The full value impact cannot be directly linked to the balance sheet or profit and loss account, as fair value movements in banking books are not necessarily reported through the profit and loss account or through equity. The value mutations are expected to materialise over time in the profit and loss account, if interest rates develop according to forward rates throughout the remaining maturity of the portfolio.
in EUR thousand 2016 2015 By currency Euro -13,043 –16,563 US Dollar -550 424 Other -1,303 357 Total -14,896 –15,782 in EUR thousand 2016 2015 By business Wholesale Banking -246 277 Retail Banking Benelux -345 –448 Retail Challengers & Growth Markets -2,149 –2,417 Corporate Line -12,156 –13,194 Total -14,896 –15,782
Risk profile – FX translation result The following table presents the currency exposures in the banking books for the most important currencies for 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.
Market risk in trading books Within the trading portfolios, positions are maintained in the professional financial markets. These positions are often a result of transactions with clients and may serve to benefit from short-term price movements.
With respect to the trading portfolios, Credit & Trading Risk focuses on the management of market risks of Wholesale Banking (mainly Financial Markets) as this is the only business line within ING Bank where trading activities take place. Trading activities include facilitation of client business and market making. Credit & Trading Risk is responsible for the development and implementation of trading risk policies and risk measurement methodologies, the reporting and monitoring of risk exposures against approved trading limits and the validation of pricing models. Credit & Trading Risk also reviews trading mandates and limits, and performs the gatekeeper role in the product review process. The management of trading market risk is performed at various organisational levels, from Credit & Trading Risk overall down to specific business areas and trading offices.
Examples of other pricing sources can be independent market vendors, brokers or market makers, or recent transactions. The range of prices obtained from these pricing sources can diverge. The choice for one or the other pricing source can therefore result in different estimates of fair value. Selecting the most appropriate price within this range requires expertise and judgement. The selection of the pricing sources used is subject to internal approval and review in the Market Data Committee.
Other trading controls VaR and Event Risk limits are the most important limits to control the trading portfolios. Additionally, limits have been set on SVaR and IRC. Furthermore, ING Bank uses a variety of other controls to supplement these limits. Position and sensitivity limits are used to prevent large concentrations in specific issuers, sectors or countries. In addition to this, other risk limits are set with respect to the activities in complex derivatives trading. The market risk of these products is controlled by product specific limits and constraints.
ING Group Annual Report 2016 302 1 1 CVA risk is not included in VaR.
Minimum Maximum Average Year end amounts in millions of euros 2016 2015 2016 2015 2016 2015 2016 2015 Interest rate 3 3 10 8 5 5 5 4 Equity and commodity 2 4 11 10 5 6 4 6 Foreign exchange 1 1 5 4 2 2 2 1 Credit spread 4 7 11 10 6 8 7 9 Diversification2 -7 –9 -12 –6 Total VaR 5 8 22 17 11 12 6 14 1 CVA risk is not included in VaR. 2 The total VaR for the columns Minimum and Maximum cannot be calculated by taking the sum of the individual components since the observations for both the individual markets as well as total VaR may occur on different dates.
Deltacash amounts in EUR millions 2016 2015 Foreign exchange Foreign exchange US Dollar 201 US Dollar 160 Romanian New Leu 45 Romanian New Leu 57 Chinese Yuan -40 Chinese Yuan –42 South Korean Won -22 South Korean Won –46 Czech Koruna 21 Swiss Franc 18
Credit Spread (CSO12) Credit Spread (CSO12) United States 333 Netherlands –289 Germany 173 Germany –154 Belgium 74 Norway –110 India -38 United States 99 Poland -38 Spain –89 1 Basis Point Value (BPV) measures the impact on value of a 1 basis point increase in interest rates. The figures Include commodity risk in banking books. 2 Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase in credit spreads. Exposures to supranational institutions are not assigned to a specific country.
Institutions Credit Spread (CSO11) Risk classes 1 (AAA) -3 -48 0 –60 2–4 (AA) -21 26 13 –108 5–7 (A) 13 -9 12 –207 8–10 (BBB) -126 -154 –61 –180 11–13 (BB) -104 -88 –88 –64 14–16 (B) 0 -9 –3 –2 17–22 (CCC and NPL) -1 -2 –12 –11 Not rated 1 1 3 1 Total -241 -283 –136 –631 1 Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase in credit spreads.
• Contingency Funding Plan: ALCO ensures the design, regular test and maintenance of formal Contingency Funding planning, setting out the strategies for addressing liquidity shortfalls in emergency situations, outlining procedures to manage these situations, establishing clear lines of responsibility, and articulating clear implementation and escalation procedures.
This RAS hierarchy is applied consistently for all currencies and for USD for both the consolidated ING scope and ING Bank N.V. solo. Where relevant the RAS are cascaded down to specific regional and local levels.
ING Bank reviews its funding plan on at least a quarterly basis, assessing market developments and funding requirements.
Liquidity buffers The liquidity buffer ING Bank holds can be seen as the short-term part of the counterbalancing capacity, i.e. the total of available sources and measures within ING to generate liquidity (including also stopping professional lending), and serves as a cushion for liquidity needs under normal and stressed conditions.
Stress testing Stress testing allows ING to examine the effect of exceptional but plausible future events on the liquidity position of the bank and provides insight into which entities, business lines or portfolios are vulnerable to which type of risks and/or in which type of scenarios. Liquidity stress testing is an important tool in identifying, assessing, measuring and controlling funding and liquidity risks, providing a complementary and forward-looking perspective to other liquidity and funding risk management tools.
In line with SREP and EBA guidance, ING’s liquidity position is stress tested on a monthly basis under a particular scenario that is a mix between a market event and an ING specific event. The outcome of stress tests are evaluated and provide input to any follow-up on the need for additional contingency measures.
In addition to the bank-wide stress test framework as described in the ING Bank risk profile section, stress test reports are produced with respect to the funding and liquidity position on a regular basis. Some of these stress tests are regulatory driven, and others are based on internal scenarios. On a weekly basis ING reports an internal net liquidity position metric, this is reported on a consolidated (bank) level for the main entities and split in Euro and US Dollar. On a monthly basis ING Bank reports the Liquidity Coverage Ratio (LCR) and a internally defined stress scenario related to the time-to-survive period. Additionally, on a quarterly basis, ING Bank reports a number of internally defined stress scenarios related to time-to-survive periods.
The current implemented additional monitoring metrics will be extended with a maturity ladder template, which was out of scope in the initial implementation.
ING Bank believes that fully embedding controls preserves and enhances the trust of its customers, staff and shareholders and is essential to build sustainable businesses. The Orange Code sets the foundation for the high ethical standards ING Bank expects from all its business activities. The Orange Code requires all staff to conduct themselves, not only within the spirit and letter of laws and regulations, but above all, with integrity, whilst being honest, prudent and responsible.
The Chief Compliance Officer (CCO) is the general manager of the Bank Compliance Risk Management department and the Head of the Compliance Risk Management function within the Bank. This is an independent function responsible for developing and establishing the Bank-wide policies and minimum standards for managing compliance risks. The CCO assists and supports the MBB in managing ING Bank’s compliance risks and control framework. The CCO is a permanent participant of the Risk Committee of the Supervisory Board and meets regularly with its Chairman.
Advanced Measurement Approach (AMA) ING Bank has an Operational Risk Capital model in place in which the risk profile is closely tailored to the internal risk profile of ING Bank and its divisions, by using scenario data for capturing severe risks and internal loss and RCSA data for capturing day-to-day risks. The business has a strong role in assessing scenario severities and the ORM function in validating 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 supervision purposes. ING Bank reports the regulatory capital numbers on a quarterly basis. The AMA capital requirement per the end of 2016 amounts to EUR 3,242 million, compared to EUR 3,451 million per 2015 year-end.
Risk categories ING Bank categorises operational risks in a number of risk areas: • Information (Technology) risk is the risk of financial loss, regulatory sanctions or reputational damage due to breaches of confidentiality, integrity or availability within business processes or information or lack of information quality; • Continuity risk is the risk of financial loss, regulatory sanctions or reputational damage due to business disruptions (loss of people, processes, systems, data, premises); • Control risk is the risk of financial loss, regulatory sanctions or reputational damage due to ineffective organisation structures and governance procedures (including unclear roles and responsibilities and inadequate reporting structure); monitoring and enforcement of risk mitigating measures; and risk culture; • Internal fraud risk is the risk of financial loss, regulatory sanctions or reputational damage due to deliberate abuse of procedures, systems, assets, products and/or services of ING by employees (incl. temporary workers, third party contractors, internships and consultants) who intend to deceitfully or unlawfully benefit themselves or others; • External fraud risk is the risk of financial loss, regulatory sanctions or reputational damage due to deliberate abuse of procedures, systems, assets, products and/or services of ING by external parties (clients, potential clients or other third parties, including vendors and outside agencies) 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 of 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 ING personnel at work, people in ING locations, ING assets or assets entrusted to ING, people at ING event locations, or might have an impact on ING organisation's confidentiality, integrity or availability; • Processing risk is the risk of financial loss, regulatory sanctions or reputational damage due to failed (transaction) processing (input, execution, output) or failing process management; and
• Employment practice risk is the risk of financial loss, regulatory sanctions or reputational damage due to acts inconsistent with employment, health and/or safety laws, regulations or agreements, from payment of personal injury claims, or from diversity /discrimination events.
Operational risk includes the related risk of reputation loss, as well as legal risk but strategic risks are not included. Reputational risk is defined as the potential that adverse publicity regarding ING Bank’s business practices and associations, whether accurate or not, will cause a loss of confidence in the integrity of ING Bank. Reputational risk is multidimensional and reflects the perception of other market participants, like customers, counterparties, shareholders, investors or regulators that can adversely affect ING Bank’s ability to maintain existing, or establish new, business relationships and continued access to sources of funding (e.g. through the interbank or securitisation markets).
Compliance risk Definition Compliance risk is defined as the risk of impairment of ING Bank’s integrity, leading to damage to ING’s reputation, legal or regulatory sanctions, or financial loss, due to a failure (or perceived failure) to comply with applicable laws, regulations and standards and the ING Values as part of the Orange Code. We aim to effectively manage compliance risks that could expose ING Bank to reputational damage, fines, civil and criminal penalties, payment of damages, court orders and suspension or revocation of licenses that would adversely impact our customers, staff, shareholders and other stakeholders.
The ING Bank FEC Policy and Minimum Standards set the requirements for all ING Bank entities with respect to guard against any involvement in criminal activity, and to participate in international efforts to combat money laundering and the funding of terrorist and criminal activities. The requirements in the ING Bank FEC Policy cover minimum standards and controls related to: money laundering, terrorist financing, export trade controls, proliferation financing, sanctions (economic, financial and trade) and countries designated by ING Bank as Ultra High Risk Countries (UHRC). The effectiveness of those controls is reviewed periodically.
ING Bank has a FEC control framework in place to mitigate the risks related to Financial Economic Crime.
Market Abuse Integrity and transparency in financial markets are essential for public and investor confidence. In light of revised Market Abuse European legislation that came into effect on 3 July 2016, ING Bank issued a new Market Abuse Policy and Minimum Standard to prevent insider dealing, unlawful disclosure of inside information and market manipulation, including benchmark manipulation. A central project was established to support ING’s commitment in adhering to the revised market abuse European legislation and to create consistency throughout the organisation with respect to the roll out and implementation of the policy and minimum standard requirements.
Review processes for setting benchmark rates ING Bank has reviewed its internal processes for contributing to setting various benchmark rates. Possible irregularities have been investigated and remedial actions have been taken. ING Bank is cooperating with information requests and/or investigations of regulators and other authorities concerning ING Bank’s contribution to setting various benchmark rates. It is at this moment not possible to assess whether ING Bank will be subject to monetary or other penalties, or the amount and nature thereof if they should arise.
ING applies the following main capital definitions: • Common equity Tier 1 capital, Tier 1 capital and Total capital – Tier 1 capital is defined as shareholders’ equity plus Additional Tier 1 (hybrid) capital less regulatory adjustments. Common equity Tier 1, Tier 1 and Total capital divided by risk-weighted assets equal the Common equity Tier 1, Tier 1 and Total capital ratios respectively. Common equity Tier 1 capital is equal to Tier 1 capital excluding Additional Tier 1 (hybrid) capital; • Common equity Tier 1 Risk Appetite – the solvency risk appetite statement is not only compared to the actual reported level, but also includes the potential impact of a standardised and pre-determined 1-in-10-year stress event (i.e. at a 90% confidence level with a 1-year horizon) as described in the Risk Management section; • Overall Capital Requirement (OCR). The OCR means that ING’s own funds exceeds the sum of the total SREP capital requirement (wherein per risk type the maximum is taken of Regulatory and Economic Capital requirements), capital buffer requirements and macro-prudential requirements.
ICAAP/SREP process On a yearly basis ING submits extensive documentation on the Internal Capital Adequacy Assessment Process (ICAAP) to its regulator as prescribed in the CRD IV frameworks. This documentation includes a description of ING’s internal capital models, its risk appetite framework, an asset quality analysis and a capital planning, both under normal circumstances and in certain stressed scenarios. This documentation is an important input for the regulator’s Supervisory Review and Evaluation Process (SREP) resulting in a letter to ING Management. The SREP is conducted by the ECB and examines on a regular basis ING’s internal models and processes. The regulatory 2016 guidance indicated that the minimum capital ratios ECB considers adequate for ING Group and ING Bank sufficiently covered by ING’s own capital standards.
ING Group Annual Report 2016 325 in EUR million Share capital Share premium Revaluation reserves
The parent company annual accounts of ING Groep N.V. are prepared in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code. In accordance with subsection 8 of section 362, Book 2 of the Dutch Civil Code, the recognition and measurement principles applied in these Parent company annual accounts are the same as those applied in the Consolidated annual accounts, reference is made to Note 1 ‘Accounting policies’ of the Consolidated annual accounts. Investments in group companies are accounted for in the Parent company accounts according to the equity method.
Changes in presentation of the parent company annual accounts and related notes Previously, ING Groep N.V. applied the option per Section 402, Book 2 of the Dutch Civil Code and presented an abbreviated statement of profit or loss. As of 2016, this option is no longer available for public interest entities, therefore ING Groep N.V. now presents a full statement of profit or loss together with the relevant note disclosures. Reference is made to the Parent company statement of profit or loss and related notes, being Notes 7 ‘Staff expenses’ up to Note 12 ‘Result from group companies, associates and joint ventures after taxation’.
• Foreign currency translation on consolidated group companies, presented in Other reserves - Currency translation reserve in the consolidated accounts, is presented in the Share of associates and joint ventures reserve in the parent company accounts; and
Receivables from group companies include EUR 6,603 million subordinated loans provided by ING Group N.V. to ING Bank N.V. (2015: EUR 7,253 million)
Issued share capital as at 1 January 2015 3,858,862 925 Issue of shares 11,321 3
The decrease in the Available-for-sale reserve related to the divestment of Voya in March 2015. Reference is made to the ING Group Consolidated annual accounts, Note 51 ‘Other events’.
The Share of associates and joint ventures reserve includes the following components: Reserve for non-distributable retained earnings of associates and joint ventures of EUR 2,235 million (2015: EUR 1,733 million), Revaluation reserve of associates and joint ventures of EUR 3,917 million (2015: EUR 4,288 million) and Net defined benefit asset/liability remeasurement reserve of EUR –371 million (2015: EUR –306 million).
The total amount of non-distributable reserves, in accordance with the financial reporting requirements per Part 9 of Book 2 of the Dutch Civil Code, is EUR 7,379 million (2015: EUR 6,832 million).
Reference is made to Note 19 ‘Equity’ and the Capital Management section in the Consolidated annual accounts for additional information, including restrictions with respect to dividend and repayment of capital
Per the Shareholder’s agreement, the decrease in the aggregate outstanding principal shall be deemed to have been reduced to the extent of collateral deposited by Voya Financial Inc. As at 31 December 2016, USD 129 million (2015: USD 77 million) was pledged to ING Groep N.V. as collateral.
14 Proposed appropriation of results For 2016, the Executive Board, with the approval of the Supervisory Board, has proposed a cash dividend of EUR 0.66 per ordinary share of EUR 0.01. In August 2016, an interim dividend of EUR 0.24 per ordinary share was paid. Therefore, a final dividend of EUR 0.42 per ordinary share remains. The final dividend will be paid entirely in cash after ratification of the proposal by the General Meeting of Shareholders.
The parent company annual accounts comprise: 1 The parent company statement of financial position as at 31 December 2016. 2 The parent company statement of profit or loss for 2016. 3 The notes comprising a summary of the accounting policies and other explanatory information.
Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the section ‘Our responsibilities for the audit of the annual accounts’ of our report.
Our key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the annual accounts. We have communicated the key audit matters to the Audit Committee of the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.
These matters were addressed in the context of our audit of the annual accounts as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
With the assistance of our corporate finance specialists, we examined a selection of loan exposures that either continued to be, have become, or were at risk of being individually impaired. We applied professional judgement in selecting those exposures for our detailed inspection, placing an emphasis on portfolios that were potentially more sensitive to developing economic trends. For selected loan files, we challenged management’s estimate of the recoverable amount, including the cash generating capacity and, where applicable, the value of realisable collateral, based on available financial information, market information and, where applicable, the analysis of alternative recovery scenarios. Additionally, we assessed whether the disclosures in the annual accounts appropriately reflect ING Group’s exposure to credit risk, specifically considering those portfolios identified in 2016 as presenting the highest risk. Our observation We have made recommendations to management in relation to evidencing appropriate review of risk ratings and IBNR model results in our auditor’s report to ING Group’s Audit Committee of the Supervisory Board. Overall, we assess that loans and advances to customers after deduction of loan loss impairments are fairly stated and concur with the related disclosures in the annual accounts.
Estimation uncertainty with respect to impairment losses on loans and advances to customers
Our IT auditors assessed the reliability and continuity of the IT environment, insofar as needed within the scope of our audit of the 2016 annual accounts. Amongst others, we assessed and tested the design and operating effectiveness of user access management controls of the IT systems relevant for financial reporting. We examined the framework of governance over ING Group’s IT organisations and the IT general controls, access to programmes and data, programme changes and IT operations, including compensating controls where those were required.
A particular area of focus related to the logical access management and segregation of duties controls. Access rights were tested to the extent relied upon for financial reporting. As a consequence of identified control weaknesses on user access management, management put additional efforts to remediate identified control deficiencies. Subsequently, we have performed additional test work over management’s remediation. For those control weaknesses that were not remediated, we tested compensating controls that were not impacted by ineffective user access management controls. For certain applications, we substantively assessed the access to determine whether inappropriate access occurred and whether changes made were appropriate. Our observation The combination of the tests of the controls and the substantive tests performed, provided sufficient evidence to enable us to rely on the continued operation of the IT systems for the purposes of our audit. In our reporting to the Audit Committee of the Supervisory Board, we provided recommendations for further improvements to the IT controls and in particular the controls related to user access management.
Due to the complexity in assessing and measuring the amount from obligations resulting from legal matters, we consider this as a key audit matter. Refer to the ‘Principles of valuation and determination of results’ section in Note 1 on the annual accounts and related disclosures of legal proceedings in Note 45 of the annual accounts. Our response Our audit procedures included the assessment of controls over the identification, evaluation and measurement of potential obligations arising from legal matters. For matters identified, we considered whether an obligation exists, the appropriateness of provisioning and/or disclosure based on the facts and circumstances available.
Refer to the ‘Principles of valuation and determination of results’ section in Note 1 on the annual accounts and related disclosures of reorganisation provisions in Note 15 of the annual accounts. Our response Our audit procedures included the assessment of controls over the identification, evaluation and measurement of potential provisions arising from restructuring programmes. For the restructuring programmes identified, we considered whether they meet the recognition criteria for a restructuring provision. Therefore, we determined whether an obligation resulting from a past event exists and tested the appropriateness of the provision estimate and the disclosure based on the facts and circumstances available. In order to assess the facts and circumstances, we obtained and assessed the relevant underlying internal and external documentation, read minutes from relevant committees, re-performed the underlying calculations and inquired with senior management.
We involved an actuarial specialist to verify the reasonableness of actuarial assumptions and we evaluated the consistency of measurement methodologies used. Additionally, we considered whether ING Group’s disclosures of the application of judgement in estimating provisions adequately reflect the uncertainties associated with determining the restructuring provision. Our observation We conclude that the provisioning for restructuring programmes are fairly stated as at 31 December 2016 and concur with the disclosures in the annual accounts, in note 15.
The Executive Board is responsible for the preparation of the other information, including the report of the Executive Board, in accordance with Part 9 of Book 2 of the Netherlands Civil Code and other Information pursuant to Part 9 of Book 2 of the Netherlands Civil Code.
Description of the responsibilities for the annual accounts Responsibilities of the Executive Board and Supervisory Board for the annual accounts The Executive Board is responsible for the preparation and fair presentation of the annual accounts in accordance with EU-IFRS and with Part 9 of Book 2 of the Netherlands Civil Code. Furthermore, the Executive Board is responsible for such internal control as the Executive Board determines is necessary to enable the preparation of the annual accounts that are free from material misstatement, whether due to errors or fraud.
For a further description of our responsibilities in respect of an audit of annual accounts, we refer to the website of the professional body for accountants in the Netherlands (NBA)
Because we are a financial services company conducting business on a global basis, our revenues and earnings are affected by the volatility and strength of the economic, business, liquidity, funding and capital markets environments specific to the geographic regions in which we conduct business. The ongoing turbulence and volatility of such factors have adversely affected, and may continue to adversely affect, the profitability , solvency and liquidity of our business. Factors such as interest rates, securities prices, credit spreads, liquidity spreads, exchange rates, consumer spending, changes in client behaviour, business investment, real estate values and private equity valuations, government spending, inflation or deflation, the volatility and strength of the capital markets, political events and trends, and terrorism all impact the business and economic environment and, ultimately, our solvency, liquidity and the amount and profitability of business we conduct in a specific geographic region. We are particularly exposed to financial, economic, market and political conditions in the Benelux countries, from which we derive a significant portion of our revenues. In an economic downturn characterised by higher unemployment, lower family income, lower corporate earnings, higher corporate and private debt defaults, lower business investments and lower consumer spending, the demand for banking products is usually adversely affected and ING’s reserves and provisions typically would increase, resulting in overall lower earnings. Securities prices, real estate values and private equity valuations may also be adversely impacted, and any such losses would be realised through profit and loss and shareholders’ equity. We also offer a number of financial products that expose us to risks associated with fluctuations in interest rates, securities prices, corporate and private default rates, the value of real estate assets, exchange rates and credit spreads.
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 results; • movements in risk weighted assets for the determination of required capital; • changes in credit valuation adjustments and debt valuation adjustments; and/or • additional costs related to maintenance of higher liquidity buffers and/or collateral placements.
In addition, although the UK is not a member state of the Eurozone, the decision of the UK to leave the EU may further destabilize the Eurozone. The outcome of the negotiations between the UK and the EU, which are expected to formally begin in March 2017 and to last for at least two years, remains highly uncertain as does its economic and operational impact on the Group and its counterparties. Concerns regarding other Member States’ potential exit from the EU or the Eurozone also have emerged following the ‘Brexit’ referendum and may continue to emerge in the context of the French and German general elections in 2017. The possible exit from the EU and/or the Eurozone of one or more European states and/or the replacement of the Euro by one or more successor currencies could create significant uncertainties regarding the enforceability and valuation of Euro-denominated contracts to which we (or our counterparties) are a party and thereby materially and adversely affect our and/or our counterparties’ liquidity, financial condition and operations. Such uncertainties may include the risk that (i) an obligation that was expected to be paid in Euros is redenominated into a new currency (which may not be easily converted into other currencies without incurring significant cost), (ii) currencies in some Member States may depreciate relative to others, (iii) former EU and/or Eurozone Member States may impose capital controls that would make it complicated or illegal to move capital out of such countries, and/or (iv) some courts (in particular, courts in countries that have left the EU and/or the Eurozone) may not recognise and/or enforce claims denominated in Euros (and/or in any replacement currency). These factors, combined with volatile oil prices, reduced business and consumer confidence and/or continued high unemployment, have negatively affected the economy of main geographic regions where we conduct our business. Our results of operations, liquidity position, capital position and investment portfolio are exposed to these risks and may be adversely affected as a result.
U.S. Sovereign Credit Rating In 2011, Standard & Poor’s Ratings Services (‘S&P’) lowered its long-term sovereign credit rating on the U.S. from AAA to AA+. Although other ratings agencies have not similarly lowered the long-term sovereign credit rating of the U.S., they have put that credit rating on watch. Amid the lingering uncertainty over the long-term outlook for the fiscal position and the future economic performance of the U.S. within the global economy and potential future budgetary restrictions in the U.S., there continues to be a perceived risk of a future sovereign credit ratings downgrade of the U.S. government, including the rating of U.S. Treasury securities. On 15 October 2013, Fitch Ratings placed the U.S.’s AAA credit rating under ‘rating watch negative’ in response to the financial crisis, a step that would precede an actual downgrade, which was however upgraded again to ‘stable’ in March 2014. It is foreseeable that the ratings and perceived creditworthiness of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. government could also be correspondingly affected by any such downgrade. Instruments of this nature are key assets on the balance sheets of financial institutions and are widely used as collateral by financial institutions to meet their day-to-day cash flows in the short-term debt market. The impact of any further downgrades to the sovereign credit rating of the U.S. government or a default by the U.S. government to satisfy its debt obligations likely 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.
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. Adverse capital market conditions have in the past affected, and may in the future affect, our cost of borrowed funds and our ability to borrow on a secured and unsecured basis, thereby impacting our ability to support and/or grow our businesses. Furthermore, although interest rates are at or near historically low levels, since the recent financial crisis, we have experienced increased funding costs due in part to the withdrawal of perceived government support of such institutions in the event of future financial crises. In addition, liquidity in the financial markets has also been negatively impacted as market participants and market practices and structures adjust to new regulations.
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
Following the start of the financial crisis, regulators around the world have increased their focus on the regulation of the financial services industry. Most of the principal markets where we conduct our business have adopted, or are currently in the implementation phase of, major legislative and/or regulatory initiatives in response to the financial crisis. Governmental and regulatory authorities in the Netherlands, Germany, Belgium, the United Kingdom, the EU, the U.S. and elsewhere have implemented, or are in the process of implementing measures to increase regulatory control in their respective financial markets and financial services sectors, including, among others, in the areas of prudential rules, liquidity and capital requirements, executive compensation, crisis and contingency management, bank taxes and financial reporting. Additionally, governmental and regulatory authorities in the Netherlands, in the EU and the U.S. as well as in a multitude of jurisdictions where we conduct our business continue to consider new mechanisms to limit the occurrence and/or severity of future economic crises (including proposals to restrict the size of financial institutions operating in their jurisdictions and/or the scope of operations of such institutions). Furthermore, we are subject to different tax regulations in each of the jurisdictions where we conduct business. Changes in tax laws (including case law) could increase our taxes and our effective tax rates and could materially impact our tax receivables and liabilities as well as deferred tax assets and deferred tax liabilities, which could have a material adverse effect on our business, results of operations and financial condition. One such change relates to the current debate in the U.S. over corporate tax reform for multinational corporations and corporate tax rates. Changes in tax laws could also make certain ING products less attractive, which could have adverse consequences for our businesses and results.
Despite our efforts to maintain effective compliance procedures and to comply with applicable laws and regulations, 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.
On 10 December 2013, various federal agencies approved a final rule implementing Section 619 of Dodd-Frank, commonly referred to as the ‘Volcker Rule’ and which places limitations and restrictions on the ability of U.S. FDIC insured depository institutions and non-U.S. banks with branches or agencies in the U.S. that become subject to the U.S. Bank Holding Company Act, as well as their affiliates, to engage in certain proprietary trading or sponsor and invest in private equity and hedge funds. As a general matter, such organisations have until July 2017 to comply with the prohibition on certain fund activities and until July 2015 to comply with the proprietary trading prohibitions. In the event that we or one of our affiliates becomes subject to the Volcker Rule, our investment activities could be so restricted. It is expected that we will experience significant additional compliance and operational costs and may be prohibited from engaging in certain activities we currently conduct if the Volcker Rule becomes applicable to us and our affiliates.
If the Group is unable to comply with requirements imposed under IGAs or otherwise comply with FATCA (including as a result of local laws in non-IGA countries prohibiting information-sharing with the IRS, as a result of contracts or local laws prohibiting withholding on certain payments to account holders or other investors, or as a result of the failure of account holders or other investors to provide requested information), certain payments to the Group may be subject to withholding under FATCA. Payments made with respect to certain products offered by members of the Group may also be or become subject to withholding under FATCA. 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 (i) compliance with the terms of IGAs and with FATCA, with any regulations or other guidance promulgated thereunder or any legislation promulgated under an IGA, and (ii) offering products subject to U.S. withholding, may substantially increase the Group’s compliance costs. Because legislation and regulations implementing FATCA and the IGAs remain under development, the future impact of this law on the Group is uncertain. Failure to comply with FATCA and other U.S. 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. For additional information with respect to specific proceedings, see Note 45 ‘Legal proceedings’ to the consolidated financial statements.
Common Reporting Standard Similarly, the Organisation for Economic Cooperation and Development (‘OECD’) has developed a Common Reporting Standard (‘CRS’) and model competent authority agreement to enable the multilateral and automatic exchange of financial account information. The CRS will require financial institutions to identify and report the tax residency and account details of non-resident customers to the relevant authorities in jurisdictions adhering to CRS. As of 2 November 2016, 87 jurisdictions, including the Netherlands, have signed a multilateral competent authority agreement to automatically exchange information pursuant to the CRS. The majority of countries where ING has a presence has committed to CRS. The EU has made CRS mandatory for all its member states. The first information exchange by the Netherlands (as for most of the signatories) is expected to start in September 2017.
We may incur losses due to failures of banks falling under the scope of state compensation schemes. In the Netherlands and other jurisdictions, deposit guarantee schemes and similar funds (‘Compensation Schemes’) have been implemented from which compensation may become payable to customers of financial services firms in the event the financial service firm is unable to pay, or unlikely to pay, claims against it. In many jurisdictions in which we operate, these Compensation Schemes are funded, directly or indirectly, by financial services firms which operate and/or are licensed in the relevant jurisdiction. ING Bank is a participant in the Dutch Deposit Guarantee Scheme, which guarantees an amount of EUR 100,000 per person per bank (regardless of the number of accounts held). Until 2015, the costs involved with making compensation payments under the Dutch Deposit Guarantee Scheme had been allocated among the participating banks by the DNB, based on an allocation key related to their market shares with respect to the deposits protected by the Dutch Deposit Guarantee Scheme. Given our size, we may incur significant compensation payments to be made under the Dutch Deposit Guarantee Scheme, which we may be unable to recover from the bankrupt estate. Such costs and the associated costs to be borne by us may have a material adverse effect on our results of operations and financial condition. On 4 July 2015, the new EU Directive on deposit guarantee schemes had to be implemented by EU member states. As a consequence, the Dutch Deposit Guarantee Scheme has changed from an ex-post scheme, where we would have contributed after the failure of a firm, to an ex-ante scheme where we pay quarterly risk-weighted contributions into a fund for the Dutch Deposit Guarantee Scheme. The fund is to grow to a target size of 0.8% of all deposits guaranteed under the Dutch Deposit Guarantee Scheme, to be reached in July 2024. The Dutch decree implementing the Deposit Guarantee Scheme Directive entered into force on 26 November 2015.
Adverse publicity, claims and allegations, litigation and regulatory investigations and sanctions may have a material adverse effect on our business, revenues, results of operations, financial condition and/or prospects. We are involved in governmental, regulatory, arbitration and legal proceedings and investigations involving claims by and against us which arise in the ordinary course of our businesses, including in connection with our activities as financial services provider, employer, investor and taxpayer. Financial reporting irregularities involving other large and well-known companies, possible findings of government authorities in various jurisdictions which are investigating several rate-setting processes, notifications made by whistleblowers, increasing regulatory and law enforcement scrutiny of ‘know your customer’ anti-money laundering, tax evasion, prohibited transactions with countries or persons subject to sanctions, and bribery or other anti-corruption measures and antiterrorist -financing procedures and their effectiveness, regulatory investigations of the banking industry, and litigation that arises from the failure or perceived failure by us to comply with legal, regulatory, tax and compliance requirements could result in adverse publicity and reputational harm, lead to increased regulatory supervision, affect our ability to attract and retain customers and maintain access to the capital markets, result in cease and desist orders, claims, enforcement actions, fines and civil and criminal penalties, other disciplinary action or have other material adverse effects on us in ways that are not predictable. Some claims and allegations may be brought by or on behalf of a class and claimants may seek large or indeterminate amounts of damages, including compensatory, liquidated, treble and punitive damages. See ‘—ING is exposed to the risk of claims from customers who feel misled or treated unfairly because of advice or information received’. Our reserves for litigation liabilities may prove to be inadequate. Claims and allegations, should they become public, need not be well founded, true or successful to have a negative impact on our reputation. In addition, press reports and other public statements that assert some form of wrongdoing could result in inquiries or investigations by regulators, legislators and law enforcement officials, and responding to these inquiries and investigations, regardless of their ultimate outcome, is time consuming and expensive. Adverse publicity, claims and allegations, litigation and regulatory investigations and sanctions may have a material adverse effect on our business, revenues, results of operations, financial condition and/or prospects in any given period. For additional information, see the ‘Review processes for setting benchmark rates’ and ‘Financial Economic Crime’ paragraphs in the ‘Main developments in 2016’ part within the Compliance Risk in the Risk Management section in the annual report of ING Group. With respect to specific proceedings, see Note 45 ‘Legal proceedings’ to the consolidated financial statements.
ING is exposed to the risk of claims from customers who feel misled or treated unfairly because of advice or information received. Our banking products and advice services for third-party products are exposed to claims from customers who might allege that they have received misleading advice or other information from advisers (both internal and external) as to which products were most appropriate for them, or that the terms and conditions of the products, the nature of the products or the circumstances under which the products were sold, were misrepresented to them. When new financial products are brought to the market, ING engages in a multidisciplinary product approval process in connection with the development of such products, including production of appropriate marketing and communication materials. Notwithstanding these processes, customers may make claims against ING if the products do not meet their expectations. Customer protection regulations, as well as changes in interpretation and perception by both the public at large and governmental authorities of acceptable market practices, influence customer expectations.
ING Group prepares the Pillar III report in accordance with the CRR and CRD IV as required by the supervisory authority. The ING Group’s ‘additional Pillar III information’ report contains disclosures for Regulatory Capital requirements, Credit Risk, including counterparty credit risk, securitisations and Other Non-Credit Obligation Assets (ONCOA), Market Risk, Liquidity Risk and non-financial risk disclosures. Furthermore, the report will discuss regulatory exposures and risk weighted assets, which are not included in the risk management section. Hence, the Pillar III section should be read in conjunction with the Risk Management and Capital Management sections of the annual accounts, which present a comprehensive discussion on both topics.
The first phase of the revised Pillar III framework (RPF) was introduces in January 2015 (BCBS 309), focussing on risk management and RWA, linkages between financial statements and regulatory exposures, Credit risk, counterparty credit risk, securitisation and market risk.
CRR/CRD IV review On 23 November 2016, the European Commission (EC) published proposals amending major European regulations among others the Capital Requirements Directive and Capital Requirements Regulation (CRD V and CRR II) essential to further reinforce banks' ability to withstand potential shocks.
For the disclosure requirements, the Commission proposed targeted amendments to ensure better alignment with international standards. In particular, new disclosure requirements are proposed for TLAC, counterparty credit risk, market risk and liquidity requirements. Also, a more proportionate disclosure regime has been proposed where the disclosures are adapted to the relevance of institutions with small (i.e. with assets below EUR 1.5 billion) and non-listed institutions subject to less extensive and less frequent disclosures. In the CRR II proposals, firms are classified into three categories (significant, small, and other) with a further distinction between listed and non-listed firms.
The table below “disclosure index” points out where one can find the EBA templates in the annual report:
Type ID EBA description Pages Capital requirements EU OV1 Overview of RWAs 370 Credit risk and general information on CRM EU CRB-B Total and average net amount of exposures 392
The decrease in CRR/CRDIV required regulatory capital was mainly caused by decreased capital requirements for counterparty credit risk, market risk and operational risk. This decrease was partly offset by increased credit risk capital requirements following from volume growth and model changes. The CRR/CRDIV requires banks to hold own funds of at least 80% of the old Basel I requirement, which was 8% of the RWAs as calculated using the Basel I methodology. This requirement remains at least until the end of 2017.
Prudential filters: Own credit risk 127 127 127 89 89 89 Defined benefit remeasurement (IAS19R) 223 148 244 184 Net defined benefit pension fund assets -297 -396 -495 -257 -386 -643 Deferred tax assets -95 -127 -159 -113 -169 -282 Own credit risk adjustments to derivatives (DVA) -36 -48 -60 -21 -32 -53 Interim profit not included in CET1 capital -1,629 -1,629 -1,629 -1,586 -1,586 -1,586 Available capital - Common equity Tier 1 44,466 44,554 44,568 41,554 41,320 40,788
Subordinated loans qualifying as Tier 1 capital3 7,706 7,706 7,706 6,574 6,574 6,574
Supplementary capital - Tier 23 9,488 9,488 9,488 8,570 8,570 8,570 Provision shortfall2 -195 -97 -340 -227 IRB excess provision Investments >10 FIs, exceeding 10% threshold -419 -278 Minority interests, counting as Tier 2 capital 109 109 109 102 102 102 Available Tier 3 funds BIS capital 60,765 61,355 61,871 54,325 54,916 56,034
Leverage ratio The Leverage ratio is a CRR/CRD IV measure indicating the level of the Tier 1 Capital compared to the total exposure. Its aim is to assess the risk of excessive leverage of the institution. In line with the regulatory requirements, ING Group will use the specific EBA templates as basis for the presentation of its Leverage ratio. These EBA templates reflect the Leverage ratio as calculated under the Leverage ratio Delegated Act which was introduced in October 2014. The Final Draft Implementing Technical Standards (ITS) on disclosure of the leverage ratio have been approved by the European Commission and published in the EU Official Journal early 2016. The official reporting of the Delegated Act Leverage ratio to the ECB has commenced per September 2016. The fully loaded leverage ratio of ING Group based on the Delegated Act, and with notional cash pooling grossed is 4.8% at 31 December 2016.
CRR leverage ratio exposures On-balance sheet exposures (excluding derivatives and SFTs) 1 On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but 2 (Asset amounts deducted in determining Tier 1 capital) -4,833 -3,922 -7,456 -5,800 3 Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) 925,149 926,060 890,723 892,379
ING Group Annual Report 2016 376 1 Description of the processes used to manage the risk of excessive leverage ING follows the leverage ratio on a monthly basis and takes it into account when taking certain securitisation and/or Tier 1 issuance decisions.
Economic and Regulatory Capital EC and Regulatory Capital (RC) are the main sources of capital allocation within ING Bank. Both of these capital metrics are used to determine the amount of capital that a transaction or business unit requires to support the economic and regulatory-based risks it faces. The concept of EC differs from RC in the sense that RC is the mandatory amount of capital that is defined under Pillar I while EC is the best estimate of Pillar II capital that ING Bank uses internally to manage its own risk. EC is a non-accounting measure that is inherently subject to dynamic changes and updated as a result of ING Bank’s portfolio mix and general market developments. ING Bank continuously recalibrates the underlying assumptions behind its economic capital model which may have an impact on the values of EC going forward.
The tables below provide ING Bank’s EC and RC by risk type and business line. For 2016, both the total RC and EC decreased compared to 2015. Both are well below the total amounts of available capital of EUR 53,646 million based on CRR/CRD IV phased-in rules. Details regarding the available capital can be found in the table “ING Group Regulatory Capital flow statement”.
Off-balance sheet exposures include letters of credit and guarantees, which are associated with the Lending Risk category. Additionally, off-balance sheet exposures include a portion of the unused limits, which is the unused portion of the limit between the moment of measurement and the theoretical moment of statistical default. Collectively, these amounts are called ‘Credit Risk outstandings’.
Methodology and policy4 0.4 -2.8 Foreign exchange movements 0.1 5.5 Other -2.3 0.4 Total Credit RWA movement excluding CVA RWA 10.1 6.3
RWA, mainly driven by the Wholesale Banking and Challenger & Growth portfolios. The growth in Challengers & Growth portfolios was partly due to organic growth and partly due to transfer of assets from Wholesale Banking to Germany. Mortgages also witnessed a growth in Germany, Australia, Poland and Spain, contributing to the growth of the Challenger & Growth portfolio. Within Wholesale Banking growth was seen in the Structured Finance book in Asia, Switzerland and Americas and the CFIL book in UK and BeLux. The reduction in the Dutch mortgage portfolio continued over 2016 contributing to reduced book size in the Market Leaders portfolio. Increase in mortgages in BeLux was more than compensated by the reduction in the Netherlands. Several smaller movements, both increases and decreases occurred in various portfolios throughout the year.
CRR/CRD IV introduced an additional regulatory capital charge for material increases in the credit valuation adjustment (CVA), the market price of the counterparty credit risk of derivatives. In particular, as credit spreads of ING Bank’s counterparties increase, CVA will increase as well and ING Bank will incur a loss. ING Bank follows the standardised approach for calculation of the capital charge to cover CVA Risk (CVA Capital) in accordance with the CRR/CRD IV. The scope of the products and counterparties that the CVA Capital charge is applied to also follows those regulations.
AIRB Central governments and central banks Sovereigns Institutions Institutions Corporates – Specialised lending Corporates Corporates – SME Corporates Corporates – Other Corporates Retail – Secured by immovable property SME Other Retail Retail – Secured by immovable property non-SME Secured by Res. Mortgage Retail – Other SME Other Retail Retail – Other non-SME Other Retail Securitisations Securitisations SA Central governments or central banks Sovereigns Regional governments or local authorities Sovereigns Public sector entities Sovereigns Multilateral development banks Sovereigns International organisations Sovereigns Institutions Institutions Corporates Corporates Retail Other Retail Exposures secured by mortgages on commercial immovable property Secured by commercial real estate Exposures secured by mortgages on residential property Secured by residential property Exposures in default All 2 1 Exposure classes not applicable to ING are not listed in the table, and not taken up on the tables in the disclosures. 2 The SA exposure class ‘Exposures in default’ is mapped to the ING exposure class in which the exposure would have been if it was performing.
AIRB approach On-balance 91,045 5,215 39,386 7,082 210,673 100,281 274,321 40,809 26,494 13,455 641,918 166,841 632,066 158,568 Off-balance 8,409 206 5,021 1,383 70,871 28,883 7,981 619 8,820 2,380 101,102 33,472 101,247 31,480 Securities Financing 191 5 11,265 831 2,818 310 14,275 1,146 15,741 1,503 Derivatives 2,259 272 30,384 3,424 11,207 5,486 24 11 43,874 9,192 45,094 10,415 Total AIRB 101,904 5,698 86,055 12,720 295,569 134,959 282,302 41,428 35,339 15,846 801,169 210,651 794,148 201,967
SA approach On-balance 2,464 2,181 2,222 484 10,853 9,084 7,775 3,412 9,618 6,673 32,931 21,834 30,460 19,824 Off-balance 0 0 11 7 1,399 1,287 83 63 2,097 1,540 3,590 2,897 3,270 2,544 Securities Financing
Sovereigns credit risk disclosure The table below presents the READ and RWA (excl. CVA RWA), segmented by relevant factors for the exposure class ‘Sovereigns’. The figures per geography for each exposure class are based on the country of residence of the obligor.
Institutions credit risk disclosure The table below presents the READ and RWA (excl. CVA RWA), segmented by relevant factors for the exposure class ‘Institutions’. The figures per geography for each exposure class are based on the country of residence of the obligor.
READ RWA 2016 2015 Delta % 2016 2015 Delta % Institutions Total per rating 88,853 107,372 -17% 13,491 20,683 -35% Performing 88,530 107,017 -17% 13,483 20,477 -34% Non-performing 323 354 -9% 8 206 -96%
Additionally, the READ decrease was driven by a decline in revolving loans and bond investments, which was spread over several countries. As Turkey and Russia carry a relatively high risk weight, the volume decrease of the revolving loans portfolio in both countries impacted RWA considerably, while the volume decreases in the Netherlands, US and China impacted RWA to a lesser extent, due to their relatively low risk weight. The decrease in bond investments is mainly witnessed in Spain and Norway.
Corporate Total per rating 308,068 269,558 14% 145,581 125,091 16% Performing 300,022 261,661 15% 134,429 114,457 17% Impaired/Non-performing 8,046 7,897 2% 11,152 10,634 5%
Corporate Industry 308,068 269,558 14% 145,581 125,091 16% Natural Resources 54,572 48,089 14% 23,672 19,157 24% Real Estate 48,473 43,999 10% 16,627 17,676 -6% Transportation & Logistics 32,317 30,377 6% 13,951 12,897 8% Food, Beverages & Personal Care 22,448 24,600 -9% 11,846 11,509 3% Services 20,633 18,189 13% 13,644 10,435 31% Other 129,626 104,306 24% 65,842 53,417 23%
The Natural Resources portfolio shows a deterioration in risk profile due to the difficulties faced by the Oil and Gas sector. This deterioration impacted RWA mainly in the Netherlands, United Kingdom, Switzerland, United States, and the Republic of Korea. The exposures in Africa are mainly in Structured Finance.
In addition, model updates and changes in methodology and policy further increased RWA by EUR 11.1 billion. An 35% LGD add-on for the SME Belgium and SME Netherlands LGD models was implemented, increasing RWA by EUR 6.1 billion. Furthermore the Project Finance LGD model was updated, increasing RWA by EUR 4.0 billion. In addition to these model related impacts the Dutch Healthcare portfolio was moved from AIRB approach to SA approach, increasing RWA by EUR 1.0 billion in the Netherlands.
2016 2015 LTV READ LTV READ Netherlands 78% 124,368 83% 129,814 Germany 70% 72,671 70% 69,967 Belgium, Luxembourg 64% 32,395 72% 30,760 Australia 61% 32,901 62% 29,875 Spain 62% 11,750 64% 10,453 Italy 58% 8,220 59% 7,673 Poland 62% 5,325 61% 4,626 Turkey 57% 1,357 57% 1,472 Romania 69% 1,173 68% 871 Total 71% 290,161 74% 285,510
The improvement of the LTV ratio is mainly caused by improved housing markets in the Benelux region. The economic environment and the housing market in the Netherlands continued to improve in 2016. The average Dutch house price increased from EUR 227,000 in December 2015 to EUR 236,000 in December 2016, which led to an improved LTV through indexation. The LTV in Belgium improved due to the change in the LTV calculation, which now takes indexation into account instead of LTV at origination. The improvement in LTV in Spain is also attributable to the improved housing market, which is again reflected through indexation. The increased READ change was due to growth in mortgage portfolios mainly in Australia, Germany, Poland, Spain, and Italy, which was offset by decreased exposures in the Netherlands.
AIRB models per exposure class Within ING Bank internal Basel models are used to determine the PD, EAD and LGD for regulatory and economic capital. Bank wide, ING Bank has implemented over 80 models, including various sub models for specific portfolios. A model may be applicable for various exposure classes. In the table below, the number of significant PD, EAD, and LGD models per asset class are shown. Additionally a description of the model and methodology are provided per exposure class. The asset classes presented in this table do not align with the EBA Exposure classes as the scope has been redefined to better fit the scope of the model. SME exposure for example can be part of both Corporate exposures as Other Retail depending on the size of the SME.
LGD 4 Local statistical models use various data inputs on cure behaviour as well as cost and recovery.
1 Belgian PD models provide a rating at a customer level, covering both secured and unsecured loans. Excludes Securitisations, CVA RWA, Equities and ONCOA.
Credit risk exposure excluding Counterparty Credit Risk (based on EBA templates) In this section on Credit Risk the tables shown represent the Net Values of on- and off-balance sheet exposures as per EBA definitions. The scope of these tables are the Credit Risk Exposures excluding the Counterparty Credit Risk exposures (within the Risk Management Paragraph these are named Pre-Settlement exposures), Securitisations, Equity positions, CVA RWA and ONCOA items. The EBA has implemented a view on credit risk exposures different from the internal ING view.
The table below displays the net carrying values at the end of 2015 and as per end of 2016 per AIRB and SA exposure classes. Next to it the average net carrying value per the same exposure classes over the past 4 quarters is provided. This average net carrying value is based upon the last 4 quarter end observations in the year 2016.
Net carrying value of exposures at the end of 2015 Central governments or central banks 225,826 222,210 180,961 Institutions 100,954 106,058 120,191 Corporates 409,510 387,659 350,343 Of Which: Specialised lending 142,754 132,616 120,709 Of Which: SME 34,060 34,200 36,003 Retail 325,737 325,014 324,427 Secured by real estate property 296,084 294,992 293,514 SMEs 10,916 11,391 12,227 Non-SMEs 285,168 283,601 281,287 Qualifying Revolving Other Retail 29,653 30,022 30,913 SMEs 5,907 6,622 8,108 Non-SMEs 23,745 23,399 22,805 Total AIRB approach 1,062,027 1,040,941 975,921
The total exposure increased by EUR 87.2 billion in Net Carrying value mainly from increased exposures and higher limits in the AIRB portfolio (EUR 86.1 billion), and to a lesser extent from the SA portfolio (EUR 1.1 billion). A significant part of the increased limits were unadvised and uncommitted. Within both the AIRB and SA portfolios, the highest exposures can be found towards corporates, retail, and secured by real estate property. The exposure within institutions decreased in 2016 mainly driven by the implemented EU equivalence regulation in 2016, shifting exposures from the institutions to corporates exposure class. The growth of the Corporates portfolio is observed in the Structured Finance, Corporate & FI Lending, and Real Estate portfolios. The majority of the growth in the SA portfolio is related to the move of the Dutch Healthcare portfolio from the AIRB to the SA approach. The Retail Mortgage exposures in Turkey, Poland and Romania contribute to the growth of the ‘Secured by Mortgages on Immovable Property’ exposure class.
Institutions 2,229 2,060 36 2 132 43 1 6 2 2,281 Corporates 12,069 995 817 350 9,907 1 0 391 7 12,468 Retail 14,825 140 114 1 14,569 3 3 0 0 14,831 Secured by mortgages on immovable property
Central Governments and Central Banks 0.25 to < 0.50 2,242 2,150 9% 2,428 0.3% 42 42% 1.52 1,056 44% 3 -1
Central Governments and Central Banks 2.50 to < 10.00 438 337 91% 746 6.6% 41 23% 3.11 620 83% 14 -8
Central Governments and Central Banks sub-total 91,045 134,792 6% 99,454 0.1% 1,421 30% 2.61 5,421 5% 22 -11
Institutions 0.00 to < 0.15 30,769 49,398 7% 34,352 0.1% 2,925 23% 2.59 4,781 14% 5 -2 Institutions 0.15 to < 0.25 1,316 3,635 13% 1,799 0.2% 470 25% 1.89 327 18% 1 Institutions 0.25 to < 0.50 3,127 4,676 11% 3,650 0.4% 767 24% 2.16 1,414 39% 4 -2 Institutions 0.50 to < 0.75 3 1 100% 5 0.7% 7 4.61 3 62% Institutions 0.75 to < 2.50 3,809 2,583 14% 4,163 1.0% 551 27% 1.72 1,785 43% 8 -4 Institutions 2.50 to < 10.00 28 532 3% 42 5.3% 145 18% 1.39 61 145% 1 Institutions 10.00 to < 100.00 23 731 7% 73 17.2% 3,380 26% 1.51 86 118% 2 -1 Institutions default 310 26 50% 323 100.0% 48 1% 4.93 8 2% 4 -4
PD backtesting The PD backtesting is performed per exposure class and PD-range, corresponding to the internal rating scales 1 to 19, which are then mapped to comparable rating grades from Standard & Poor’s. Securitisations and Equity exposures are not included in these tables. The results are presented per exposure class, each in an individual table, and display the performing portfolios as per end of 2016.
In order to calculate the regulatory capital requirements under the SA approach, ING Bank uses eligible external ratings from Standard & Poor’s, Moody’s and Fitch Ratings. Ratings are applied to all relevant exposure classes in the SA approach. For the mortgage portfolios, the fixed prescribed risk weights are used.
Off-Balance Sheet amount RWA RWA density Central governments or central banks 2,433 1,369 2,582 3 2,158 84% Regional governments or local authorities 76 198 76 1 37 48% Institutions 2,147 135 2,563 11 540 21% Corporates 5,969 6,521 5,861 893 6,637 98% Retail 8,528 6,409 7,969 2,020 7,142 71% Secured by mortgages on immovable property 13,604 2,409 13,426 653 7,667 54% Exposure in default 878 37 455 10 550 118% Total 33,634 17,078 32,931 3,590 24,731 68% Excludes Counterparty Credit Risk exposures.
On-balance sheet items include loans and debt securities. Off-balance sheet items include guarantees given and irrevocable loan commitments. Pre-settlement exposures are not included in this section. More information on the definition of non-performing loans and allowances can be found in the Credit quality section of the risk management paragraph of the Annual report.
Agriculture, Forestry and Fishing 338 4,164 -129 4,373 Mining and Quarrying 732 21,378 -232 21,878 Manufacturing 1,900 101,454 -956 102,397 Electricity, Gas, Steam and Air Conditioning Supply 290 22,633 -127 22,796 Water Supply; Sewerage, Waste Management and Remediation Activities
The favourable trend in risk costs continued over the first three quarters of 2016. Compared to 2015-end, risk costs have trended down to 31 basis points (2015: 44 basis points) of average RWA which is below the through-the-cycle guidance range of 40-45 basis points. The improving risk trend caused average quarterly risk costs to remain well below EUR 300 million, causing the total stock of provisions to decline from EUR 5.8 billion to EUR 5.3 billion.
Large parts of the Investment portfolio are not accounted for at amortised costs (Loans & Receivables or Held-to-Maturity) and therefore out of scope for LLP. Instead, these assets are evaluated for impairment. The ING Bank Impairment Meeting is a quarterly process that reviews all assets that are subject to an IFRS-EU impairment test.
Non-performing and forborne exposures The Non-performing exposure table should be read in conjunction with the information and statements made in the Risk Management Paragraph of the annual accounts.
Gross carrying amount of performing and non-performing exposures Accumulated impairment and provisions and negative fair value adjustments due to credit risk
The table below is based on the country of residence of the obligor and on credit risk outstandings. Credit Risk outstandings include amounts associated with both on- and off- balance sheet products, but exclude amounts related to unused limits.
Loans 587,310 1,019 3,102 1,217 1,169 6,983 Debt Securities 101,098 31 35 - - 0 Total exposures 688,408 1,050 3,138 1,217 1,169 6,983
If all of the unused commitments were called upon at the same time, ING Bank’s credit risks (in terms of outstandings) would increase by 14.5%. As part of its Regulatory EAD models, ING Bank makes an estimate of how much of these unused commitments would be drawn under normal circumstances. The effect is included in the calculation of the RWA, together with a similar effect applied to uncommitted facilities, albeit at a lower rate. The increase of the undrawn commitments is spread over all the risk weight categories and is in line with the growth of the portfolio in 2016.
Counterparty credit risk (CCR) The main activities that qualify under counterparty credit risk are derivatives trading activities and securities financing. As part of these activities, ING Bank enters into master agreements such as ISDA master agreements and Global Master Repurchase Agreements (GMRAs). Under the terms contained in sections related to Threshold Amounts and Minimum Transfer Amounts of Credit Support Annexes (CSA) or other similar clauses, both ING Bank and its counterparties may agree to pledge additional collateral to each other. The actual amount that ING Bank may be required to pledge in the future varies based on ING Bank's portfolio composition of both derivatives and securities pledged in securities financing transactions, market circumstances, the number of downgrade notches as well as the terms and conditions of future CSAs or other similar agreements entered into.
• A net basis (ignoring any collateral received, but applying netting between trades with a positive and negative MTM in case there is a legally enforceable netting agreement in place).
• A net basis after collateral (subtracting any post haircut value of collateral received, and applying netting between trades with a positive and negative MTM in case there is a legally enforceable netting agreement in place).
Standardised approach – CCR exposures by regulatory portfolio and risk The following table presents the CCR exposures that are calculated according the Standardised approach (SA): Risk weight Total Exposure Class 0% 2% 4% 10% 20% 50% 70% 75% 100% 150% Others Central governments or central banks
EU CCR1 – Analysis of the counterparty credit risk (CCR) exposure by approach
The derivative portfolio of ING Bank facilitates hedging mortgage lending portfolio facilities as well as hedging for clients. Approximately 73% of the derivatives portfolio is related to interest rate derivatives of which a large part is cleared via CCPs. The FX derivative portfolio increased by 27% in 2016. This is explained by new client volume as well as expansion in one product (FX Swap) with key counterparties. At Equity derivatives, ING made efforts to simplify the product line and focus only on the most value-added trades.
Over-the-counter and exchange traded derivatives This section provides a quantitative and qualitative analysis of ING’s credit risk that arises from its derivatives transactions. This quantifies notional derivatives exposure, including whether derivatives are traded over-the-counter (OTC) or traded on recognised exchanges (ETD). Where the derivatives are OTC, the table shows how much is cleared by central counterparties and how much is not, and provides a description of the collateral agreements in place.
Securities financing by product type The exposures in this table are calculated based on the Financial Collateral Comprehensive Method as described in CRR (art. 223), where the regulatory haircuts are used for exposure and collateral and where netting is applied whenever there is a master netting agreement in place with a positive legal netting opinion.
The securities financing portfolio decreased by around 10% in 2016. The decrease was shared between all product types.
Impact of netting It is common practice in OTC derivatives trading to sign master agreements that allow for close out netting in case one of the parties defaults. In case ING has signed such a master agreement and a positive legal netting opinion is in place, the agreement is deemed to be legally enforceable. For trades done under such a legally enforceable netting agreement, it is possible to calculate the exposure on a net basis.
EAD (post-CRM) RWA Exposures to QCCPs (total) Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which 17,002 340 (i) OTC derivatives 15,676 314 (ii) Exchange-traded derivatives 631 13 (iii) Securities financing transactions 695 14 (iv) Netting sets where cross-product netting has been approved Segregated initial margin Non-segregated initial margin Pre-funded default fund contributions 159 279 Alternative calculation of own funds requirements for exposures Exposures to non-QCCPs (total) Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which 229 15 (i) OTC derivatives (ii) Exchange-traded derivatives (iii) Securities financing transactions 229 15 (iv) Netting sets where cross-product netting has been approved Segregated initial margin Non-segregated initial margin Pre-funded default fund contributions Alternative calculation of own funds requirements for exposures
Credit default swaps ING Bank participates in the credit risk derivative trading market, as a net purchaser of credit risk protection from other counterparties.
For the determination of the Credit Risk applicable amount for Pre-Settlement deals, ING Bank first matches the trades with similar characteristics to determine their eligibility for offsetting. This offsetting effect is called ‘compensation’. Subsequently, ING Bank reduces the amount by any legal netting that may be permitted under various types of Master Agreements (such as ISDAs and GMRAs). Lastly, the amount is further reduced by any collateral that is held by ING Bank under CSAs or other similar agreements.
The Risk Management Paragraph of the Annual Report includes an extensive cover section where exposures are categorised into different Value-to-Loan (LTV) buckets which gives insight in the level of collateralisation of ING Bank’s portfolio.
These figures exclude any guarantees which are received from a party related to the obligor, such as a parent or sister company. The figures also exclude any guarantees that may be implied as a result of credit default swap activities. The figures do include amounts that are guaranteed through an unfunded risk participation construction. The overall level of third party guarantees received increased over the year. However, there were opposite movements within the portfolios. An increase of EUR 6.2 billion was observed in the Corporates portfolio, while the rest of the portfolios witnessed decreases mainly driven by the EUR 4.3 billion decrease in the Residential Mortgages.
Due to an inflow of longer term and an outflow of shorter term lending assets in the bank portfolio, there is a relative increase in assets having a tenor of 5 years and over.
Regulatory capital method used and Rating Agencies ING Bank has implemented the AIRB approach for credit risk. As a consequence, ING Bank uses the Rating Based Approach (RBA) for investments in tranches of asset-backed securities (ABS) and mortgage-backed securities (MBS) which have been rated by external rating agencies. Rating agencies which are used by ING Bank under the RBA include Standard & Poor’s, Fitch and Moody’s. The securitisation exposure for which each rating agency is used is given in the following table. In case of multiple ratings, the worst rating is used
2016 2015 READ RWA READ RWA Risk weight band 1 <= 10% 5,112 383 5,493 421 Risk weight band 2 >10% and <= 18% 147 21 146 19 Risk weight band 3 >18% and <= 35% 191 41 419 116 Risk weight band 4 >35% and <= 75% 1 0 289 165 Risk weight band 5 >75% and <1250% 7 18 23 50 Risk weight 1250% 19 232 72 903 Total 5,476 695 6,442 1,674
Sponsor securitisations In the normal course of business, ING Bank structures financing transactions for its clients by assisting them in obtaining sources of liquidity by selling the clients’ receivables or other financial assets to a Special Purpose Vehicle (SPV). The senior positions in these transactions are funded by the ING administered multi seller Asset Backed Commercial Paper (ABCP) conduit Mont Blanc Capital Corp. (rated A-1/P-1). Mont Blanc Capital Corp. funds itself externally in the ABCP markets.
8b Regulatory adjustment 674 1,492 409 2,575 206 8 RWA at the end of the reporting period 1,123 2,546 1,910 5,579 446 * It is required to fill in Rows 1a/1b and 8a/8b when the RWA/capital requirement for any of the columns (VaR, SVaR, IRC) is the 60-day average (for VaR and SVaR) or the 12-week average measure (for IRC) and not the RWA/capital requirement at the end of the period. According to regulatory guidelines the values in rows 1a/8b are calculated as differences between values in rows 1 and 1b and 8 and 8a, respectively. ** Movement in risk levels: Changes due to position changes between end-of-day values for two reporting periods in question.
Key changes Over the year, the ING Bank Market RWA under Internal Model Approach decreased by EUR 2.7 billion to EUR 5.6 billion, the key changes being a decrease in exposures to sovereign issuers that decreased IRC, and a change in risk positions during 2016 that resulted in decreases in VaR and Stressed VaR. The main changes in risk positions throughout the year were in equity derivatives portfolio and CVA hedge portfolio. The CVA hedges are capitalized under market risk framework, while CVA is capitalized under credit risk framework according to Basel rules.
The market risk Economic Capital is higher than the Regulatory Capital primarily due to the inclusion of the interest rate risk in banking books and equity investments in Economic Capital. The main drivers of the Market Risk Economic Capital are the linear interest rate risk positions of Capital Investments and the strategic Equity Investments in the banking books.
Impact on capital IFRS-EU Equity -2,627 -1,126 -479 -104 -1,486 Common equity Tier 1 (CRR/CRD IV, fully loaded) -569 -1,336 -479 -104 -1,483 * CRR/CRD IV on a fully loaded basis, no phase in assumed.  Indicates the item has an impact on the capital as indicated in that column.
P&L Impact Items on fair value which revalue through P&L, excluding debit valuation adjustments, impact IFRS-EU equity as well as CRR/CRD IV equity. Debit valuation adjustments of own issued debt only impacts IFRS-EU equity and not CRR/CRD IV equity. Debit valuation adjustments of derivatives will not be part of CRR/CRD IV equity.
As part of the liquidity buffer management, ING Group also monitors the existing asset encumbrance. Encumbered assets represent the on- and off-balance sheet assets that are pledged or used as collateral for ING Group’s liabilities. The presented templates of ING Group’s encumbered and unencumbered assets are based on the CRR (Part Eight) and the related guidance from the European Banking Authority (EBA).
Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered Carrying amount of selected financial liabilities 116,394 162,319 2015 median in EUR million
Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered Carrying amount of selected financial liabilities 108.536 146.697
ING Group Annual Report 2016 425 2016 2015** Business disruption and systems failures 1 4 Clients, products and business practices 10 207 Damage to physical assets 5 3 Employment practices and workplace safety 3 38 Execution, delivery and process management 68 29 External fraud 63 38 Internal fraud 2 3 Total 152 322 * Loss amounts for events with an individual loss ≥ €10,000. ** Due to recoveries and the development of loss amounts over time, the figures of previous years can be subject to change.
Whistleblower ING deems it important that any employee can report, anonymously or not, alleged irregularities (‘Concerns’) regarding accounting or auditing matters, as well as Concerns of a general, operational and financial nature within the company, in accordance with its Whistleblower Policy. ING exercises the utmost care with regard to the confidentiality of such a report or the anonymity of the employee, within the limits as defined by applicable laws and regulations. ING will not discharge, demote, suspend, threaten, harass or in any other way harm the employment status of a Whistleblower who has reported a Concern in good faith or of an employee who participates or has participated in an investigation following a reported Concern.
Number of cases 2016 2015 Breach of Orange code or unethical behaviour 37 14 Fraud / Theft 3 13 Privacy or (client) confidentiality 3 2 Bribery / Corruption 5 2 Other breach of any external law / regulation 42 39 Retaliation 1 Total 90 71
Our employee engagement score is above 70% (bi-annual) ING achieved an overall engagement score of 77% exceeding the 70% target it had set
We will procure 100% renewable electricity for all ING buildings where we have management control worldwide by 2020.
The qualitative approach we took in 2016 included an external stakeholder dialogue and internal interviews. ING reached out to senior management and seven stakeholder groups: business and retail customers, NGOs, academics, shareholders, employees and regulators. All were asked to score the material topic in importance; to find consensus on one or two action points for ING to work on in the near future. They were also asked to provide their input on potential emerging topics for ING and for society.
Fi na nc e se ct or s tr at eg ie s in percentage Exposure 2016 (%)
– Food, beverages & personal care 2,6% ● ● ● ● ● ● – General industries 2,3% ● ● ● ● ● ● ● – Builders & contractors 1,8% ● ● ● ● ●
In terms of exposure to thermal coal we define the following categories: Lending O/S in EUR million Dec 2016 Dec 2015 % change
ING’s power generation lending portfolio to Single Energy Sources (SES) clients, transactions supporting a particular energy source or utility companies operating one single energy source, is EUR 6.1 billion at YE 2016. Within this category, coal-fired power EUR 551 million represents some 9% of total.
Overall, ING’s power generation lending portfolio (DUC’s and SES) is EUR 9.0 billion at YE 2016, an overview of the distribution in sources being reflected in the chart below1.
In order to manage the project’s environmental and social risks and impacts ING was awarded the role of Environmental Agent for the banking consortium. Given the large scale of this project and the extensive workforce currently onsite great support was given to labour and working conditions, including the availability of operational grievance mechanisms for all project stakeholders. Having the role of Environmental Agent allowed ING to work in close cooperation with our client, including the opportunity to visit the project site which appeared to be of paramount importance to verify the adherence of international standards applicable to this project.
Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; and Category C – Projects with minimal or no adverse environmental and social risks and/or impacts.
Classroom 73.2 133.2 55.6 On the job training 0.6 5.4 11.6 1 The reduced amount of training in 2016 is predominantly due to the postponing of global compliance training from 2016 to early 2017.
ING Group Annual Report 2016 435 in percentage of employees 2016 2015 2014
5 The reported number consists of adolescents reached in Nepal from January 2016 - September 2016 and in the other five countries from January 2016 - August 2016.
Financing clients in line with the renewed coal policy November 2015: Throughout the year NGOs and newspapers reported on the involvement of ING in financing coal mines and coal companies like: * Cirebon Electric Power II, a coal-fired power plant in Indonesia * Punta Catalina, a coal-fired power plant in the Dominican Republic * SUEK, a Russian coal company * Uniper, a German energy-producing company
In the opinion of the FFG, in theory ING scores well, but in practice ING could do more to promote payment of a living wage and freedom of association within the operations of its clients and their supply chains.
We provided written feedback on questions asked, agreed to extensive interviews and provided insight into our systems to substantiate the claims we made.
PAX report: Nuclear weapons and Cluster munitions PAX issued two reports. The first on investments made in companies producing cluster munitions and the second on our involvement with nuclear-weapon producing companies. Overall, PAX was positive about ING. They commented that ING should apply its exclusion policy comprehensively to all its markets, and to all its financial products, including funds following an index. In both reports ING was again included in the runnersup category.
ING does not provide any services whatsoever to companies that produce cluster munition. ING does also not finance nuclear weapons. There are companies partially involved in producing nuclear weapons while primarily engaged in non-defence activities. ING doesn’t finance the nuclear weapons activities of these companies.
Pension scheme: The discussion on the pension scheme is ongoing in Poland and also relates to possibilities of long-term saving for the future.
-/- Net result from divestments/special items –799 309 -/- Net result insurance other and eliminations ING Bank/NN Group 33 –63 -/- Net result from discontinued operations 441 –456
Underlying cost/income ratio (h/f) 54.2% 55.9% * average calculated based on quarter-end figures
Authorised capital The maximum amount of share capital that a public limited company or a private limited company can issue according to its Articles of Association. Part of the authorised capital can remain unissued.
Credit support annex (CSA) Supporting documentation for a collateral arrangement that accompanies a master agreement used in the execution of an over-the-counter derivative swap. The document clearly delineates the rules and procedures for the use of the collateral in the backing of the traded securities. A CSA may be executed as a separate document, or can be part of the master agreement.
Credit valuation adjustment (CVA) An adjustment to the valuation of ‘over-the-counter’ (OTC) derivative contracts to reflect the creditworthiness of OTC derivative counterparties.
Forbearance activities Forbearance occurs when a client is considered unable to meet its financial commitments under the contract due to financial difficulties, and based on these difficulties, ING decides to grant concessions towards the client by either loan modification or refinancing. Modification is when the terms and conditions of the contract are adjusted to enable the client to service the debt. Refinancing relates to putting a new loan contract in place to ensure the total or partial repayment of an existing loan contract, which the debtor is unable to comply with. Examples of forbearance measures are: postponement and/or reduction of loan principal and/or interest payments, extended payment terms, debt consolidations and deferral of foreclosures.
Foreign exchange rate risk (FX risk) Probability of loss occurring from an adverse movement in foreign exchange rates.
Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity that ING Group has the positive intention and ability to hold to maturity other than: a.those that ING Group upon initial recognition designates as at fair value through profit and loss; b.those that ING Group designates as available-for-sale; and c. those that meet the definition of loans and receivables.
Historical simulation A model to calculate value at risk, assuming that future changes in risk factors will have the same distribution as they had in the past, taking into account the non-linear behaviour of financial products.
Internal assessment approach (IAA) A method used to calculate credit risk capital requirements for securitisation exposures (including liquidity lines provided to asset-backed commercial paper programmes and sponsored securitisations).
• Liability (tort) towards third parties due to an act or omission attributable to ING (potentially) resulting in impairment of ING’s integrity, leading to damage to ING’s reputation, legal or regulatory sanctions, or financial loss.
Loss given default (LGD) Anticipated percentage loss in the event of a default of a customer or counterpart.
Monetary assets and liabilities Assets and liabilities that are fixed in terms of units of currency by contract or otherwise. Examples are cash, short or long-term accounts, notes receivable in cash and notes payable in cash.
Orange Code ING’s framework for a common corporate culture to unite employees. Developed with input from employees, the code is based on the principle of ‘integrity above all’. It comprises values and behaviours. Values are those non-negotiable promises we make to the world no matter what. These are: we are honest, we are responsible and we are prudent. Behaviours are the commitments we make to each other and the standards by which we measure each other’s performance: You take it on and make it happen, you help others to be successful and you are a step ahead. The Orange Code underpins all of ING’s people processes and tools including performance management.
Ordinary share An equity instrument that is subordinated to all other classes of equity instruments. Ordinary shares participate in the net profit for the financial year after other types of shares such as preference shares.
Plan assets Comprise assets held by a long-term employee benefit fund and qualifying insurance policies. Assets held by a long-term employee benefit fund are assets (other than nontransferable financial instruments issued by the reporting enterprise) that: • are held by an entity (a fund) that is legally separate from the reporting enterprise and exists solely to pay or fund employee benefits; and
This credit risk category is associated with dealing room products, such as options, swaps, and securities financing transactions. Where there is a mutual exchange of value, the outstanding amount is generally based on the replacement value (mark-to-market) plus potential future volatility concept, using an historical seven-year time horizon and a 99% confidence level.
Private placement A placement in which newly issued shares or debentures come into possession of a limited group of subscribers who are prepared to buy the new securities.
Recovery plan As a consequence of the global financial crisis, ING Bank has set up an all-encompassing recovery planning process. It aims to improve the bank’s readiness and decisiveness to tackle financial crises on its own.
Repurchase agreement (Repo) The sale of a financial instrument combined with an agreement to repurchase the same instrument at a future date.
Reverse repurchase agreement (Reverse repo) The purchase of a financial instrument with the agreement to sell it at a specific future date.
ING Group Annual Report 2016 455 e. Loans to environmental outperformers: Clients that are identified as environmental outperformer either by an independent reputable data provider or by ING client due diligence “Know Your Customer” process
Value at risk (VaR) Value at risk is a technique that uses the statistical analysis of historical market trends and volatilities to estimate the likelihood that a given portfolio’s losses will exceed a certain amount.
This Annual Report contains the Reports of the Executive Board and Supervisory Board as well as the Annual Accounts and other information for the financial year 2016 in their original language (English).
Photography Boards, CEO and Chairman: Sander Stoepker; Cover and the rest of the photography: Izarin and Van Der Linde Photography - film
Disclaimer Certain of the statements contained herein are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to a number of factors, including, without limitation: (1) changes in general economic conditions, in particular economic conditions in ING’s core markets, (2) changes in performance of financial markets, including developing markets, (3) potential consequences of European Union countries leaving the European Union or a break-up of the euro, (4) changes in the availability of, and costs associated with, sources of liquidity such as interbank funding, as well as conditions in the credit and capital markets generally, including changes in borrower and counterparty creditworthiness, (5) changes affecting interest rate levels, (6) changes affecting currency exchange rates, (7) changes in investor and customer behaviour, (8) changes in general competitive factors, (9) changes in laws and regulations and the interpretation and application thereof, (10) geopolitical risks and policies and actions of governmental and regulatory authorities, (11) changes in standards and interpretations under International Financial Reporting Standards (IFRS) and the application thereof, (12) conclusions with regard to purchase accounting assumptions and methodologies, and other changes in accounting assumptions and methodologies including changes in valuation of issued securities and credit market exposure, (13) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, (14) changes in credit ratings, (15) the outcome of current and future legal and regulatory proceedings, (16) ING’s ability to achieve its strategy, including projected operational synergies and cost-saving programmes and (17) the other risks and uncertainties detailed in this annual report of ING Groep N.V. (including the Risk Factors contained therein) and ING’s more recent disclosures, including press releases, which are available on www.ING.com. Many of those factors are beyond ING’s control.
Projects may be subject to regulatory approvals. Insofar as they could have an impact in Belgium, all projects described are proposed intentions of the bank. No formal decisions will be taken until the information and consultation phases with the Work Council have been properly finalised.