts and metrics used for measuring market risk in the banking book are described below per risk type.
ING’s approach to interest rate risk management, as set forth in this framework, is the centralisation of risks from commercial books (that capture the products sold to clients) to globally managed interest rate risk books. This enables a clear demarcation between commercial business results and results on unhedged interest rate positions.
The commercial business manages the convexity risk that is the result of products that contain embedded options, like mortgages. Here the convexity risk is defined as the optionality effects in the value due to interest rate changes, excluding the first-order effects. In some cases, convexity risk is transferred from the commercial books to treasury books using cap/floor contracts.
 Review of the risk appetite for Interest Rate Risk for the Banking Book;  Annual review of the interest rates scenarios used for calculating NII-a-Risk and NPV-at-Risk;  Implementation of scenarios for the interest rate sub-risk types tenor basis risk, vega optionality risk and currency diversion risk;  With respect to the capital investments, the internal view on capital replication is reflected in the NPV-at-Risk limit for the capital book as of July 2018; and
NII-at-Risk measures the impact of changing interest rates on (before tax) net interest income of the banking book with a time horizon of one year. This excludes credit spread sensitivity and longer term earnings impact. The NII-at-Risk figures in the tables below reflect a parallel interest rate shock with a time horizon of one year. Next to parallel scenarios, IRRBB monitoring and management includes the impact of non-parallel scenarios and the impact over a longer horizon.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 materialise over time in the profit and loss account if interest rates develop according to forward rates throughout the remaining maturity of the portfolio.
FX exposures in banking books result from core banking business activities (business units doing business in currencies other than their base currency), foreign currency investments in subsidiaries
Every business unit hedges the FX risk resulting from core banking business activities into its base currency. Consequently, assets and liabilities are matched in terms of currency.
The following table presents the currency exposures in the banking books for the most important currencies for the FX translation result. Positive figures indicate long positions in the respective currency. As a result of the strategy to hedge the CET1 ratio a net foreign currency exposure exists.
Equity price risk arises from the possibility that an equity security’s price will fluctuate, affecting the value of the equity security itself as well as other instruments whose value react similarly to the particular security, a defined basket of securities, or a securities index. ING’s equity exposure mainly consists of the investments in associates and joint ventures of EUR 1,203 million (2017: EUR 1,088 million) and equity securities held at fair value through other comprehensive income (FVOCI) of EUR
Management activities which are being wound down by sale of assets, strict execution of contract maturity, or through portfolio sales.
ING has two different main categories of Real Estate exposure on its banking books: first, its own buildings which ING occupies, and second, development assets, which mostly consist of former Real
ING follows the regulatory framework set out in the Capital Requirements Regulation (CRR/CRD IV)
regulation. The CRR II will include among others the European regulations conform the
VaR has some limitations, such as the following: VaR uses historical data to forecast future price behaviour. Future price behaviour could differ substantially from past behaviour. Moreover, the use of a one-day holding period (or ten days for regulatory capital calculations) assumes that all positions in the portfolio can be liquidated or hedged in one day. In periods of illiquidity or market events, this assumption may not hold. Also, the use of 99% confidence level means that VaR does not take into account any losses that occur beyond this confidence level.
Although VaR models estimate potential future trading results, estimates are based on historical market data. In a backtest, the actual daily trading result (excluding fees and commissions) is compared with the 1-day VaR. In addition to using actual results for backtesting, ING also uses hypothetical results, which excludes the effect of intraday trading, fees, and commissions. When the actual or hypothetical loss exceeds the VaR, an ‘outlier’ occurs. Based on ING’s one-sided confidence level of 99%, an outlier is expected once in every 100 business days. In 2018 there was one occurrence where actual and hypothetical daily trading loss exceeded the daily consolidated
model is used for all legal entities within ING with market risk exposure in the trading portfolio. Nonsecuritised trading positions of ING, which are subject to specific interest rate risk included in the internal model approach for market risk regulatory capital, are in scope of the IRC model. By model choice, equity is excluded from the model. For the calculation of IRC, ING performs a Monte-Carlo simulation based on a Gaussian copula model. The asset correlations used in the Gaussian copula model are determined using the IRB correlation formula. The rating change is simulated for all issuers over the different liquidity horizons (i.e. time required to liquidate the position or hedge all significant risks) within one year. Movements across different rating categories and probabilities of default are governed by a credit-rating transition matrix. An external transition matrix is obtained from Standard & Poor’s (S&P). The financial impact is then determined for the simulated migration to default, or for the simulated migration to a different rating category, based on LGD or credit spread changes, respectively.
13 Maximum value n/a n/a 14 Average value n/a n/a 15 Minimum value n/a n/a 16 Period end n/a n/a
The market risk regulatory capital under Standardized Approach is fully driven by the foreign exchange risk in the banking books. The foreign exchange risk in the banking books in 2018 increased slightly compared to 2017.
8 % of the own funds requirement in SA on most recent risk number for the correlation trading portfolio
As part of the risk monitoring framework, FI-FM Risk actively monitors the daily changes of sensitivities of the trading portfolios. Sensitivities measure the impact of movements in individual market risk factors (foreign exchange rates, interest rates, credit spreads, equity, and commodity prices) on profit and loss results of the trading positions and portfolios.
The following tables show the five largest foreign exchange trading positions, and interest rate and credit spread sensitivities. The credit spread sensitivities are furthermore split in different risk classes and sectors. Due to the nature of the trading portfolios, positions change from day to day.
South Korean Won 14 Taiwan New Dollar 21 1 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.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 amounts in EUR thousands 2018 2017
Risk classes 17–22 (CCC and NPL) 18 –2 1 1 Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase in credit spreads.
F&L position through three main lenses: (i) Stress, (ii) Sustainability and (iii) Regulatory.
These risk appetite statements are subsequently translated into a number of metrics with appropriate boundaries and instruments that are used to measure and manage ING’s funding and liquidity adequacy.
In terms of the market environment, the strategic ambitions of ING, together with the design and execution of funding plans, are always considered under current and projected market conditions.
The Funding & Liquidity Stress Testing forms part of the overall Funding & Liquidity framework. It allows ING to examine the effects of exceptional but plausible future events on ING’s liquidity position and provides insight into which entities, business lines or portfolios are vulnerable to which types of risk and/or under which scenarios.
The Funding & Liquidity Stress Testing framework is also subject to regular internal validation.
In line with ECB regulation, ING’s liquidity position is stress tested on a monthly basis under a particular scenario that forms part of the F&L Risk Appetite Statement. In addition, the results of the stress scenarios are monitored and evaluated on a regular basis and provide input for any follow-up on the need for additional contingency measures.
ING believes that an effective control environment is essential to build and maintain sustainable businesses, and preserve and enhance the trust of its customers, employees and shareholders. The
The Chief Compliance Officer (CCO) is the Global Head of the Compliance Risk Management function. This is an independent function responsible for developing and establishing the Bank-wide policies and minimum standards for managing compliance risks. The CCO assists the SB, EB and
Non-Financial Risk Committees (NFRCs) and Management Teams (MTs) measure, monitor and manage operational, information and compliance risks. The Bank NFRC is the primary approval and oversight committee for non-financial risk matters. Additionally NFRCs exist at the Division and/or
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 assessing scenario severities, with the ORM function validating and challenging the results. The internal data are combined with external loss data (ORX) in the AMA capital calculation. Since April 2013, ING is allowed to use its AMA model for regulatory capital calculation purposes. ING reports the regulatory capital numbers on a quarterly basis.
who intend to deceitfully or unlawfully benefit themselves or others;  Unauthorised activity risk is the risk of financial loss, regulatory sanctions or reputational damage due to employees performing outside the normal course of their business, intentionally giving unauthorised approvals or overstepping their authority;  Personal and physical security risk is the risk of financial loss, regulatory sanctions or reputational damage due to criminal and environmental threats that might endanger the security or safety of
Legal risk is defined as the risk related to (i) a failure (or perceived failure) to adhere to applicable laws, regulations and standards, (ii) contractual liabilities or contractual obligations that are defaulted or cannot be enforced as intended, or are enforced in an unexpected or adverse way, and (iii) liability towards third parties due to an act or omission contributable to ING (potentially)
ING categorises compliance risk into four conduct-related integrity risk areas:  Client conduct refers to the compliance risks arising from the relationship with or generated by the conduct of our clients and/or business partners, like money laundering or terrorist financing.
Controls aiming to mitigate the compliance risks associated with the above mentioned risk areas are designed and applied to the day-to-day processes in the bank. The effectiveness of the controls is tested periodically, and senior management has the responsibility that their processes are compliant with applicable laws and regulations, ING’s internal policies, and the Orange Code.
Policy, via internal or external channels next to normal reporting channels.
Regulation is becoming increasingly more extensive and complex. An example is the implementation of the Common Reporting Standard (CRS), which like FATCA requires financial institutions to report detailed client-related information to the competent authorities. Customer due diligence (CDD) and transaction monitoring impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering , terrorist financing, and fraud.
Despite our efforts to comply with applicable laws and regulations, there are a number of risks in areas where applicable regulations are unclear, or under development, are in conflict with each other, or where regulators revise their guidance or courts set new legal standards. Meeting these requirements within the strict timelines that are set poses a significant challenge for banks. ING will continuously work on embedding in our IT systems and data the processes and procedures needed for effective compliance and developing its people to have the right knowledge and skills.
In addition, the European Supervisory Authorities (ESAs) issued their final Guidelines on risk factors on 26 June 2018, which became applicable by 26 June 2018. These Guidelines promote a common understanding of the risk-based approach to AML/CFT and set out how it should be applied in the context of the 4th EU AML Directive. Furthermore, on 22 September 2018 the ESAs also issued their final Guidelines to prevent the abuse of funds transfers for terrorist financing and money laundering purposes. These guidelines applied from six months after the date on which they are issued.
Dutch Public Prosecution Service related to the previously disclosed criminal investigations that found serious shortcomings in the execution of customer due diligence requirements to prevent financial economic crime at ING Netherlands in the period investigated (2010-2016).
 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. All required screening components (name screening, pre-transaction screening, adverse media screening) will be incorporated into the client acceptance due diligence process. Once a customer is onboarded, ongoing screening and monitoring of transactions can then be activated.
Under provisions of US tax law commonly referred to as FATCA, non-US financial institutions are required to provide certain information on their US account holders and/or certain US investors to the US Internal Revenue Service (“IRS”). A 30% withholding tax will be imposed on ‘withholdable payments’ made to non-compliant non-US financial institutions. As part of the actions taken to comply with FATCA and other US withholding tax regulations, ING is for example updating and strengthening its withholding compliance programme and reviewing, amending and filing the necessary tax returns and information reports.
If the Group cannot rely on IGA or satisfy the requirements, certain payments to the Group may be subject to withholding under FATCA. Certain payments may also be subject to other US withholding tax regulations. The possibility of such withholding and the need for account holders and investors to provide certain information may adversely affect the sales of certain of the Group’s products. In addition, compliance with the terms of such IGAs and with FATCA, any regulations or other guidance promulgated thereunder, or any legislation promulgated under an IGA, and offering products that generate ‘withholdable payments’, may substantially increase the Group’s compliance costs. Failure to comply with FATCA and other US withholding tax regulations 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.
In 2018, the OECD has introduced two new measures to tackle global tax avoidance/evasion:  Mandatory Disclosure Rules for Addressing CRS Avoidance Arrangements and Opaque Offshore Structures
 Preventing Abuse of Residence by Investment (RBI) and Citizenship by Investment (CBI) Schemes to Circumvent the CRS
Integrity and transparency in financial markets are essential for public and investor confidence. The revised Markets in Financial Instruments Directive European legislation (MiFID II) came into effect in
January 2018. A central programme continued in 2018 to support ING’s commitment to embed the revised legislation throughout the organisation.
As per 25 May 2018 the European General Data Protection Regulation (GDPR) became effective.
GDPR affords greater protection to individuals and requires more control on data and transparency regarding the use of data by companies. In 2018 ING continued its central programme, which was initiated in 2016, to implement these GDPR standards.
e-learning ‘Dealing with Dilemmas’ and ‘Data@Risk’ which were rolled out globally.
In 2018, we continued training the Compliance Officers within ING worldwide in the Compliance
Forum ING. This forum is about building expertise and sharing experience. The focus is on regulatory developments, innovation and the future of compliance – what compliance officers can do to Think
The Compliance Risk Management function continued to enhance its control framework by monitoring on drivers for conduct or the ‘soft controls’. By assessing both hard controls and soft controls, such as leadership, group dynamics and decision making via in-depth interviews with ING
staff, ING further strengthens the mitigation of compliance risks and provides management with knowledge and tools how to further develop a sound risk and integrity-led culture throughout the global ING organisation. In addition to Compliance Risk Culture Monitoring, ING is further developing in the area of hard control monitoring on the Orange Code values.
GT Capital Management, part of the Balance Sheet & Capital Management, is responsible for maintaining the adequate capitalisation of ING Group and ING Bank entities, to manage the risk associated with ING’s business activities. This involves not only managing, planning and allocating capital within ING Group, ING Bank and its various entities, but also helping to execute necessary capital market transactions, term (capital) funding and risk management transactions. ING takes an integrated approach to assess the adequacy of its capital position in relation to its risk profile and operating environment. This means Capital Management takes into account both regulatory and internal metrics and requirements as well as the interests of key stakeholders such as shareholders and rating agencies.
 FX ratio hedging – the objective is to protect the CET1 ratio of ING consolidated figures against
The capital position remained robust in 2018 reflecting strong profitability with a lower risk weight and complemented with the optimisation of the capital structure. At both the consolidated and entity level, ING has sufficient buffers to withstand certain adverse scenarios without breaching currently applicable and requirements.
ING Group breaches the MDA level, we may face restrictions on dividend payments, AT1 instruments coupons and bonus payments.
Common Equity Tier 1 ratio and a fully-loaded Common Equity Tier 1 ratio of 14.5% as at 31
to 14.5%, while the phased-in Tier 1 ratio (including grandfathered securities) remained stable at 14.6%, primarily reflecting developments in ING Bank’s CET1 ratio. The Banks’s fully loaded and phased-in total capital ratio (including grandfathered securities) decreased from 18.3% to 17.2%
In 2018, ING Groep N.V. did not issue or redeem Additional Tier 1 instruments. In 2018, a total of €4.7 billion ING Bank Tier 2 bonds were redeemed. In line with the resolution strategy, ING Groep
To support orderly resolution, the Bank is required to meet minimum requirements for own funds and eligible liabilities (MREL). In 2018 ING Group received a formal notification from De
Nederlandsche Bank (DNB) of its binding MREL. The MREL requirement has been established to ensure that banks in the European Union have sufficient own funds and eligible liabilities to absorb losses in case of potential bank failure. The MREL requirement is set for ING Group at a consolidated level, as determined by the Single Resolution Board (SRB). This MREL requirement has been set at 10.89% of total liabilities and own funds. We expect future requirements to be based on a consolidated requirement, to be met with ING Groep N.V. instruments only.
of the resolution group’s risk weighted assets (TLAC RWA Minimum) and 6% of the leverage ratio denominator (TLAC Leverage Ratio Exposure (LRE) Minimum), excluding buffer requirements, as of 1 January 2019. From 1 January 2022 TLAC is required to be at least 18% of the resolution group’s risk weighted assets and 6.75% of the leverage ratio denominator.
CET1 ratio of 14.5% was well above our CET1 ratio ambition of 13.5% and SREP requirement of 11.8%, while our annual underlying ROE was within our ambition of 10-12%, at 11.2%.
Besides measuring capital adequacy, Capital Management also ensures the availability of sufficient capital through target and limit setting for the above mentioned metrics for ING Group and ING
As at 1 January 2014, the CRR/CRD IV capital rules entered into force. The capital position table reflects own funds according to the Basel 3 rules as specified in the CRR/CRD IV. As CRD IV will be phased-in gradually until 2019, the table shows the CRD IV positions according to the 2019 endstate rules and the 2018 rules. ING reports these metrics for ING Group and ING Bank. During 2018,
3 Including €8,079 million which is CRR/CRD IV-compliant (2017: €8,995 million), and €168 million be replaced as capital recognition is subject to CRR/CRD IV grandfathering rules (2017: €2,091 million).
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Capital management > 54 the ECB thereafter) for supervisory purposes. In 2010, the Basel Committee issued new solvency and liquidity requirements that superseded Basel II. The minimum requirements, excluding buffers, for the CET 1 ratio is 4.5%, the minimum Tier 1 requirement is 6% and the Total capital ratio is 8%
Changes in the composition of the group and other changes 275 –357 –82
Changes in the composition of the group and other changes 147 –152 –5
 Assets have been split into two subgroups, ‘Fixed assets’ and ‘Current assets’; and
 Subgroups of ‘Non-current assets’ and ‘Current assets’ have been added.
 Foreign currency translation on consolidated Group companies, presented in Other reserves -
Consolidated annual accounts. Investments in Group companies are accounted for in the Parent company accounts according to the equity method.
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In 2018, ING Groep N.V. issued 5.9 million ordinary shares (2017: 7.3 million). These issues were made in order to fund obligations arising from share-based employee incentive programmes.
The number of debentures held by Group companies as at 31 December 2018 is nil with a statement of financial position value of nil (2017: nil with a statement of financial position value of nil).
The information on share-based payment plans and remuneration of the members of the
Executive Board and the Supervisory Board is included in the Consolidated annual accounts.
Reference is made to Note 51 ‘Related parties’ (page 282 up to and including page 285) and the
Reference is made to the ING Group Consolidated annual accounts, Note 28 ‘Other operating expenses’ for disclosures related to fees for audit and non-audit services.
N.V. indemnifies the Association of German Banks Berlin against any losses it might incur as result of actions taken with respect to ING Germany. The ESF is a voluntary collective guarantee scheme for retail savings and deposits in excess of EUR 100,000.
Shareholder’s agreement between ING Groep N.V. and Voya Financial Inc. it is agreed that the aggregate outstanding principal amount of the debentures will be reduced from EUR 87 million as at 31 December 2018 (2017: EUR 167 million; 2016: EUR 404 million) to no more than EUR nil at 31
In case one or more of the factors mentioned above adversely affects the profitability of our business, this might also result, among other things, in the following:  reserve and provisions inadequacies, which could ultimately be realised through profit and loss and shareholders’ equity;  the write-down of tax assets impacting net results and/or equity;  impairment expenses related to goodwill and other intangible assets, impacting net result;  movements in risk weighted assets for the determination of required capital;  changes in credit valuation adjustments and debt valuation adjustments; and/or
membership, increasing political instability, levels of unemployment, the availability and cost of credit, credit spreads, and the end of quantitative easing within the Eurozone through bond repurchases and the ECB’s targeted longer-term refinancing operation (‘TLTRO’). In the United
US Treasury securities could also impact the ratings and perceived creditworthiness of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the US
government on its debt obligations would create broader financial turmoil and uncertainty, which would weigh heavily on the global financial system and could consequently result in a significant adverse impact to the Group’s business and operations.
In many cases, the markets for investments and instruments have been and remain highly illiquid, and issues relating to counterparty credit ratings and other factors have exacerbated pricing and valuation uncertainties. Valuation of such investments and instruments is a complex process involving the consideration of market transactions, pricing models, management judgment and other factors, and is also impacted by external factors, such as underlying mortgage default rates, interest rates, rating agency actions and property valuations. Historically these factors have resulted in, among other things, valuation and impairment issues in connection with our exposures to European sovereign debt and other investments.
There can be no assurance that market disruptions in Europe, including the increased cost of funding for certain government and financial institutions, will not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilise the affected countries and markets in Europe or elsewhere. To the extent uncertainty regarding the economic recovery continues to negatively impact consumer confidence and consumer credit factors, our business and results of operations could be significantly and adversely impacted. Additionally, extreme prolonged market events, such as the recent global credit crisis, could cause us to incur significant losses and may lead to USD funding shortages for EU Banks.
Brexit, any related regulatory changes, and over the future economic relationship between the UK
and the rest of the world (including the EU). In particular, it remains possible that the UK’s membership in the EU ends without any agreement reached between the UK and EU on the terms of their relationship going forward. Any of these developments could have an adverse effect on economic and financial conditions in the UK, the EU or globally. Although ING has continued to take steps throughout 2018 to prepare for known risks related to Brexit, such as applying for a banking licence in the UK, taking actions for contract continuity and working to establish alternatives in the
Brexit, the exit of other member states from the EU or the Eurozone, or other political changes in
Adverse capital and credit market conditions as well as changes in regulations may impact our ability to access liquidity and capital, as well as the cost of liquidity, credit and capital.
 (depending on the position) a significant collateral posting requirement associated with our interest rate hedge programs, which could materially and adversely affect liquidity and our profitability.
Rapidly increasing interest rates may result in:  a decrease in the demand for loans;  higher interest rates to be paid on debt securities that we have issued or may issue on the financial markets from time to time to finance our operations and on savings, which would increase our interest expenses and reduce our results of operations;  higher interest rates can lead to lower investments prices reduce the revaluation reserves, thereby lowering IFRS equity and the capital ratios. Also the lower securities value leads to a loss of liquidity generating capacity which needs to be compensated by attracting new liquidity generating capacity which reduces our results of operations;  prepayment losses if prepayment rates are lower than expected or if interest rates increase too rapidly to adjust the accompanying hedges; and/or
 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.
‘Benchmarks Regulation’) on indices (such as LIBOR and EURIBOR) used in the EU as benchmarks in financial contracts. The Benchmarks Regulation became effective as of 1 January 2018. It provides that administrators of benchmarks used in the EU generally must be authorised by or registered with regulators no later than 1 January 2020, and that they must comply with a code of conduct designed primarily to ensure reliability of input data, governing issues such as conflicts of interest, internal controls and benchmark methodologies. Although the UK Financial Conduct Authority
The potential discontinuation of the LIBOR and EONIA benchmarks or any other benchmark, or changes in the methodology or manner of administration of any benchmark, could result in a number of risks for the Group, its clients, and the financial services industry more widely. These risks include legal risks in relation to changes required to documentation for new and existing transactions may be required. Financial risks may also arise from any changes in the valuation of financial instruments linked to benchmark rates, and changes to benchmark indices could impact pricing mechanisms on some instruments. Changes in valuation, methodology or documentation may also result into complaints or litigation. The Group may also be exposed to operational risks or incur additional costs due to the potential requirement to adapt IT systems, trade reporting infrastructure and operational processes, or in relation to communications with clients or other parties and engagement during the transition period.
The replacement of benchmarks together with the timetable and mechanisms for implementation have not yet been confirmed by central banks. Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would affect the Group. However, the implementation of alternative benchmark rates may have a material adverse effect on the Group’s business, results of operations and financial condition.
Despite our efforts to maintain effective compliance procedures and to comply with applicable laws and regulations, we have faced, and in the future may continue to face, the risk of consequences in connection with non-compliance with applicable laws and regulations. For additional information on legal proceedings, see Note 47 ‘Legal proceedings’ to the consolidated financial statements.
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, which could result in our failure to meet applicable standards. Regulators and other authorities have the power to bring administrative or judicial proceedings against us, which could result, among other things, in suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action, which could materially harm our results of operations and financial condition. If we fail to address, or appear to fail to address, any of these matters appropriately, our reputation could be harmed and we could be subject to additional legal risk, which could, in turn, increase the size and number of claims and damages brought against us or subject us to enforcement actions, fines and penalties.
also introduced a ‘countercyclical buffer’ as an extension of the capital conservation buffer, which would allow national regulators to require banks to hold more capital during periods of high credit growth (to strengthen capital reserves and moderate the debt markets). Further, Basel III has strengthened the definition of capital that will have the effect of disqualifying many hybrid securities, including those issued by the Group, from inclusion in regulatory capital, as well as the higher capital requirements for trading, derivative and securitisation activities as part of a number of reforms to the Basel II framework. In addition, the BCBS and the Financial Stability Board (‘FSB’)
published measures in October 2011 that would have the effect of requiring higher loss absorbency capacity, liquidity surcharges, exposure limits and special resolution regimes for, and instituting more intensive and effective supervision of, ‘systemically important financial institutions’ (‘SIFIs’)
For European banks, the original Basel III requirements were implemented through the Capital
Requirements Regulation (‘CRR’), which was adopted by the EC in June 2013 following approval by the European Parliament in April 2013, and the Capital Requirements Directive IV (‘CRD IV’). The CRR
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 reliability and comparability between banks’ models. The TRIM aims to create a level playing field by harmonising the regulatory guidance around internal models, and the ultimate goal is to restore trust in the use of internal models by European banks. The operating consequences of the TRIM exercise have been significant. The TRIM is expected to finalise in 2019, and could impact ING through more stringent regulation on internal models. There is also heightened supervisory attention for the credit quality of loans to corporates and/or households.