Balance sheet in EUR billion, year-end 2017 2016 2015 Total assets ING Groep N.V.6 846 845 1,005 Total assets ING Groep N.V.7 846 845 842 Shareholders' equity ING Groep N.V. 50 50 48 Customer lending ING Groep N.V.7,8 574 561 533 Customer deposits ING Groep N.V.7 540 523 501
Effective underlying tax rate (in %) 30.0 28.1 28.0 Risk-weighted assets ING Group (EUR billion, year-end) 310 314 321 Underlying risk costs in bps of average RWA 22 31 44
Net result ING Group The increase reflects a stable underlying net result from Banking, whereas the 2016 result included the negative impact from special items (restructuring charges related to the digital transformation programmes), in part offset by the positive net result from the discontinued insurance operations. ING sold its final stake in NN Group in April 2016.
We strive to maintain a high level of system availability of our online payments channels. For 2017, weighted system availability for Retail customers in the Netherlands and Belgium was 99.7%. For Wholesale Banking customers, system availability was 100% globally.
Report of the Executive Board relationships – customers with a current account with recurring income and at least one other product – grew to 10.8 million. We’re on track to meet our ambition of 14 million primary customers by 2020. We were rated number one in terms of NPS in seven of our 13 retail markets in 2017.
At ING, our purpose is to empower people to stay a step ahead in life and in business. This guides us as we shape our own business to serve our customers and continue to excel for them in the future.
In 2017, we again saw rapid growth in interactions with customers through mobile devices. With our Customer Promise to be clear and easy, available anytime and anywhere, to empower and to keep getting better, we’ve established ourselves as a leader in digital banking.
Across the bank we see many examples of how we are putting our purpose and Customer Promise into practice. In many retail countries we offer easy-to-access digital tools that help customers make smart choices when deciding between savings and investment options, empowering them to achieve their current and longerterm goals. We’re also making banking easier, like in Germany, where we offer time-saving features such as a fully digital, three-step account opening process and a digital income check that allows fast loan approvals even when that income is at another bank.
Partnerships with over 100 fintechs are speeding up our own pace of innovation. In late 2017, we launched the EUR 300 million ING Ventures fund to invest in start-ups and companies that have already gained some market traction. These investments are aligned to our strategy of providing a differentiating customer experience.
The way forward I am proud that ING was named Best Bank in the World 2017 by Global Finance magazine, which cited in particular our digital leadership and strong innovation culture. This prestigious award recognises the many achievements that we’ve made through the creativity, hard work and commitment of ING’s talented employees around the world.
The Single Resolution Board adopted its first resolution decisions for banks from Italy and Spain. Meanwhile the resolvability of banks has been further improved by building up loss-absorption buffers. European global systemically important banks are advancing their bail-in issuances and will likely meet the internationally agreed total loss-absorbing capacity (TLAC) standards per 2022. Resolution authorities have provided European banks with initial targets for minimum requirement for own funds and eligible liabilities (MREL). These targets will be reviewed once the ongoing discussions on the bank recovery and resolution directive (BRRD) and the review of capital requirements regulations (CRR) have been finalised.
In the euro area, all member states’ economies are growing. The eurozone’s economic performance was particularly positive, as the area recorded its lowest unemployment rate in nine years and economic confidence reached pre-crisis levels.
In the United Kingdom, economic growth has slowed, against a background of continued uncertainty about the future relationship with the European Union. The economy in Asia remained strong with growth rates of the advanced economies in that region generally accelerating. Growth in major emerging-market economies has improved overall, helped by a rebound in some commodity producers that experienced recessions in 2015–16.
The world around us is constantly changing. This chapter highlights several trends that have a major impact on our own operating environment, as well as on that of our competitors. This includes the economy and current low interest-rate environment; increasing regulatory scrutiny and costs; digitalisation and changing customer behaviour; and what our stakeholders expect of us.
Strengths • Strong and trusted brand with positive recognition based on our differentiating customer experience in many countries
• Increasing market for Sustainable Finance • Preferred banking partner for fintechs
We believe in taking the long view and in going beyond just mitigating the harm related to these challenges – we want to drive sustainable progress. Banks can bring about change through their financing choices. We aim to use our position to help lead the global transition to a low-carbon and self-reliant society, tackling climate change and the fourth industrial revolution.
Overall results show that non-financial topics continue to gain importance. We saw for example that both stakeholders and ING’s management still regard innovative business developments as one of the most important topics. This includes disruptive technologies across industries, the threat from small fintechs as well as giants such as Facebook and Google, and the opportunities that advanced data analytics provide in serving our customers.
Customer centricity Opportunities: • Focus on improving customer experience by accelerating innovation and becoming more agile.
• Digital delivery of advice and support aimed at improving customer decision-making.
For 2017, ING’s weighted system availability for Retail customers in the Netherlands and Belgium was 99.7%. For Wholesale Banking customers, system availability was 100% globally. a
F Financial performance* Being a financially healthy and stable company is important to stakeholders and us.
• Transparency shows that banks have nothing to hide and are open to discussions, strengthing trust and reputation.
Furthermore, we strengthened our Environmental and Social Risk (ESR) framework, which guides decisions for client engagement and assessing finance proposals. We continuously revisit both the relevance of our policies and effective application in practice.
In addition to financial risks, ING also monitors and has controls aimed at mitigating non-financial risks such as IT & cybersecurity, operations and compliance to rules, regulations, laws as well as the ethical norms.
Transparency has gained importance with international initiatives such as TCFD (Task Force on Climate-related Financial Disclosures) and the UNGP (United Nations Guiding Principles Reporting Framework), and Dutch initiatives such as the Banking Covenant on Human Rights backed by the government, the Dutch Banking Association and NGOs.
Financing energy vs. climate change We want to help lead the global transition to a low-carbon, climateresilient economy. As a large global bank we feel we can have greater impact by helping our clients with their own transition to less carbon-intensive business models.
ING embraces digitalisation and, on the one hand, welcomes new entrants to the market. On the other hand, many of these new entrants (fintechs) aren’t subject to the same regulations as banks.
In the current new financial world, a level playing field is needed so all players can embrace and work towards innovative products with more or less the same regulatory challenges.
There is a trend toward open online platforms incorporating third-party offerings and the rise of digital ecosystems where people network, shop, bank and do many other things in one place. This is challenging banks to re-think and expand their business models to allow in partners, including ones from outside the financial world, who can enhance the customer experience.
Tech giants like China’s Alibaba and Tencent (owner of WeChat) now even have full banking licences, making them direct competitors of banks. And continued low interest rates and increasing regulation are pressuring banks’ profitability. Banks need to look beyond traditional business models for new ways to offer value to customers.
The growth in overall customer numbers is being outpaced by even faster proportional growth in the important category of retail primary relationships, those customers with a current account and recurring income and at least one other product with us. This growth has been spurred by continuous improvements to the customer experience, leading to more customer interaction, which in turn helps us to know customers better and tailor offerings better to their needs. We are on track to achieve our ambition to serve 14 million primary customers by 2020.
Accelerating the Think Forward strategy We developed the Think Forward strategy in response to trends that have not only continued to impact our world and the banking industry but which we now see intensifying.
3. Increase the pace of innovation to serve changing customer needs Evolving customer expectations, new technologies and new competitors are transforming banking. Through innovation, we can increase efficiency, improve the customer experience and gain competitive advantage. We do that, for example, through ING’s own PACE innovation methodology and employeedriven Innovation Bootcamps. To speed up the pace of innovation we also partner with outside parties, including fintechs.
Material topics: innovative business developments, usability and accessibility of products and services.
4. Lending capabilities Broadening and diversifying our lending capabilities to continue to grow client franchises is our fourth strategic enabler. To do so, we are seeking opportunities in Retail, SME and Consumer Lending segments, as well as focusing on Wholesale Banking lending growth in our Challengers & Growth Markets businesses and in our specialised Industry Lending franchise. In 2017, we continued to grow and diversify lending at healthy margins, with strong growth in the retail activities in Belgium and the Challengers & Growth Markets, but also from Industry Lending and Working Capital Solutions within Wholesale Banking. We also partnered with fintechs to extend innovative instant lending solutions for SMEs to France and Italy following an earlier successful introduction in Spain.
How we create value At ING we believe that it is our role to support and promote economic, social and environmental progress leading to a better quality of life for people in society, while generating adequate returns for shareholders. We want to be the bank of the future and therefore take the long-term view, to inform our decisions and priorities in the shorter term. As part of our Think Forward strategy and purpose to empower people, ING launched its 2022 sustainability goals, bringing sustainability and innovation together to deliver on our customer promises. We see it as our responsibility to address the long-term global challenges arising from climate change and the so-called fourth industrial revolution. Over the next five years we’ll focus our efforts and our business where it matters most – on climate resilience and social resilience to empower people to stay ahead.
3. Performance culture A strong performance culture is crucial to achieving the bank’s ambitions and delivering on our Customer Promise. To do this, we focus on a number of areas, including stepping up leadership capabilities and building the engagement and capabilities of employees across the organisation. ING believes in a direct link between employee engagement and business performance and our ability to serve customers. Our performance management process encourages employees to take personal responsibility for their performance and development. ING supports employees with training and professional and personal development. To promote the leadership behaviours needed to achieve ING’s strategy, tailor-made leadership training has been developed for top managers and also for all people managers within ING globally.
• ING launches sustainable improvement loan, rewarding corporate clients for their sustainability achievements
Report of the Executive Board others. We also have to work the same everywhere, be operationally excellent, be efficient and comply with regulations. This will allow us to continue empowering people in life and business and deliver on our Customer Promise: clear and easy, anytime, anywhere and to keep getting better.
While no-one knows for certain what the future holds for the financial sector, our vision is of a digital, mobile-first platform and one in which multiple players use each other’s platforms to offer new and different products and services that extend beyond banking.
Data privacy People entrust banks with confidential information that they expect us to keep safe. It’s of paramount importance that we maintain that trust. We aim to comply with our legal obligations around data protection, which can differ from country to country. We are transparent about what we do with the personal data of customers, suppliers and business partners and only process it for specific business purposes. Our approach can be summarised as: the right people use the right data for the right purpose.
In 2017, we launched a target operating model for IT that aims to create both scale and speed as well as cost efficiency and growth. This is being done by moving to one global technology platform with one common backlog, in line with the Think Forward strategy. It will help ING achieve consistency and collaborate globally across all platforms and implement one agile Way of Working.
Reliability and stability An excellent customer experience relies on ING always being available when and where customers need us. Given ING’s digital ambitions, we continually strive to improve the availability of our online channels (internet and mobile). In 2017, ING recorded 99.7 percent weighted system availability towards Retail customers in the Netherlands and Belgium a . In addition, system availability toward Wholesale customers globally was 100% a . In 2016, system availability was 99.75 percent for Retail and Wholesale Banking customers combined. We aim to expand our reporting on system availability in the future.
Improving the customer experience – continued users in the UK. It introduced new features, for example to help users make savings on their energy bills and international money transfers.
In 2017, we made progress in harnessing the potential of blockchain, both with the R3 banking consortium and in partnership with others. In November, we announced a new collaboration to digitalise energy commodities trading on a secure, real-time blockchain-based platform. It is expected to be operational at end-2018. And earlier in the year, Easy Trading Connect – a former Innovation Bootcamp winner – successfully completed its first commodity trade finance trial with Société Générale and trading house Mercuria. It reduced the time to process a transaction from three hours to 25 minutes, proving that blockchain technology can greatly improve efficiency, lower costs and reduce risks and delays. A soybean trade in January 2018 demonstrated the potential of the Easy Trading Connect platform in the agricultural commodities sector.
The Innovation Fund finances concepts developed by the business units, particularly when these can be shared and replicated in other countries. It supported 31 initiatives in 2017. These include BuyRely, Orange Assistant, Easy Trading Connect, Direct Lease, Startarium, and Katana. Since 2014, the fund has financed 53 ideas in total. In addition, the Chief Innovation Office supports initiatives such as money management platform Yolt, Spanish payments app Twyp and Payconiq.
If we want to remain relevant to our customers we have to be where they are. We have to find ways to empower them on their preferred platforms and meet their needs with a clear and easy experience.
The new European payments directive PSD2 in 2018 will have economic repercussions. Banks will face higher IT and security costs and a potential loss of retail payments revenue. More importantly, PSD2 will open up the payments market to new competitors, including non-banks. Competition is fierce. Already we see fintechs disrupting banking and claiming profitable parts of the value chain that were once the sole domain of banks. Not to mention the big tech platforms who can really change the game for banks. Apple Pay, for example, is gaining more than a million users a month, while China’s Tencent (owner of WeChat) and Alibaba have banking licences and their own online banks. To remain relevant we need to find new revenue models, more efficient ways of doing things, and team up with others to bring customers a new and differentiating experience faster.
Companies are no different. They too expect one seamless, cross-border, global experience and instant processes. They are increasingly impatient with anything that takes time. At the same time, they look for partners
At ING we aim to make banking clear and easy and as smooth as possible for our customers. Still, customers can run into difficulties. When they do, we try to help with ‘acts of kindness’, like a small payment, a gift, a toy for a child. Either to compensate the customer for an inconvenience from our side, or just to assist when we know they need a helping hand.
In Retail Banking, we define primary customers as those with multiple ING products, including a current account into which they deposit a regular income, such as a salary. The number of primary customers choosing ING as their main bank is growing twice as fast as the total number of retail customers. At the end of 2017, we had 10.8 million primary retail customers, up from 9.9 million in 2016. The aim is to extend this by a million primary customers a year to reach 14 million by 2020.
To keep our promise to make banking easier, we premiered fully digital instant personal loans in Romania, making it possible for almost 1.3 million active customers here to obtain a personal loan in an end-toend online process that takes as little as 15 minutes. Customers in Poland, Spain and Turkey can also get loans instantly online without the need to submit proof of income. Credit risk assessments are done within minutes.
In 2017, we launched the THINK website, where ING analysts share their insights on a range of economic and financial matters to help people make better decisions.
Across ING, digital channels account for 98.4 percent of contacts with retail customers (98.0 percent in 2016), while mobile phone interactions rose 37 percent to 1.76 billion in 2017 from 1.28 billion in 2016.
Our business – continued portfolios, structured products or investment funds, and cover all asset classes. SI is available to customers in Belgium, Luxembourg, Germany and the Netherlands. At the end of 2017, sustainable assets under management (SAuM) were EUR 4.75 billion. This represents 3.75 percent of ING’s total assets under management.
Awards ING’s digital leadership and focus on innovation and customer experience have been recognised externally with awards in several Retail markets. These include Best Brand of the Year 2017 in Luxembourg. ING in Poland collected Global Finance magazine’s Digital Bank of Distinction award for the mid-corps segment, while in Romania ING was named the Most Innovative Bank for the second year running at the MasterCard Bank of the Year gala. In Germany, ING was rated Most Popular Bank for the 11th consecutive year by readers of business magazine €uro and Interhyp as the Best Mortgage Provider for the 12th time in a row. And in France, ING was the only financial institution to win the Excellence Client Prize, awarded to companies providing a great customer experience.
Sustainable investments We can help our customers contribute to a more sustainable world through sustainable investing. We select companies whose activities consider people, society and the environment. They preferably offer solutions for the sustainability challenges our world faces. We believe these companies will outperform on return and impact in the long term.
Our assessment excludes companies in specific sectors, such as coal mining, or that exhibit controversial behaviour, such as violations of human rights.
In an increasingly complex world that offers so many choices, it’s easy for people to be overwhelmed. ING’s Think Forward Initiative (TFI) brings together economists and behavioural scientists to investigate how and why people make financial decisions. It uses its insights to develop tools that help people make informed choices about their money. Launched in 2016 with the Centre for Economic Policy Research, Dell/EMC, Deloitte and Dimension Data, TFI expects its first solutions in early 2018. These include a tool called Jaap’s money calendar to help people spend more wisely; the MoneyMagic app motivating users to save; and an app that uses financial data and social media to help users make a logical decision about whether they can afford a specific purchase, rather than an emotional one.
Our business – continued from the ongoing cost-saving initiatives. The underlying cost/income ratio increased to 56.9 percent from 56.0 percent in 2016.
Underlying income rose 0.7 percent to EUR 4,468 million. The interest result was 1.2 percent lower, mainly caused by a decline in lending volumes and margin pressure on current accounts, partly offset by higher margins on savings. More than holf of the fall in lending volumes was due to a further decline in the WUB run-off portfolio, including the continued transfer of WUB mortgages to NN Group. Net core lending (excluding the WUB portfolio and Bank Treasury-related products) declined by EUR 2.5 billion, primarily in mortgages, whereas the decline in other lending was limited. Net customer deposits (excluding Bank Treasury) grew by EUR 4.6 billion. Commission income rose by EUR 55 million, or 10.1 percent, primarily in current account fees. Investment and other income was up EUR 20 million.
Underlying operating expenses declined 13.6 percent on 2016, mainly driven by the benefits from the cost-saving initiatives, while 2016 included additional provisioning for Dutch SME clients with interest rate derivatives and higher restructuring costs.
Risk costs were EUR -10 million in 2017 (compared with EUR -18 million in 2016), reflecting a benign credit environment in the German market and model updates for consumer lending and overdrafts.
In February, our Easy Trading Connect blockchain prototype carried out its first live oil trade, which showed the significant speed, cost and risk benefits of the technology. In January 2018, the platform was extended
Drawing on our data capabilities to bring clients the right solutions at the right time, we are working on one that analyses data from past bond trades to price trades accurately in real time.
These ambitions replace the former Sustainable Transitions Financed (STF) portfolio ambition to increase STF to EUR 35 billion by 2020. As we already came close to achieving this in 2016, we matured and strengthened our approach in 2017. The result is our responsible finance portfolio, which transparently demonstrates our contribution through financing to key social and environmental domains.
But we can’t do this alone. We need clients and key partnerships. For example, we work with the Ellen MacArthur Foundation, a global thought leader on the circular economy, to expand our knowledge and network on this topic and unlock business opportunities. And we are a member of the World Economic Forum’s
Climate Leaders Alliance, an informal network of CEOs committed to climate action and delivering on the Paris Agreement.
1 The outcomes are based on industry classifications of ESG ratings provider Sustainalytics.
3 The amounts reported under the three categories may overlap with one another. For example, a transaction may be both environmentally and socially impactful. The category Outstandings should not be added up.
5 All figures listed in Outstandings are as of 4Q 2017 and the denominator is WB lending services.
ING Real Estate teamed up with ING Groenbank on a green loan to convert a former power plant into a sustainable ‘A’ energy label innovation hub. And we helped finance one of Australia’s largest solar plants to meet the country’s growing demand for renewable energy.
Read more in the ‘Non-financial appendix’ for the full power generation portfolio disclosure.
We see opportunities arising from the final recommendations of the G20 global Taskforce on Climate-related Financial Disclosures (TCFD). We believe it will encourage investors to shift to more low-carbon and climate-smart options as companies become more transparent about reporting on the financial implications of climate change – an important step towards delivering on the commitments of the Paris Agreement to keep global warming below two degrees Celsius.
Strengthening our operations In the past years, the Wholesale TOM programme has contributed to a more integrated business, easier processes and a more consistent experience for clients on a global digital platform.
In addition, we increased global collaboration with virtual sector teams that support clients across countries and products to offer holistic, integrated solutions that enable them to stay a step ahead in business. To facilitate this collaborative approach even further we are rolling out one way of working based on Agile principles.
Financial performance in 2017 Wholesale Banking posted good 2017 results on the back of continued strong performance in Industry Lending, steady volume growth across industries and products, and a low level of risk costs. The net result rose to EUR 1,950 million from EUR 1,754 million in 2016, which included restructuring charges and impairments related to the digital transformation programmes. Excluding these charges, underlying net result rose by EUR 47 million, or 2.5 percent, to EUR 1,950 million. The underlying result before tax was EUR 2,846 million, up 6.7 percent from 2016, driven by income growth in Industry Lending and General Lending & Transaction Services, and lower risk costs. This was in part offset by higher expenses.
Industry Lending posted an underlying result before tax of EUR 1,966 million, up 13.2 percent compared with 2016, due to continued business growth in Structured Finance and Real Estate Finance with attractive margins, higher fee income and lower risk costs. The underlying result before tax from General Lending & Transaction Services rose 22.5 percent to EUR 751 million, due to higher income and lower risk costs. Income was supported by volume growth in Working Capital Solutions and General Lending, partly offset by some pressure on margins.
Financial Markets’ underlying result before tax fell to EUR 82 million from EUR 134 million in 2016. This decline was mainly due to higher expenses, in part due to higher regulatory costs and investments in IT infrastructure. Income was stable, despite a very weak fourth quarter in 2017. Excluding CVA/DVA impacts (EUR -36 million in 2017 versus EUR -71 million in 2016) income declined by EUR 34 million. The underlying result before tax of Bank Treasury & Other fell to EUR 47 million from EUR 185 million in 2016. In addition to lower Bank Treasury results, this decline was mainly caused by higher risk costs (primarily related to the Italian lease run-off portfolio) and some litigation provisions. This was partly offset by higher sale results in the run-off businesses, including a EUR 97 million gain on the sale of an equity stake in the real estate run-off portfolio.
Challenges in diversity Different diversity challenges exist in each location and business unit. In several markets, such as the Benelux, we need to do more to make gender balance more representative, in particular in leadership positions. ING, like many other financial organisations, is facing this challenge.
Creating a better balance continues to be a priority. A range of initiatives to promote the inclusion of women in leadership positions has been implemented. This includes: • Diverse interview and decision panels as part of the recruitment process. • Inclusion of more female candidates on succession lists.
In 2017, ING in the Netherlands announced that, from 2018, it will offer new fathers and non-biological parents the right to take one month’s paid leave after the arrival of their child with the option for a further three months of unpaid leave immediately afterwards.
ING also introduced the global Rainbow Families project to eliminate any gaps in its policies for lesbian, gay, bisexual and transgender (LGBT) employees.
Creating greater leaders and better managers Think Forward Leadership programmes have been tailormade to develop the leadership capabilities ING needs to achieve its strategy. The Think Forward Leadership Programme is designed for top-level executives and the Think Forward Leadership Experience is for all people managers globally. Around 1,500 leaders and managers attended these programmes in 2017, with a further 4,000 employees targeted to participate in 2018. Phasetwo programmes are now being developed.
When employees are impacted by these changes, we are committed to treating them with respect and care and doing our utmost to help them develop their skills to find new job opportunities – whether inside or outside ING.
Our team in Madrid has more than 12 different nationalities, so it’s very diverse. To me, diversity is not about gender or colour but about different approaches. The way people are brought up in different cultures and with different values means they approach the same problem or topic in different ways.
The global surveys that all employees are asked to complete are important, especially the fact that managers want to know what we think. In Spain, a number of improvements have been made following the last year’s employee engagement survey. It’s good to know your opinion counts.
We are aware that even though we have a strong track record, there are still issues that require attention – including diversity, which continues to be a challenge. By respecting human rights and increasing efforts in diversity, we believe we are strengthening our workforce and our business. To underline our commitments and progress in this area, we aim to publish our first Human Rights Report in 2018.
ING’s working culture is customer-orientated with a strong team dynamic. Everyone is happy to help and I feel comfortable with my colleagues. It is a positive and healthy environment. In my two years, I’ve had many trainings and been given much support and mentoring from more senior employees.
changing too. As a team, we must adapt to those client changes. Part of our economic analysis is to make things clear and easy even though economics is complex.
With big data and real-time technologies and processes we can empower customers in their financial decisions. Understanding their needs through data is an important skill in banking. We should care about data, turn it into valuable knowledge and create added value for customers.
Despite only joining in June, I am aware of the Orange Code and how it describes our values and the way we act together. This is important to me as a believer in teamwork and collaboration to meet any challenge and deliver the best customer experience.
ING was again recognised as one of the world’s leading employers by both the Top Employers Institute and Great Place to Work.
Risk and capital management the Executive Board and senior management to form an opinion on the adequacy of internal risk management and control systems regarding the risks they face while pursuing the Executive Board’s strategy. In addition, ING has a process in place regarding internal control over financial reporting. Both frameworks, including underlying assumptions and metrics, are regularly reviewed to ensure they stay relevant in a constantly changing environment. ING conducts bank-wide and portfolio- specific stress tests to ensure strength and resilience in specific market conditions, by taking part in regulators’ as well as our own internal stress tests.
For more information on risk appetite and stress tests, please refer to the Risk Appetite Framework, the Non-Financial Risk Framework and the Stress testing sections of the ‘Risk Management’ chapter, part of the consolidated annual accounts of this Annual Report.
Managing risks to protect and enable our business ING is engaged in activities that entail risk taking, every day, throughout our business. ING is sensitive to multiple financial risks, such as credit losses in our lending and banking transactions, gains and losses from market risk in our trading positions, and liquidity or funding risks through financial management. Many of these are managed and controlled through models, which automatically introduce risk themselves.
Risk management at ING is directed and overseen by the independent Risk Management function. The function’s primary roles are to properly identify, measure and manage risks in normal and stressed economic conditions, and to oversee our business activities to ensure they are consistent with both our strategy and our appetite for risk.
User Access Management (UAM) remains an important element of our control framework to mitigate unauthorised and/or inappropriate access to our data and information. ING Bank is building on its cybercrime resilience, further enhancing the control environment to protect, detect and respond to e-banking fraud, DDoS and targeted attacks.
ING has designed controls intended to mitigate the compliance risks associated with the above-mentioned risk areas. The effectiveness of the controls is tested periodically, and senior management recognises its responsibility to ensure our processes comply with applicable laws and regulations, ING’s internal policies, procedures and the Orange Code.
With developing technology and digitalisation, new risk categories are emerging. That makes it vital for the risk function to adapt so it can detect and manage new risks. Over the past few years, ING has enhanced its frameworks in areas including model risk and cybersecurity risk. At the same time, technology and advanced analytics are enabling new risk-management techniques and helping the risk function make better risk decisions at lower cost.
Three lines of defence ING’s governance framework establishes three lines of defence to manage risk effectively. The three lines of defence principle provides a clear division of activities and defines roles and responsibilities for risk management at different levels within ING and at different stages in the lifecycle of risk exposures.
Key developments in 2017 We look back on a year with a modest acceleration in global growth, amid tighter regulation and macroeconomic uncertainties. Very low interest rates put pressure on our business model by squeezing interest income. Geopolitical and economic instability persisted in several geographical areas, as did volatility in commodity prices. The fear of a ‘hard Brexit’ (no agreement with the EU on an orderly exit of the UK, leaving uncertainties on access to the single market and customs union) and other nationalistic and populist tendencies remained present. Data breaches and related cyber-attacks continued to be major threats worldwide. And climate change remained a challenge to the sustainability of societies and economies around the world.
Cybercrime is a continuing threat to companies in general and to financial institutions in particular. Attacks are often global in scale; their frequency and intensity are increasing. Threats posed by Distributed Denial of Service (DDoS), targeted attacks (also called Advanced Persistent Threats) and ransomware are of particular concern. ING is building on its cybercrime resilience, further enhancing the control environment to protect against, detect and respond to e-banking fraud, DDoS and targeted attacks. Additional controls continue to be embedded in the organisation as part of the overall internal control framework and are continuously reassessed against existing and new threats. ING is also strengthening its global cybercrime resilience, including through strong collaboration against cybercrime with financial industry peers, law enforcement authorities, government (e.g. National Cyber Security Center) and internet service providers (ISPs).
Environmental and Social Risk Management ING makes a positive contribution to global economic growth by incorporating and promoting responsible lending and investment practices. Transparency, openness and regaining trust are material topics, both for ourselves and for our stakeholders. ING’s Environmental and Social Risk (ESR) policy framework guides in a consistent and transparent manner the choices we make about how, where and with whom to do business.
A client’s ESR risk profile is just the starting point when assessing how the ESR policy framework will apply in each specific business engagement. One of the most important determinants of ING’s ability to assess and manage environmental, social and human rights-related risks with a client is our proximity to the potential
• Stakeholder engagement on Human rights: We engaged in several Dutch multi-stakeholder platforms to implement the Dutch Banking Sector Agreement on International Responsible Business Conduct Regarding Human Rights. Our progress and analysis of salient human rights issues will be reported in a dedicated Human Rights report in 2018. In the international arena, ING remained engaged in the Thun Group, an informal group of bank representatives that work together to raise awareness of the UN Guiding Principles on Business and Human Rights (UNGP) within the banking sector, and how they can be applied across the range of different banking activities. In 2017, the group published a second discussion impact. The type of financial product or service offered to the client determines this proximity upfront and thus the appropriate level of due diligence and mitigation measures. The sector, operating context and geography will also provide an initial indication of the degree of ESR due diligence needed.
The ESR policy framework follows mainstream approval processes and it’s applied by well-trained and mandated people. In 2017, 288 of our risk, front-office and compliance colleagues participated in ESR-dedicated trainings around the globe. Training included classroom sessions at ING offices in Amsterdam and other locations around the globe.
To support orderly resolution, the BRRD requires banks to meet minimum requirements for own funds and eligible liabilities (MREL). In addition, ING as a Global Systemically Important Bank (G-SIB) is expected to comply with the total loss absorption capacity (TLAC) term sheet published by the Financial Stability Board (FSB) in November 2015.
ING Group’s phased-in (transitional) common equity Tier 1 ratio of 14.7% at 31 December 2017 is well in excess of the 2017 requirement.
In 2017, a total of USD 2.1 billion grandfathered additional Tier 1 instruments were redeemed. ING Groep NV did not issue additional Tier 1 instruments during the year. In 2017, EUR 1.0 billion ING Bank Tier 2 bonds were exchanged for ING Group Tier 2 notes at similar terms. In addition ING Groep NV issued EUR 1.8 billion of Tier 2 bonds and EUR 0.4 billion of Tier 2 private placements in Japanese Yen and USD. To improve the loss absorbing capacity for TLAC/MREL regulations, ING Groep NV issued EUR 6 billion of senior HoldCo debt in 2017.
MREL requirements, new regulatory initiatives and balance sheet growth will be met with additional Group issuance.
Capital distribution ING Group manages capital at ING Group as well as ING Bank level and allocates capital within its different entities to meet local capital requirements. ING’s subsidiaries are well capitalised. ING sets targets for individual businesses above the minimum local capital requirements and aims for an efficient distribution of capital. The capital provides room for loan growth and supports our Think Forward strategy for continued commercial growth, an improved customer experience and a quicker delivery of new products.
Rest of Europe Rest of World 1 These figures based on 4Q 2017 estimates of institutional share ownership provided by IPREO and includes ordinary shares represented by American depository receipts.
Sustainalytics² Score: 85 (out of 100) Position: 7 (out of 341 financial peers)
Score: 86 (out of 100) Position: 1 (out of 395 financial peers)
FTSE4Good Index Series Position: Included Position: Included Position: Included Position: Included Transparantie Benchmark (NL) Score: 187
See the ‘Report of independent registered public accounting firm’ on page 87.
Promoter Score for Retail Banking, the Feeling of Financial Empowerment and the System Availability, marked with the symbol a in the Report of the Executive Board and the ‘Non-financial appendix’ (hereafter: the Four Specific Topics); of ING Groep N.V. (hereafter: ING Group) based in Amsterdam, The Netherlands. A review is aimed at obtaining a limited level of assurance. An audit engagement is aimed at obtaining reasonable assurance.
Furthermore, in our opinion the Four Specific Topics are prepared, in all material respects, in accordance with the applied reporting criteria as described in the section ‘About this report’.
Basis for our opinion and our conclusion We have performed our review on the Non-financial Information and our audit on the Four Specific Topics in accordance with Dutch law, including Dutch Standard 3000A ‘Assurance Engagements other than Audits or Reviews of Historical Financial Information (attest engagement).
The extensive contacts between the Supervisory Board, the Executive Board and Management Board Banking ensure that we have a shared perspective on how ING needs to move forward. Still, dilemmas remain. Speed is important, but so too is pacing. If we move too fast we risk overloading people – they need to have the opportunity to reskill themselves to be aligned and productive in the new situation. We also have to make sure that we have the right talent in the right places to support change.
The permanent education of the Supervisory Board in 2017 took a number of forms. We participated in a number of educational sessions on specific topics. We had meetings with senior managers and their teams to be updated on business activities and to share information. And we also visited offices. In addition, the chairmen of all Supervisory Board committees and I had many additional one-to-one meetings with managers and specialists within ING.
Chairman’s statement – continued investors and analysts and to exchange views on topics such as governance and sustainability in the context of ING’s strategy and performance. We also interact with stakeholders during the Annual General Meeting and through the workers’ council. These interactions enable us to learn which matters are most important to our stakeholders and how we can best align their interests with ING’s business.
In 2017, the composition of the Supervisory Board changed. We said goodbye to Isabel Castella and Ann Sherry. We welcomed Hans Wijers and Jan Peter Balkenende, who were appointed to the Supervisory Board as per the end of the Annual General Meeting on 8 May 2017. Their appointments became effective as per September 2017. We also welcomed Margarete Haase, whose appointment will become effective as per 1 May 2018.
Please refer to the legal proceedings paragraph set out in Note 45 to the consolidated annual accounts of ING Group for more information.
Permanent education The annual Supervisory Board Knowledge Day, that took place on 12 January 2017, focused on the art of banking in an increasingly digitalised world. On the agenda were sessions related to transformation management, cybersecurity, data management, advanced analytics and ethics, robotics and artificial intelligence. The Supervisory Board was also updated on developments regarding ING’s annual talent review achievements, including a trend analysis.
Report of the Supervisory Board – continued requested has increased. In addition, local requirements need to be met. ING aims to safeguard that all reporting processes and data quality remains up to standard. The aggregate impact of upcoming regulatory reporting and additional capital requirements is expected to be substantial. The Supervisory Board also received updates on the possible impact on ING of the new Dutch coalition agreement.
All relevant items discussed by the Audit Committee were reported to the Supervisory Board, with the Supervisory Board approving those items as required from a governance perspective. Directly following the Audit Committee meetings, the members of the Audit Committee met with the internal and external auditors to seek confirmation that all relevant topics were discussed in the Audit Committee meetings. In addition to the Audit Committee meetings, the chairman of the Audit Committee regularly held separate sessions with the independent external auditor, the head of the Corporate Audit Services department and the CFO. He also met with different senior managers.
The alignment of responsibilities of the Risk Committee and the Remuneration Committee were also discussed resulting in an updated remuneration regulations framework.
Furthermore, the Committee discussed Executive Board, Management Board Banking and Supervisory Board charters that were updated in the light of the new Dutch Corporate Governance Code requirements. Also the profiles of the Executive Board and Supervisory Board were updated due to new Dutch Corporate Governance Code requirements. This will be added as a discussion item to the agenda of the Annual General Meeting on 23 April 2018.
Composition of the Supervisory Board At the Annual General Meeting on 8 May 2017, Isabel Martín Castellá stepped down, having reached the ING age limit for Supervisory Board members. Furthermore, Hans Wijers, Jan Peter Balkenende and Margarete Haase were appointed to the Supervisory Board. Jan Peter Balkenende started as an observer per 9 May 2017. His membership became effective (i.e. granted voting power) as per 1 September 2017. He also became a member of the Risk Committee. The membership of Hans Wijers became effective per 1 September 2017 and he then also became a member of the Audit Committee, the Nomination and Corporate Governance Committee, and Remuneration Committee. As per 1 October 2017, Margarete Haase has been present as an observer at the meetings of the Audit Committee, Supervisory Board and Internal Supervisory Board. Her membership will become effective as per 1 May 2018. By then she will have reduced her (non) executive directorships meeting the CRD IV requirements. Margarete Haase has also completed an extensive induction programme. Robert Reibestein and Hermann-Josef Lamberti were reappointed; the appointment term will end as per the end of the 2021 Annual General Meeting. Jeroen van der Veer was reappointed; the appointment term will end as per the end of the 2018 Annual General meeting as it is the intention of the Supervisory Board that Hans Wijers will succeed Jeroen van der Veer as chairman of the Supervisory Board at that time. In 2017, Ann Sherry became a member of the Nomination and Corporate
The Nomination and Corporate Governance Committee and the Supervisory Board will continue to strive for an adequate and balanced composition of the Supervisory Board when selecting and nominating new members for appointment, taking into account ING’s diversity policy and other factors.
Appreciation for the Executive Board and ING employees The Supervisory Board would like to thank the members of the Executive Board and the Management Board Banking for their hard work in 2017. Important milestones were the steps taken towards creating a globally scalable digital platform for customers and further digitalising our offering. This took place against a backdrop of increasing regulation, legal and Know Your Customer requirements.
The Supervisory Board would like to thank all ING employees for their contribution in realising these achievements and for continuing to serve the interests of customers, shareholders and other stakeholders of ING.
Additional information ‘Corporate governance’ chapter and the ‘Remuneration report’ chapter for more information, which are deemed to be incorporated by reference here.
Management Board Ralph Hamers (EB/MBB) 1966 M Dutch • • • • • • • • • Koos Timmermans (EB/MBB) 1960 M Dutch • • • • • • • • Steven van Rijswijk (EB/MBB) 1970 M Dutch • • • • • • • Roland Boekhout (MBB) 1963 M Dutch • • • • • • • • • Aris Bogdaneris (MBB) 1963 M Canadian • • • • • • • • • Isabel Fernandez (MBB) 1968 F Spanish • • • • • • • • Roel Louwhoff (MBB) 1965 M Dutch • • • • • • • • Supervisory Board Jeroen van der Veer (chair) 1947 M Dutch • • • • • • • • • Herman-Josef Lamberti (vicechair ) 1956 M German • • • • • • • • Jan Peter Balkenende 1956 M Dutch • • • • • • • Eric Boyer de la Giroday 1952 M Belgian • • • • • • • • Henk Breukink 1950 M Dutch • • • • • • •
Corporate Governance Codes Compliance with the Corporate Governance Code The Corporate Governance Code is the benchmark for ING’s corporate governance structure and practices.
ING’s application of the Corporate Governance Code is described in the 2018 publication ‘ING’s application of the Dutch Corporate Governance Code’, which is available on the website of ING Group www.ing.com. This is to be read in conjunction with this section and is deemed to be incorporated into this section.
Dutch Banking Code The Dutch Banking Code (‘Banking Code’), a revised version of which was adopted by the Dutch Banking Association in 2014, is applicable only to ING Bank N.V. and not to ING Group. The Banking Code can be downloaded from the website of the Dutch Banking Association (www.nvb.nl). Its application by ING Bank is described in the ‘Application of the Dutch Banking Code by ING Bank N.V.’, available on ING Group’s website (www.ing.com). ING Group voluntarily applies the principles of the Banking Code regarding remuneration of the members of its Executive Board. ING Group’s remuneration policy for the Executive Board and senior management is compliant with these principles.
1 Dutch Bulletin of Acts (Staatsblad) 2004, 747, most recently amended with effect from 1 January 2018: Dutch Bulletin of Acts 2017, 332.
Issuance of shares Share issuances are decided by the General Meeting, which may also delegate its authority. Each year, a proposal is made to the General Meeting to delegate authority to the Executive Board to issue new ordinary shares or to grant rights to subscribe to new ordinary shares, both with and without pre-emptive rights for existing shareholders.
The purpose of this share issue authorisation is to delegate the power to issue new ordinary shares to the Executive Board. Accordingly, the Executive Board is authorised to issue new ordinary shares without first having to obtain the consent of the General Meeting – which in the Netherlands is subject to a statutory convocation period of at least 42 days. This authorisation gives the ING Group flexibility in managing its capital resources, including regulatory capital, while taking into account shareholders’ interests to prevent dilution of their shares. It particularly enables ING Group to respond promptly to developments in the financial markets, should circumstances so require. The Executive Board and the Supervisory Board consider it in the best interests of ING Group to have the flexibility this authorisation provides.
ING Group strives to maintain an open and constructive dialogue with current and potential investors, and with industry analysts. The scope of such bilateral communication may range from single investor queries via email, to more elaborate discussions with analysts or institutional investors that take place via telephone or face to face. ING Group’s Investor Relations department is the main point of contact for these communications. Executive Board members or Management Board Banking or divisional management members may also participate in investor meetings. These meetings are not announced in advance, nor can they be followed by webcast or any other means. Information provided during such occasions or in any contacts with the press is limited to what is already publicly available.
Proposals by shareholders Proposals to include items on the agenda for a General Meeting that have been adequately substantiated under applicable Dutch law can be made by shareholders representing together at least one per cent of the issued share capital.
In accordance with US requirements, the depositary sets a record date for the ADRs, which date determines which ADR are entitled to give voting instructions. This record date can differ from the record date set by ING Group for shareholders.
In addition, the approval of the General Meeting is required for Executive Board decisions that would be expected to have a material effect on the identity or nature of ING Group or its enterprise.
Relevant positions pursuant to CRD IV: Member and CRO of the Executive Board of ING Groep N.V. and member and CRO of the Management Board of ING Bank N.V.
The Supervisory Board of ING shall consist of a mix of persons with executive experience, preferably gained in the banking sector, experience in corporate governance of large stock-listed companies and experience in
Independence The members of the Supervisory Board are requested to assess annually whether the criteria of dependence set out in the Corporate Governance Code do not apply to them and to confirm this in writing. On the basis of these criteria, all members of the Supervisory Board, with the exception of Eric Boyer de la Giroday, are to be regarded as independent on 31 December 2017. Eric Boyer de la Giroday is not considered independent because of his former position as Chairman of the Board of Directors of ING Belgium S.A./N.V. and his former positions as member of the Executive Board of ING Group and vicechairman of the Management Board Banking of ING Bank N.V. On the basis of the NYSE listing standards, all members of the Supervisory Board are independent.
The organisation, powers and conduct of the Supervisory Board are detailed in the Supervisory Board Charter that can be found on www.ing.com/17ar12.
In light of the planned reduction of the number of her directorships at other companies, the appointment of Margarete Haase will become effective as per 1 May 2018 (as decided by the Supervisory Board in January 2018). Following the effectiveness of her appointment, Margarete Haase will also be a member of the Audit Committee. As per 1 October 2017 she already has been present as an observer at the meetings of the Audit Committee and the Supervisory Board. Eric Boyer de la Giroday is a financial expert as defined in the Dutch Corporate Governance Code considering his academic background as well as his knowledge and experience in his previous role as board member and vice-chairman of ING Groep N.V. and ING Bank N.V.
The Remuneration Committee’s tasks include advising the Supervisory Board on the terms and conditions of employment (including remuneration) of the members of the Executive Board and on the policies and general principles on which the terms and conditions of employment of the members of the Executive Board and of senior managers of ING Group and its subsidiaries are based. On 31 December 2017, the members of the Remuneration Committee were: Henk Breukink (chairman), Robert Reibestein, Jeroen van der Veer and Hans Wijers.
Corporate governance – continued not dependent on the results of ING Group. Details of the remuneration are provided in the Remuneration report on page 98. Members of the Supervisory Board are permitted to hold shares in the share capital of ING Group for long-term investment purposes. Details are given on page 98. Transactions by members of the Supervisory Board in these shares are subject to the ING regulations regarding insiders.
Balkenende started as an observer for the Supervisory Board until 1 September 2017.
H.W. (Henk) Breukink (Born 1950, Dutch nationality, male; appointed in 2007, term expires in 2019) Former position: Managing Director of F&C and country head for F&C Netherlands (asset management firm).
M. (Margarete) Haase (Born 1953, Austrian nationality, female; appointed in 2017, term expires in 2021) Former position: member of the Executive Board of Daimler financial services.
Relevant positions pursuant to CRD IV: Member of the Supervisory Board of ING Groep N.V./ ING Bank N.V. (effective per 1 May 2018), chief financial officer and member of the Executive Board of Deutz AG, member of the Supervisory Board and chairwoman of the Audit Committee of Fraport AG, Member of the Supervisory Board and chairwoman of the Audit Committee of ZF Friedrichshafen AG.
Other relevant ancillary position: Member of the Supervisory Board of Stichting World Wildlife Fund (the Netherlands).
Other relevant ancillary positions: Chairman of the Supervisory Board of Het Concertgebouw N.V. and chairman of the board of Vereniging Natuurmonumenten (the Netherlands)
In accordance with best practice provision 1.4.3 of the 2016 Dutch Corporate Governance Code, the Executive Board of ING Groep N.V. states that it is responsible for the design, implementation and functioning of ING’s internal risk management and control systems.
ING’s internal risk management and control is a process, effectuated by the Executive Board, senior management, and other personnel. It is designed to mitigate risks and provide reasonable assurance regarding the achievement of objectives in the following categories: • Effectiveness and efficiency of operations; • Reliability of financial and non-financial information; • Compliance with laws, regulations and internal policies, and the ING Values as part of the Orange Code; • Safeguarding of assets, identification and management of liabilities; and • Strategic goals of ING Groep N.V.
In discharging the responsibility, the Executive Board has made an assessment of the effectiveness of the ING Groep N.V.’s internal control and risk management systems. Based on this assessment, the Executive Board states that during the year under review: • the report of the Executive Board in the ING Group
These regulations require that the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of ING Group report and certify on an annual basis on the effectiveness of ING Group’s internal controls over financial reporting. Furthermore, the external auditors are required to provide an opinion on the effectiveness of ING Group’s internal controls over financial reporting.
The Executive Board assessed the effectiveness of internal control over financial reporting as of 31 December 2017. In making this assessment, the Executive Board performed tests based on the criteria of the Committee of Sponsoring Organisations of the Treadway Commission (“COSO”) in Internal Reporting – Integrated Framework (2013 Framework). Based on the Executive Board’s assessment and those criteria, the Executive Board concluded that the Company’s internal control over disclosure and financial reporting was effective as of 31 December 2017.
Changes in Internal Controls over Financial Reporting There have been no changes in the Company’s internal controls over financial reporting during the period covered by this Annual Report that have materially affected or are reasonably likely to materially affect, our internal controls over financial reporting.
In setting the level of remuneration we look at a number of varying factors. These include: • The complexity of work • The scope of responsibilities • The international character of the group • Risk alignment • The (inter)national laws and regulations • Specifics of the particular labour market • Other long-term objectives of ING and its stakeholders.
Variable remuneration The awarding of variable remuneration, where applicable, is primarily focused on long-term value creation and based on individual, business line and bank-wide performance criteria.
Under the WBFO, financial institutions are permitted to set a variable remuneration cap higher than 100% of fixed remuneration for employees outside of the European Economic Area (EEA), provided that the higher cap is approved by their shareholders and does not conflict with the institution’s capital adequacy requirements.
Business strategy and company goals ING’s remuneration policy is aligned with business strategy and company goals.
Risk and controls Risk management is an enabler of long-term value creation. ING ensures the remuneration policy is properly correlated with its risk profile and the interest of its stakeholders.
Responsible and fair ING acts responsibly and treats staff fairly across the globe.
In addition, risk requirements apply to a small number of staff members that are considered Risk Takers. These risk requirements set the minimum standards to be met during the performance year. Deviation from these standards may lead to downward adjustment of variable remuneration, a so called Risk Modifier.
• Validation sessions: ensures alignment in target setting, mid-year review and year-end evaluation.
Pension As of 1 January 2015, all members of the Executive Board participate in the Collective Defined Contribution (CDC) pension plan with respect to their salary up to EUR 103,317 per year for 2017. As is the case for all employees who participate in the Dutch Collective Defined Contribution pension plan who earn a salary above this amount per year, the Executive Board members are compensated for the lack of pension accrual by means of a savings allowance to be annually determined (see below).
Benefits Executive Board members are eligible for additional benefits (e.g. the use of company cars, contributions to company savings plans and, if applicable, expatriate allowances). This may also include banking and insurance benefits from ING on the same terms that apply to other employees of ING in the Netherlands. In addition, tax and financial planning services are provided to ensure compliance with the relevant legislative requirements.
Supervisory Board discretion to review the policy and the remuneration paid In accordance with the Executive Board’s remuneration policy as adopted at the AGM and as described in this chapter, the Supervisory Board annually determines the actual remuneration for the Executive Board members based on the advice given by the Remuneration Committee of the Supervisory Board.
Non-financial performance indicators • The accelaration of the Think Forward strategy: improving customer experience and enabling commercial growth
• Realising a bank-wide high performance culture through the Step Up Performance Management and Think Forward Leadership programmes
Special employment conditions Special employment conditions, such as commitments required to secure the recruitment of new executives, may be used in circumstances subject to approval by the Supervisory Board.
For the Supervisory Board, this remains a point of concern. In order to ensure continued delivery on customer promises, strategic priorities and key financial and non-financial targets, ING needs to be able to attract the best talent for its Executive Board.
In 2017, Patrick Flynn stepped down from the Executive Board immediately after the AGM 2017 that was held on 8 May 2017 as his appointment term ended without having been proposed for reappointment. In line with applicable regulations, a severance payment equal to 100% of his base salary (i.e. EUR 1,203,600) was granted. Wilfred Nagel decided to retire from the Executive Board. His employment contract ended at 31 January 2018. No severance payment was granted.
2017 Executive Board performance indicators As indicated in the remuneration policy, the performance of the Executive Board is assessed based on financial and non-financial indicators. For 2017, performance indicators applied included the following: 2017 Executive Board performance evaluation The table on the next page highlights key achievements, collectively accomplished by the Executive Board in 2017 in the areas mentioned, reflecting both the overall ambitions of ING and the specific performance targets agreed with the Supervisory Board at the beginning of 2017. Although not everything is accomplished, the following points were successful.
Sustainability • Sustainable Investments launched of EUR 100 million in capital to support sustainable ‘scale-ups’ with a proven concept and positive environmental impact.
• Announced acceleration of reducing our exposure to coal power generation to close to zero by 2025 in order to support the transition to a low-carbon economy.
In 2017 no holdback or claw back was applied to paid, unvested or vested variable remuneration of any of the Executive Board members.
Pension costs of the individual members of the Executive Board amounts in euros (rounded figures) 2017 2016 2015
Long-term incentives awarded in previous years In 2017, no long-term incentives (other than the shares disclosed in the table on page 96, were awarded to the Executive Board members.
The number of ING shares of former members of the Executive Board who are not included in the table above amounted to nil in 2017, 211,468 in 2016 and 200,791 in 2015.
Based on this information and carefully balancing all stakeholder interests, the Supervisory Board agreed to propose at the AGM the following amendments to the Executive Board remuneration policy: (i) the introduction of a new fixed remuneration component, called ‘fixed shares’. In addition to its authority under the existing Executive Board remuneration policy to increase the total direct compensation to a level just below the median of the Euro Stoxx 50, the Supervisory Board may now also decide to increase the gross cash base salary of a member of the Executive Board in the form of ‘fixed shares’, with a value up to a maximum of 50% of the gross cash base salary. In case of fixed shares, each month, one-twelfth of the agreed value will be mandatorily converted into fixed shares against the prevailing share price for that month (i.e. the opening price of the first trading day of shares listed on Euronext in that month), subject to a mandatory ‘sell to cover’, requiring the Executive Board member to sell as many shares as needed to settle any wage or income taxes due on these. The fixed shares component is solely tied to the role of the Executive Board member, the relevant market benchmark and is not subject to any performance condition (if performance conditions would have been set, the fixed shares
The Supervisory Board has decided to change the remuneration for the CEO position as from 1 January 2018 as follows: • Increase in gross cash base salary of 2.2% to EUR 1,750,000.
The table below shows both current total remuneration and proposed new remuneration for the CEO. The fixed shares together with variable remuneration in shares and the mandatory shareholding requirement ensure full alignment of remuneration of the CEO position with shareholders and investors and are testament to the long-term view the Supervisory Board takes where it concerns executive remuneration. This is fully in line with the principles of the Dutch Corporate Governance Code and other relevant regulations.
The Supervisory Board will continue to monitor the development of international remuneration practices and will continue to support the Executive Board remuneration policy of compensating slightly below the median of the Euro Stoxx 50 benchmark.
5 Margarete Haase was appointed to the Supervisory Board by the 8 May 2017 AGM. She joined the meetings of the Supervisory Board as an observer since 9 May 2017. In light of the planned reduction of the number of her directorships, her appointment will become effective as per 1 May 2018 as decided by the Supervisory Board in January 2018. Hence there are no remuneration figures to report over 2017.
As per 9 May 2017, the Nomination Committee and Corporate Governance Committee merged. The remuneration of the combined commitee was brought in line with the other committees. The Supervisory Board remuneration policy for 2017 is shown below: Compensation of former members of the Supervisory Board who are not included in the table above amounted to nil in 2017, EUR 36,000 in 2016 and EUR 160,000 in 2015.
2017 Remuneration Supervisory Board The table below shows the remuneration, including attendance fees per Supervisory Board member.
Employee stock options on ING Groep N.V. shares held by members of the Supervisory Board at 31 December 2017 number of stock options
The following table contains information on the employee stock options outstanding by, and awards vested for, the members of the Supervisory Board.
− designated as at fair value through profit or loss 4,242 5,099
− designated as at fair value through profit or loss 11,215 12,266
Net result (before non-controlling interests) 4,987 4,726 4,413 Net result attributable to Non-controlling interests 82 75 403
Consolidated statement of profit or loss for the years ended 31 December
Realised gains/losses transferred to the statement of profit or loss –92 –146 –92
Remeasurement of the net defined benefit asset/liability 35 34 34 –10 24
Impact of partial divestment of NN Group –1,499 –270 –1,769 3,042 1,273
Cash and cash equivalents at end of year 32 18,977 16,164 20,379 1 Result before tax includes results from continuing operations of EUR 7,268 million (2016: EUR 5,903 million; 2015: EUR 6,172 million) as well as results before tax from discontinued operations of nil (2016: EUR 439 million; 2015: EUR 21 million).
Notes to the accounting policies Reporting entity ING Groep N.V. is a company domiciled in Amsterdam, the Netherlands. Commercial Register of Amsterdam, number 33231073. These Consolidated annual accounts, as at and for the year ended 31 December 2017, comprise ING Groep N.V. (the Parent company) and its subsidiaries, together referred to as ING Group. ING Group is a global financial institution with a strong European base, offering a wide range of retail and wholesale banking services to customers in over 40 countries.
Effective in 2019 (not yet endorsed by the EU): • IFRIC 23 ‘Uncertainty over Income Tax Treatments’; • Amendments to IAS 28: ‘Investments in Associates and Joint Ventures’: Long-term Interests in Associates and Joint Ventures; • Annual improvements cycle 2015 – 2017: Amendments to IFRS 3 ‘Business Combinations’, IFRS 11 ‘Joint Arrangements’, IAS 12
IFRS 9 program governance and status The IFRS 9 program was initiated in 2015 and was set-up based on the three pillars of the IFRS 9 standard: Classification and Measurement, Impairment, and Hedge Accounting. These central work streams consisted of experts from Finance, Risk, Bank Treasury, Operations, and the Business. The IFRS 9 Technical Board consisted of the heads of various Finance and Risk functions supporting the IFRS 9 Steering Committee by reviewing the interpretations of IFRS 9, the central guidance, and instructions as prepared by the central work streams. The IFRS 9 Steering Committee was the key decision making body and consists of senior managers from Finance, Risk, Bank Treasury and Wholesale Banking Lending Services. The Management Board Banking and the Audit Committee were periodically updated about IFRS 9 and the key decisions.
A number of key accounting policy choices were required for the Classification and Measurement of ING’s financial assets, such as the level of permissible sales in a HtC business model, the FVOCI option for equity investments and accounting prepayments. The decision making process for such policy choices followed the IFRS 9 programme governance, with technical matters researched, decisions documented, and conclusions proposed by ING’s IFRS 9 Technical Board for approval by the IFRS 9 Steering Committee.
The impact on other regulatory ratios is not expected to be material.
IFRS 16 ‘Leases’ IFRS 16 ‘Leases’ is effective for annual periods beginning on or after 1 January 2019 and has been endorsed by the EU. IFRS 16 is the new accounting standard for leases and will replace IAS 17 ‘Leases’ and IFRIC 4 ‘Determining whether an Arrangement contains a Lease’. The new standard removes the distinction between operating or finance leases for lessee accounting, resulting in all leases being treated as finance leases. All leases will be recognised on the statement of financial position with the optional exceptions for short-term leases with a lease term of less than 12 months and leases of low-value assets (for example mobile phones or laptops). A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The main reason for this change is that this approach will result in a more comparable representation of a lessee’s assets and liabilities in relation to other companies and, together with enhanced disclosures, will provide greater transparency of a lessee’s financial leverage and capital employed. The standard permits a lessee to choose either a full retrospective or a modified retrospective transition approach. Furthermore the standard provides some practical options and exemptions to ease the costs of transition. Lessor accounting remains substantially unchanged. ING will adopt the standard at its effective date planning to use the modified retrospective approach, however ING is still currently assessing the detailed impact of this standard.
c) Significant judgements and critical accounting estimates and assumptions The preparation of the consolidated annual accounts requires management to make judgements in the process of applying its accounting policies and to use estimates and assumptions. The estimates and assumptions affect the reported amounts of the assets and liabilities and the amounts of the contingent liabilities at the balance sheet date, as well as reported income and expenses for the year. The actual outcome may differ from these estimates. The process of setting assumptions is subject to internal control procedures and approvals.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Exchange rate differences on non-monetary items, measured at fair value through profit or loss, are reported as part of the fair value gain or loss. Non-monetary items are retranslated at the date fair value is determined. Exchange rate differences on non-monetary items measured at fair value through the revaluation reserve are included in the revaluation reserve in equity.
Group companies The results and financial positions of all group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities included in each statement of financial position are translated at the closing rate at the date of that statement of financial position; • Income and expenses included in each statement of profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
A financial asset or financial liability is classified at fair value through profit or loss if acquired principally for the purpose of selling in the short term or if designated by management as such. Management will designate a financial asset or a financial liability as such only if this eliminates a measurement inconsistency or if the related assets and liabilities are managed on a fair value basis.
Transaction costs on initial recognition are expensed as incurred. Interest income and expense from financial instruments is classified at fair value through profit or loss is recognised in Interest income using the effective interest method (where applicable) and the remaining changes in fair value of such instruments are recognised in Valuation results and net trading income in the statement of profit or loss.
Fair values of financial assets and liabilities All the financial assets and liabilities are recognised initially at fair value, whereas financial assets and liabilities classified as held-fortrading or designated at fair value through profit or loss and financial assets classified as available-for-sale are subsequently measured at fair value in the annual accounts.
Repurchase transactions and reverse repurchase transactions Securities sold subject to repurchase agreements (repos) are retained in the consolidated annual accounts. The counterparty liability is included in Deposits from banks, Customer deposits, or Trading, as appropriate.
Reference is made to Note 6 ‘Loans and advances to customers’ and the section ‘Risk management – Credit risk’ for further details.
ING Group as the lessor When assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable under Loans and advances to customers or Loans and advances to banks. The difference between the gross receivable and the present value of the receivable is unearned lease finance income. Lease income is recognised over the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return. When assets are held subject to an operating lease, the assets are included under Assets under operating leases.
Reorganisation provisions include employee termination benefits when the Group is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
Lease income The proceeds from leasing out assets under operating leases are recognised on a straight-line basis over the life of the lease agreement. Lease payments received in respect of finance leases when ING Group is the lessor are divided into an interest component (recognised as interest income) and a repayment component.
Cash advances, overdrafts and other balances 1 3 3 2 4 5
As at 31 December 2017, Loans include receivables related to securities in reverse repurchase transactions amounting to EUR 4,637 million (2016: EUR 2,992 million) and receivables related to finance lease contracts amounting to EUR 65 million (2016: EUR 88 million). Reference is made to Note 42 ‘Transfer of financial assets’ for information on securities lending as well as sale and repurchase transactions. Reference is made to Note 6 ‘Loans and advances to customers’ for information on finance lease receivables.
ING Group holds warrants for 35 million shares (2016: 35 million) and 7 million (2016: 26 million) shares in NN Group N.V. and Voya Financial Inc. respectively.
The notional value of the related credit derivatives is EUR 232 million (2016: EUR 260 million). The change in fair value of the credit derivatives attributable to changes in credit risk since the loans were first designated, amounts to EUR -6 million (2016: EUR –8 million) and the change for the current year amounts to EUR 2 million (2016: EUR 1 million).
Exposure to debt securities ING Group’s exposure to debt securities is included in the following lines in the statement of financial position: Available-for-sale investments 65,747 78,888
Sub-sovereign, Supranationals and Agencies 17,215 20,484 1,255 1,613 245 267 18,715 22,364
Changes in the composition of the group and other changes –1 6 –6 –1 1 Changes in unrealised revaluations include changes on hedged items which are recognised in the statement of profit or loss.
Reference is made to Note 22 ‘Investment income’ for details on Impairments.
− more than 1 year but less than 5 years 5,652 5,635
An allowance for uncollectable finance lease receivables of EUR 337 million as at 31 December 2017 (2016: EUR 282 million) is included in the loan loss provision.
Accumulated impairments of EUR 33 million (2016: EUR 48 million) have been recognised. The values presented in the tables above could differ from the values presented in the individual annual accounts of the associates and joint ventures, due to the fact that the individual values have been brought in line with ING Group’s accounting principles. Where the listed fair value is lower than the statement of financial position value, an impairment review and an evaluation of the going concern basis has been performed.
In 2016, Share of results from associates and joint ventures of EUR 88 million as presented in the statement of profit or loss, includes: • Share of results, as presented in the table above of EUR 91 million mainly attributable to results of TMB amounting to EUR 68 million and a gain of EUR 21 million on disposal of shares held in VISA Europe Limited; and • Impairments of investments in associates and joint ventures of EUR –3 million.
ING uses external valuers to value property in own use. All properties are typically appraised by external valuers once every five years.
Changes in the composition of the group and other changes –19 46 –3 6 –22 52
Accumulated depreciation as at 31 December –983 –950 –1,623 –1,740 –2,606 –2,690
Accumulated amortisation as at 31 December –1,225 –1,147 –23 –17 –1,248 –1,164
Goodwill Goodwill is allocated to groups of cash generating units (CGUs) as follows: Method used for recoverable amount Discount rate Long term growth rate Goodwill Goodwill
Wholesale Banking1 Values in use 9.54% 2.12% 110 129 1 Goodwill related to Growth Countries is allocated across two groups of CGUs, EUR 307 million to Retail Growth Markets and EUR 90 million to Wholesale Banking (2016: EUR 375 million to Retail Growth Markets and EUR 109 million to Wholesale Banking). The fair value less cost of disposal is based on Level 1 and Level 2 inputs.
Methodology Several methodologies are applied to arrive at the best estimate of the recoverable amount. In line with IFRS, the recoverable amount is determined as the higher of the fair value less costs of disposal and Value in Use (VIU). Fair value less costs of disposal is based on observable share prices (Level 1 inputs in the fair value hierarchy), observable Price-to-Book multiples of relevant peer banks (Level 2), or based on a discounted free cash flow model (Level 3). The VIU calculation is based on a Dividend Discount model using five year management approved plans. When estimating the VIU of a CGU, local conditions and requirements determine the capital requirements, discount rates, and terminal growth rates. These local conditions and requirements determine the ability to upstream excess capital and profits to ING Group. The discount rate calculation includes other inputs such as equity market premium, country risk premium, and long term inflation which are based on market sources and management’s judgement. The long term growth rate for EU-countries is based on long-term risk-free rate by reference to the yield of a composite index consisting of Euro generic government bonds, with a maturity of 30 years. For other countries, the growth rate includes long term inflation rate obtained from market sources.
Accrued interest and rents As at 31 December 2017, the line item includes accrued interest of EUR 1,375 million (2016: EUR 1,939 million) on trading derivative assets and EUR 2,505 million (2016: EUR 2,773 million) on loans and available-for-sale bonds. Accrued interest on trading derivative assets should be considered together with accrued interest on trading derivative liabilities as included in Other liabilities. Reference is made to Note 15 ‘Other liabilities’. The remainder of the balance relates mainly to accrued interest on cash flow hedges, fair value hedges and other non-trading derivatives.
Amounts to be settled Amounts to be settled are primarily transactions not settled at the balance sheet date. They are short term in nature and are expected to settle shortly after the balance sheet date. The decrease in 2017 is attributable to lower market activity compared to prior year end.
In 2016, ING participated in the new targeted longer-term refinancing operations (TLTRO II) with EUR 10.7 billion. In 2017, ING participated in the targeted longer-term refinancing operations (TLTRO II) with an additional EUR 7 billion.
Savings accounts relate to the balances on savings accounts, savings books, savings deposits, and time deposits of personal customers. The interest payable on savings accounts, which is contractually added to the accounts, is also included.
In 2017, the change in the fair value of financial liabilities designated at fair value through profit or loss attributable to changes in credit risk is EUR 78 million (2016: EUR 50 million) and EUR 248 million (2016: EUR 170 million) on a cumulative basis. This change has been determined as the amount of change in fair value of the financial liability that is not attributable to changes in market conditions that gave rise to market risk (i.e. mainly interest rate risk based on yield curves).
In 2017, changes in the reorganisation provisions was mainly attributable to existing initiatives following the intended digital transformation programmes of ING Bank.
In 2017, the decrease in Debt securities in issue of EUR 7.1 billion is mainly attributable to a decrease in long term maturity bonds of EUR 5.9 billion, a decrease of EUR 3.8 billion in certificates of deposit, a decrease of EUR 2.8 billion in covered bonds, and decrease in other debt securities in issue EUR 0.9 billion, partially offset by an increase in commercial paper of EUR 6.3 billion.
Subordinated loans issued by ING Groep N.V. include loans issued to raise Tier 1 capital for ING Bank N.V. Under IFRS these bonds are classified as liabilities and for regulatory purposes, they are considered capital. Subordinated loans issued by ING Group companies comprise, for the most part, subordinated loans which are subordinated to all current and future liabilities of ING Bank N.V.
The average interest rate on subordinated loans is 4.73% (2016: 4.94%). The interest expense during the year 2017 was EUR 784 million (2016: EUR 816 million).
In 2015 Transfer to insurance liabilities/DAC comprised the change in insurance liabilities related to NN Group and Voya, until deconsolidation at the end of May 2015.
In 2017 and 2016 respectively the EUR –26 million and EUR –127 million is a transfer of revaluation reserve to retained earnings.
In 2017, a cash dividend of EUR 2,564 million was paid to the shareholders of ING Group.
Ordinary shares - Restrictions with respect to dividend and repayment of capital The following equity components cannot be freely distributed: Revaluation reserves (being Available for-sale and other, Cash flow hedge, Property in own use, and Net defined benefit asset/liability remeasurement reserve), Currency translation reserve, Share of associates and joint ventures reserve, and the part of the Retained earnings that relate to the former Stichting Regio Bank and the former Stichting Vakbondsspaarbank SPN.
Moreover, ING Groep N.V.’s ability to pay dividends is dependent on the dividend payment ability of its subsidiaries, associates and joint ventures. ING Groep N.V. is legally required to create a non-distributable reserve insofar as profits of its subsidiaries, associates and joint ventures are subject to dividend payment restrictions which apply to those subsidiaries, associates and joint ventures themselves. Such restrictions may among others be of a similar nature as the restrictions which apply to ING Groep N.V., including minimum capital requirements that are imposed by industry regulators in the countries in which the subsidiaries, associates and joint ventures operate, or other limitations which may exist in certain countries.
In 2016, the increase in total average assets (with the cash pool balances until March 2016 still calculated on a net basis in order to provide consistent information), combined with an improvement of the net interest margin, lead to an increase of EUR 680 million in net interest income. The increase in total average assets was mainly attributable to an increase in customer lending, partly offset by a decline in financial assets at fair value through profit or loss.
Change in fair value of assets and liabilities (hedged items) –793 –167 –1,229
Net trading income relates to trading assets and trading liabilities which include assets and liabilities that are classified under IFRS as Trading but are closely related to servicing the needs of the clients of ING. ING offers products that are traded on the financial markets to institutional clients, corporate clients, and governments. A significant part of the derivatives in the trading portfolio are related to servicing corporate clients in their risk management to hedge for example currency or interest rate exposures. In addition, ING provides its customers access to equity and debt markets for issuing their own equity or debt securities (securities underwriting). Although these are presented as Trading under IFRS, these are directly related to services to ING’s customers. Loans and receivables in the trading portfolio mainly relate to (reverse) repurchase agreements, which are comparable to collateralised borrowing (lending). These products are used by ING as part of its own regular treasury activities, but also relate to the role that ING plays as intermediary between different professional customers. From a risk perspective, the gross amount of trading assets must be considered together with the gross amount of trading liabilities, which are presented separately on the statement of financial position. However, IFRS does not allow netting of these positions in the statement of financial position. Reference is made to Note 4 ‘Financial assets at fair value through profit or loss’ and Note 13 ‘Financial liabilities at fair value through profit or loss’ for information on trading liabilities.
ING Group’s trading books are managed based on internal limits and comprise a mix of products with results which could be offset. The results are presented in various lines within the statement of profit or loss. Reference is made to Note 19 ‘Net interest income’.
In 2017, Derivatives trading results includes EUR 47 million CVA/DVA adjustments on trading derivatives, compared with EUR 36 million CVA/DVA adjustment in 2016 (2015: EUR 98 million).
Income from and fair value gains/losses on investment properties 3 4 4
Corporate Line Banking –1 –5 23 Result on disposal of group companies
Total average number of employees at full time equivalent basis 13,141 13,660 17,238 38,363 38,283 40,315 51,504 51,943 57,553 1 Continuing operations - average number of employees includes, on an average basis, employees of the discontinued operations of NN Group as NN Group was deconsolidated from ING Group at the end of May 2015. Staff expenses for the five months ended 31 May 2015, was included in the Consolidated statement of profit or loss of ING Group in the line item Net result from discontinued operations. Reference is made to Note 27 ‘Discontinued operations’.
In 2017, 54,768 share awards (2016: 61,532; 2015: nil) were granted to the members of the Executive Board of ING Groep N.V., 104,449 share awards (2016: 170,749; 2015: 106,013) were granted to the Management Board Banking. To senior management and other employees 4,846,903 share awards (2016: 6,590,039; 2015: 6,088,240) were granted.
Impairments and reversals on property and equipment and intangibles 18 107 27
Tax fees 1 1 The Group auditors did not provide any non-audit services except tax services in 2015. In 2016 and 2017 no non-audit services were provided.
Fees as disclosed in the table above relate to the network of the Group’s auditors and are the amounts related to the respective years, i.e. on an accrual basis. The amounts exclude Group’s auditors fees for entities presented as held for sale and discontinued operations. Increase in audit fees in 2017 primarily relates to audit activities for the implementation of IFRS 9.
In 2017 local bank taxes increased by EUR 30 million from EUR 351 million to EUR 381 million mainly due to a the full year Polish bank tax and higher taxes in the UK.
In 2017, impairment losses on software and intangible assets mainly include software that was impaired to is Value in Use, related to the acceleration of the Think Forward Strategy.
Net result from discontinued operations Net result from discontinued operations comprises the total net result (after tax) of the businesses classified as discontinued operations and is presented separately in the statement of profit or loss.
Reference is made to Note 46 ‘Consolidated companies and businesses acquired and divested’.
Effect of dilutive instruments: Stock option and share plans 2.8 3.5 5.5
Treasury bills and other eligible bills included in trading assets 5 126 228
The geographical segments for the Banking results are presented on page 175.
Special items include items of income or expense that are significant and arise from events or transactions that are clearly distinct from the regular operating activities. Disclosures on comparative periods also reflect the impact of divestments. Legacy Insurance consists of the results from discontinued operations and the results from Insurance Other. Insurance Other reflects (former) insurance related activities that are not part of the discontinued operations.
October 2016. 3 Insurance Other comprises mainly the net result relating to warrants on the shares of Voya Financial and NN Group N.V. 4 Underlying figures are derived from figures according to IFRS by excluding the impact from divestments, special items, Insurance Other, and discontinued operations.
Net result IFRS attributable to equity holder of the parent 4,227 –50 4,177 474 4,651 1 Comprises for the most part the funding charges of ING Groep N.V. (Holding).
For information on discontinued operations, reference is made to Note 27 ‘Discontinued operations’.
Intercompany eliminations between ING Bank and NN Group4 28 1 7 20 1 Net result, after tax and non-controlling interests. 2 Divestments in 2015 reflected the result from the merger between ING Vysya and Kotak Mahindra Bank. 3 Special items in 2015 comprised additional charges related to previously announced restructuring programmes in Retail Netherlands. 4 Intercompany eliminations between ING Bank and NN Group, prior to deconsolidation at the end of May 2015. 5 Insurance Other comprised mainly the net result relating to warrants on the shares of Voya Financial and NN Group N.V. 6 Underlying figures are derived from figures according to IFRS by excluding the impact from divestments, special items, Insurance Other, and discontinued operations.
Underlying income – Net interest income 3,610 1,842 1,704 2,437 3,895 226 13,714
– Additions to loan loss provision 13 104 –10 284 284 1 676
Underlying income – Net interest income 3,653 1,936 1,689 2,107 3,750 106 13,241
Underlying income – Net interest income 3,683 1,953 1,634 1,935 3,538 –153 12,590
Underlying net result 1,680 860 939 433 504 766 –207 4,976 Special items –268 –491 –13 –27 –799 2015 Netherlands Belgium Germany
Belgium Belgium ING België N.V. Wholesale banking/Retail banking 8,893 2,957 119,400 1,009 408
Germany ING DiBa A.G. Wholesale banking/Retail banking 4,587 2,312 138,153 1,240 396
Russia ING Bank (Eurasia) Z.A.O. Wholesale banking 270 136 1,607 78 20
Slovakia Branch of ING Bank N.V. Wholesale banking 497 14 677 2 1
Bulgaria Branch of ING Bank N.V. Wholesale banking 70 9 268 –2 –
Singapore Branch of ING Bank N.V. Wholesale banking 512 297 25,803 133 9
Philippines Branch of ING Bank N.V. Wholesale banking 604 18 322 6 2
Taiwan Branch of ING Bank N.V. Wholesale banking 33 23 3,910 11 –
India Branch of ING Bank N.V. Wholesale banking – 1 2 1 –
Branch of ING Bank N.V. Wholesale banking 10 – – –2 –
Turkey ING Bank A.S. Wholesale banking/Retail banking 5,497 757 15,864 225 45
Other Mauritius ING Mauritius Ltd. Investment management – 32 715 32 –
Luxembourg ING Luxembourg S.A. Wholesale banking/Retail banking 774 298 9,331 166 35
ING Group provides other post-employment benefits to certain employees and former employees. These are primarily postemployment healthcare benefits and discounts on ING products provided to employees and former employees.
The most recent (actuarial) valuations of the plan assets and the present value of the defined benefit obligation were carried out as at 31 December 2017. The present value of the defined benefit obligation, and the related current service cost and past service cost, were determined using the projected unit credit method.
As at 31 December 2017 the various defined benefit plans did not hold any direct investments in ING Groep N.V. (2016: nil). During 2017 there were no purchases or sales of assets between ING and the pension fund.
Actuarial gains and losses arising from changes in demographic assumptions 7 17
Actuarial gains and losses arising from changes in financial assumptions –71 –498
The sensitivity analysis calculates the financial impact on the defined benefit obligation if the weighted averages of each significant actuarial assumption would increase or decrease if all other assumptions were held constant. In practice, this is unlikely to occur, and some changes of the assumptions may be correlated. Changes to mortality, expected rate or salary increase, and indexation would have no material impact to the defined benefit obligation. The most significant impact would be from a change in the discount rate. An increase or decrease in the discount rate of 1% creates a financial impact of EUR –480 million and EUR 619 million respectively.
Presented in the statement of financial position as: – deferred tax liabilities –919 –752
Presented in the statement of financial position as: – deferred tax liabilities –643 –919
The effective tax rate in 2017 is significantly higher than the weighted average statutory tax rate. This was caused by the following items: • A relatively high amount of prior period tax adjustments which ING, for the most part is expected to be reimbursed by NN Group
The effective tax rate in 2016 is almost equal to the weighted average statutory tax rate. This is mainly caused by the fact the nontaxable income and the recognition of tax benefits from previously unrecognised amounts are almost fully offset by non-deductible expenses, and the write-off of deferred tax assets and the adjustments to prior periods.
Financial assets Cash and balances with central banks 21,989 18,144 21,989 18,144
– designated as at fair value through profit or loss 4,242 5,099 4,242 5,099
Valuation Methods The estimated fair values represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is a market-based measurement, which is based on assumptions that market participants would use and takes into account the characteristics of the asset or liability that market participants would take into account when pricing the asset or liability. Fair values of financial assets and liabilities are based on quoted prices in active market where available. When such quoted prices are not available, the fair value is determined by using valuation techniques.
ING uses unadjusted quotes where available. Unadjusted quoted prices are primarily obtained from exchange prices for listed financial instruments. Where an exchange price is not available, quoted market prices in active markets may be obtained from independent market vendors, brokers, or market makers. In general, positions are valued at the bid price for a long position and at the offer price for a short position or are valued at the price within the bid-offer spread that is most representative of fair value at the date of valuation.
For certain financial assets and liabilities quoted market prices are not available. For these financial assets and liabilities, fair value is determined using valuation techniques. These valuation techniques range from discounting of cash flows to various valuation models, where relevant pricing factors including the market price of underlying reference instruments, market parameters (e.g. volatilities, correlations and credit ratings), and customer behaviour are taken into account. ING maximises the use of market observable inputs and minimises the use of unobservable input in determining the fair value. The fair value can be subjective dependent on the significance of the unobservable input to the overall valuation. All valuation techniques used are subject to internal review and approval. Data used in these valuation techniques are validated on a daily basis when possible.
Control framework To determine whether the valuations based upon data inputs have led to an appropriate fair value, the process of independent price verification (‘IPV’) or price testing is applied. This is done to ensure the appropriate reflection of these valuations in balance sheet and the profit and loss accounts. IPV tests and confirms the reliability of the market data used in these valuations and can lead to adjustments in valuation. The IPV process is performed at least monthly or more frequently depending on the nature of the market or trading activity. Multiple data sources are used to the extent that such prices are available and taking into account cost-benefit ratio of retrieving such prices. Valuation differences between primary and secondary source data are assessed. When differences resulting from price testing exceed pre-approved thresholds, adjustments to the profit and loss shall be made. Differences and adjustments must be assessed individually, approved by the Local Parameter Committee, and reported back in the meeting minutes. In case a material difference in value is found through the IPV process, it must be fully understood what the underlying cause is for the difference, and if a systematic change is required (e.g. change of source). Pricing and price testing is applied at individual trade level and is organised at a desk level.
Valuation processes are governed by various governance bodies, which include Local Parameter Committees (LPC), Global Price Testing and Impairment Committee (GP&IC), Market Data Committee (MDC), Trading Pricing Model Committee (TPMC) and others. All relevant committees meet on a quarterly basis or more frequent as required. Key valuation controls including product approval process (PARP), IPV, valuation adjustments, and model use is monitored.
• ING applies Debt Valuation Adjustment (DVA) to own issued financial liabilities that are measured at fair value through profit or loss, if the credit risk component has not been included in the prices. In the DVA calculation, the default probability of the institution are estimated based on the ING Funding spread.
• Collateral Valuation Adjustment (CollVA) is a derivative valuation adjustment capturing specific features of CSA (Credit Support Annex) with a counterparty that the regular OIS (Overnight Index Swap) discounting framework does not capture. Non-standard CSA features may include deviations in relation to the currency in which ING posts or receives collateral, deviations in remuneration rate on collateral which may pay lower or higher rate than overnight rate or even no interest at all. Other deviations can be posting securities rather than cash as collateral.
a.2) Financial liabilities Deposits from banks The fair values of payables to banks are generally based on quoted market prices or, if not available, on estimates based on discounting future cash flows using available market interest rates and credit spreads for payables to banks with similar characteristics.
Financial instruments at fair value The fair values of the financial instruments were determined as follows: Level 1 Level 2 Level 3 Total
There were no significant changes in the valuation techniques during the 2017 and 2016.
Realised gain/loss recognised in the statement of profit or loss during the period1,3 –232 226 –45 –34 4 76 200 –273 468
Revaluation recognised in other comprehensive income during the period2,4 –5 –144 –5 –144
Sale of assets –326 –71 –92 –4 –1 –76 –43 –183 –462 –334
Changes in the composition of the group and other changes –1 59 –1 –25 –1 33 1 Net gains/losses were recorded in income from trading activities in continuing operations herein as ‘Valuation results and net trading income’ in the statement of profit or loss. 2 Revaluation recognised in other comprehensive income is included on the line ‘Unrealised revaluations available-for-sale investements and other revaluations’. 3 ‘Amounts recognised in the statement of profit or loss during the year’ has been renamed to ‘Realised gain/loss recognised in the statement of profit or loss during the period’. 4 ‘Revaluation recognised in equity during the year’ has been renamed to ‘Revaluation recognised in other comprehensive income during the period’.
Early repayment of liabilities –399 –62 –1 –11 –21 –13 –421 –86
Financial liabilities measured at fair value in the statement of financial position as at 31 December 2017 of EUR 87 billion includes an amount of EUR 1.2 billion (1.4%) which is classified as Level 3 (31 December 2016: EUR 1.5 billion, being 1.5%). Changes in Level 3 from 31 December 2016 to 31 December 2017 are disclosed above in the table ‘Changes in Level 3 Financial liabilities’.
Debt securities 386 180 Price based Price (%) 0% 0% 161% 122%
– Credit 10 33 48 43 Present value techniques Credit spread (bps) 2 0 424 1,596
Loans and advances to banks 633 3,534 9,855 11,135 16,577 14,271 27,065 28,940
Loans and advances to customers1 5,121 19,870 21,611 545,141 551,864 565,011 578,596
Amounts recognised in the statement of profit or loss relating to unrealised gains and losses during the year that relate to Level 3 non-financial assets are included in the statement of profit or loss as follows: • Impairments on Property in own use are included in Other operating expenses - Impairments and reversals on property and equipment and intangibles ; and • Changes in the fair value of Investment properties are included in Investment income.
Change in fair value of assets and liabilities (hedged items) –793 –167
ING Group applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU carve-out of IFRS. The EU ‘carve-out’ for macro hedging enables a group of derivatives (or proportions) to be viewed in combination and jointly designated as the hedging instrument and removes some of the limitations in fair value hedge accounting relating to hedging core deposits and under-hedging strategies. In retail operations, exposure on retail funding (savings and current accounts) and retail lending (mortgages) is initially offset. The remaining exposure is hedged in a portfolio hedge, using the EU carve-out, in which a portion of the mortgages is designated as a hedged item for hedge accounting purposes.
– designated as at fair value through profit or loss 488 967 1,839 351 597 4,242
Remaining assets (for which maturities are not applicable)3 2,889 2,889 1 Includes assets on demand. 2 Includes Other assets and Current and Deferred tax assets as presented in the Consolidated statement of financial position. 3 Included in remaining assets for which maturities are not applicable are property and equipment, and investments in associates and joint ventures. Due to their nature remaining assets consist mainly of assets expected to be recovered after more than 12 months.
– designated at fair value through profit or loss 413 838 1,353 3,700 5,058 –147 11,215
ING Group Annual Report 2017 207 month1 1–3 months 3–12 months 1–5 years Over 5 years
41 Assets not freely disposable The assets not freely disposable consist primarily of Loans and advances to customers pledged to secure Debt securities in issue, deposits from De Nederlandsche Bank (the Dutch Central Bank) and other banks and serve to secure margin accounts and are used for other purposes required by law. The assets not freely disposable are as follows: Banks
Other items where offsetting is applied in the statement of financial position 6,860 –6,366 494 494
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
Deposits from banks Repurchase, securities lending and similar agreements 4 4 4
Repurchase, securities lending and similar agreements 51,445 –14,475 36,970 1,068 35,792 110
Other items where offsetting is applied in the statement of financial position 5,393 –4,720 673 673
Interest surcharges claims: ING received complaints and is involved in litigation with natural persons (natuurlijke personen) in the Netherlands regarding increases in interest surcharges with respect to several credit products, including but not limited to residential property (eigenwoningfinanciering). ING is reviewing the relevant product portfolio. Although the review is still ongoing, a provision has been taken for certain of these complaints.
Divestments effective in 2017 There were no significant divestments, of consolidated companies, in 2017.
Divestments effective in 2016 There were no significant divestments, of consolidated companies, in 2016.
ING Bank originated various securitisations, as at 31 December 2017 these consisted of approximately EUR 56 billion of AAA rated notes and subordinated notes, of which approximately EUR 7 billion were issued externally. The underlying exposures are residential mortgages and SME loans. Apart from the third party funding, these securitisations did not impact ING Bank’s Consolidated statement of financial position and profit or loss.
2. Consolidated ING originated Covered bond programme (CBC) ING Group has entered into a covered bond programme. Under the covered bond programme ING issues bonds. The payment of interest and principal is guaranteed by the ING administered structured entities, ING Covered Bond Company B.V., and ING SB Covered Bond Company B.V. In order for these entities to fulfil their guarantee, ING legally transfers mainly Dutch mortgage loans originated by ING. Furthermore ING offers protection against deterioration of the mortgage loans. The entities are consolidated by ING Group.
ING Bank offers various investment fund products to its clients. ING Bank does not invest in these investment funds for its own account nor acts as the fund manager.
49 Related parties In the normal course of business, ING Group enters into various transactions with related parties. Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. Related parties of ING Group include, among others, its subsidiaries, associates, joint ventures, key management personnel, and various defined benefit and contribution plans. For post-employment benefit plans, reference is made to Note 35 ‘Pension and other postemployment benefits’. Transactions between related parties include rendering or receiving of services, leases, transfers under finance arrangements and provisions of guarantees or collateral. There are no significant provisions for doubtful debts or individually significant bad debt expenses recognised on outstanding balances with related parties.
Associates and joint ventures 1 Includes transactions with NN Group until ING lost significant influence in January 2016.
Risk management supports the Executive Board in formulating the risk appetite, strategies, policies, limits and provides a review, oversight and support function throughout ING on risk-related items. The main financial risks ING is exposed to are credit risk (including transfer risk), market risk (including interest rate, equity, real estate, credit spread, and foreign exchange risks), funding & liquidity risk and business risk. Furthermore, ING is also exposed to non-financial risks, e.g. operational and compliance risks. The ING Group Chief Risk Officer (CRO) is also the CRO of ING Bank. Therefore, he is responsible for the day-to-day Risk Management of the Group and the Bank. The way ING manages these risks on a day-to-day basis is described in this Risk Management section. The ‘Risk management’ section in the Integrated Annual Report is an integral part of the audited consolidated annual accounts.
As a member of the EB and the MBB, the CRO ensures that risk management issues are heard and discussed at the highest level, thus establishing the appropriate tone at the top. The CRO steers a functional, independent risk organisation both at head-office and business-unit levels, which supports the commercial departments in their decision-making, but at the same time has sufficient countervailing power to keep the agreed risk profile within the risk tolerance. Every quarter, the CRO reports to the SB committees on ING’s risk appetite levels and on ING’s risk profile. In addition, the CRO briefs the SB committees on developments in internal and external risk related issues and ensures the SB committees understand specific risk concepts.
The local (regional and BU) CRO is responsible for the analysis, control and management of risks across the whole value chain (from front to back office), based on which a robust control structure is maintained.
In addition, the CRO has one staff department in place: • Risk & Capital Integration (R&CI) reports functionally to the CRO and is responsible for overarching risk topics such as risk appetite, disclosures, recovery and resolution planning and stress testing. Also, R&CI is involved in capital and balance sheet planning, and managing the ICAAP (Internal Capital Adequacy Assessment Process). Until end 2017, Risk and Capital Integration had a double reporting line, functionally to the CRO and hierarchically to the Head of Capital Management. As of 1 January 2018 the double reporting line has been changed into a single reporting line to the CRO.
The MRM department independently reviews the performance of ING's risk models. In addition to (i) evaluating the underlying model parameters, (ii) ensuring continued applicability of the models for the relevant portfolios, and (iii) discussing the model performance with front office and risk users of the models, MRM also (iv) tests the observed performance of a model (and its components) with the predicted level. Where the observed results deviate from the predicted results becomes a candidate for either re-calibration or redevelopment.
Commonly seen as norms and traditions of behaviour of individuals and of groups within an organisation, risk culture determines the way in which employees identify, understand, discuss, and act on the risks the organisation is confronted with and the risks it takes. This is a continuous long-term commitment and journey. In this respect, The Orange Code has been set as a declaration of who we are. It describes what we can expect from each other when we turn up to work each day. It is a set of standards that we collectively value, strive to live up to, and invite others to measure us by.
In the Netherlands, employees of all financial institutions – and that includes ING – are required to take the Banker’s Oath. This legal requirement came into force on 1 April 2015 as part of the joint approach from all banks, known as ‘Future-oriented Banking'. With the introduction of such social regulation, the revision of the Dutch Banking Code and the implementation of a banker's oath (with the associated rules of conduct and disciplinary law), the banks want to show to society what they stand for and what they can be held accountable for, both as individual banks and the banking sector as a whole.
Lastly, ING aims to align its remuneration policy with its risk profile and the interests of all stakeholders. For more information on ING’s compensation and benefits policies and its relation to the risk taken, please refer to the “Capital Requirements Regulation (CRR) Remuneration disclosure” published on the corporate website ing.com.
The solvency risk appetite is closely aligned with capital management activities and policies. ING has determined tolerances for its risk-weighted solvency position (CET1 ratio), for non-risk-weighted solvency (leverage ratio), for a more economic value based solvency (economic capital utilisation expressed via the Overall Supervisory Review and Evaluation Process (SREP) Capital Requirement) and for a separate forward-looking risk appetite for earnings variability (earnings at risk). The CET1 ratio and leverage solvency risk appetite statements as well as profitability statement are not only compared to the actual reported level, but also include the potential impact of a standardised and pre-determined 1-in-10-year stress event (i.e. at a 90% confidence level with a 1year horizon). Based on this mild stress scenario, the impact on ING’s earnings, revaluation reserve and risk-weighted assets (RWA) is calculated (these are labelled earnings-at-risk, revaluation reserve-at-risk and RWA-at-risk). In addition, the impact on economic value is calculated where a more severe stress scenario for the economic capital is adhered to. These stressed figures are used as input for a two-year simulation which depicts the developments of ING’s solvency level versus its risk appetite.
The concentration risk appetite set at the consolidated level are directly translated into corresponding limits in the underlying risk appetite statements for profitability risk, credit risk, market risk and funding & liquidity risk. Further details may be found in the dedicated sections (credit risk, market risk and funding & liquidity risk).
On compliance risk, ING aims to meet its obligations, to adhere to the spirit as well as to the letter of applicable laws and regulation, ING policies and minimum standards, the values and behaviours as defined in the Orange Code, and to act upon identified compliance breaches swiftly and diligently.
Step 4. Monitor and manage underlying risk limits In order to verify that it remains within the risk appetite framework as it is executing its budget, ING reports its risk positions vis-à-vis its limits on a regular basis towards senior management committees. The Risk and Capital Management Report reflecting the exposure of ING against the risk appetite targets is submitted quarterly, after discussion by F&RC, to the EB and the MBB and to the (Risk Committee of the) SB.
Stress testing Stress testing is an important risk management tool that provides input for strategic decisions and capital planning. The purpose of stress testing is to assess the impact of plausible but severe stress scenarios on ING’s capital and liquidity position. Stress test provides insights in the vulnerabilities of certain portfolios, with regards to adverse macroeconomic circumstances, stressed financial markets and changes in the (geo)political climate.
Process The stress testing process of ING consists of several stages, which are summarised in the diagram below.
Step 2. Scenario parameter setting After determination of the high level scenarios, further elaboration of them is necessary. Scope, assumptions and input parameters such as GDP growth, unemployment rates, interest rates and real estate price changes are defined for the countries involved in the exercise. The parameters are discussed in the STSC and subsequently in the F&RC.
As for the previous steps, the calculated impacts of the scenario are first discussed and endorsed in the STSC followed by the BF&RC. Depending on the outcomes of the stress test and the likelihood of the scenario, mitigating actions may be proposed. Approval of these mitigating actions takes place in the EB and the MBB.
Targeted Review of Internal Models In order to make capital levels more comparable and to reduce variability in banks’ internal models, the European Central Bank (ECB) introduced the Targeted Review of Internal Models (TRIM) in June 2017 to assess reliability and comparability between banks’ models. The TRIM aims to create a level playing field by harmonising the regulatory guidance around internal models, and the ultimate goal is to restore trust in the use of internal models by European banks. The operating consequences of the TRIM exercise have been significant. The TRIM is expected to finalise in 2019, and could impact ING through more stringent regulation on internal models.
During 2017, several changes were made to our top and emerging risks. The top risks in 2017 are still related to the Brexit decision, cybercrime and persistent low interest rates. Also, ‘Climate change risk’ remains an emerging risk, reflecting the impact a deterioration of the climate may have for the financial position and/or reputation of ING.
However, given the current unusual situation with persistent low interest rates, ING intensified the management of its interest-rate risk exposure and successfully increased the Net Interest Margin (NIM) on its lending and customer deposits in 2017. On mortgages, the prepayment incentive for clients is at a relatively high level because of the difference between the rates of the existing mortgage portfolio and the prevailing low market rates. On savings, NII and NIM remained stable, while room for further reduction of client rates on savings deposits is almost absent.
Last year’s decision of the United Kingdom to leave the European Union (‘Brexit’) remains a major political and economic event that continues to effect sentiment. Economic growth in the UK has slowed against a background of continued uncertainty about the future relationship with the European Union, and increased volatility is present due to the uncertainty of a soft or hard Brexit outcome. Although ING has activities in the UK through the Wholesale Banking (WB) business line, no material asset quality deterioration following the Brexit decision has taken place.
Another element which can affect the real economy and gives rise to geopolitical risk is the instability in international relationships. In this perspective, ING continued to carefully monitor international developments. In addition, rising populism due to increasing social inequality, polarisation and unemployment is seen as a material geopolitical risk. As a consequence of the rising populism in the eurozone, a euro breakup is considered as a potential adverse event.
Credit risk Introduction Credit risk is the risk of loss from the default and/or credit rating deterioration of clients. Credit risks arise in ING's lending, financial markets and investment activities. The credit risk section provides information on how ING measures, monitors and manages credit risk and gives an insight into the portfolio from a credit risk perspective.
Within ING, the ultimate approval authority for credit proposals resides with the MBB. The MBB has delegated authorities based on amounts, tenors and risk ratings to lower levels in the organisation. Transactions are approved via a dual signatory approval system that requires an individual sign-off from both front office and credit risk management. For larger and higher risk credits a committee structure exists whereby the credit risk chair takes the final decision with advice from the respective committee members, thereby ensuring accountability. Retail business units have delegated authority to decide within policies and mandates approved by credit risk. Any decisions outside those policies or above the delegated mandate require a specific credit risk approval.
The credit risk function encompasses the following activities: • Measuring, monitoring and managing credit risks in the bank’s portfolio; • Challenging and approving new and modified transactions and borrower reviews; • Managing the levels of provisioning and risk costs, and advising on impairments; and • Providing consistent credit risk policies, systems and tools to manage the credit lifecycle of all activities.
For the reconciliation between credit risk outstanding categories and financial assets we refer to table below: Credit risk categories Mainly relates to: Notes in the Annual Accounts Lending risk -Loans and advances to customers -Loans and advances to banks -Cash and balances with central banks -Off-balance sheet items e.g. obligations under financial guarantees and letters of credit and undrawn credit facilities
Note 2 Cash and balances with central banks Note 3 Loans and advances to banks Note 6 Loans and advances to customers
Note 4 Financial assets at fair value through profit or loss Note 13 Financial liabilities at fair value through profit or loss
Settlement risk -Financial assets at fair value through profit or loss (trading assets and non-trading derivatives) -Financial liabilities at fair value through profit or loss (trading assets and non-trading derivatives) -Investments (available-for-sale and held-to-maturity) -Amounts to be settled
Credit Risk Appetite and Concentration Risk Framework The credit risk appetite and concentration risk framework enables ING to prevent undesired high levels of credit risk and credit concentrations within various levels of the ING portfolio. It is derived from the following two concepts: • Boundaries: a cap on the maximum event loss based on consolidated pre-tax result on each of the metrics of its risk appetite framework as well as its concentration risk framework (effectively Country Risk, Single Name, and Industry Sector). • Instruments: supporting metrics, specifically for the concentration risk framework, which sets hard limits based on internal economic capital.
• Industry sector concentration (systemic risk): substantial increase of the ING risk profile due to the joint deterioration of a group of correlated counterparties, sensitive to the same external (macro-economic) factor(s) related to the industry sector it is part of.
Scenarios and stress tests Stress testing evaluates ING’s financial stability under severe but plausible stress scenarios and supports in decision-making that assures ING remains a financially going concern even after a severe event occurs. In addition to the bank-wide stress test framework as described in the Risk Management section, ING performs stress tests on a monthly basis in order to continually assess the portfolio risks and concentrations. These stress tests are consistent with the stress scenario as established in the group wide credit risk appetite framework. The stress tests are reviewed in the Risk & Capital Integration team and potential management actions are proposed, if necessary.
Next to the periodical pre-determined stress test related to CRWA-at-Risk, ad-hoc stress tests based on severe but plausible scenarios are performed. These stress tests can be for internal purposes or at the request of the regulators and are input for future Credit Risk Appetite setting. Stress testing is used as an additional safety net. In addition to the Pillar 1 and Pillar 2 capital calculations, based on the results of various stress tests, ING ensures that adequate levels of capital (and liquidity) are available to sustain such severe but plausible scenarios.
The snapshot of ING’s ESR Framework is as follows: The ESR policy framework is fully embedded in ING’s mainstream approval processes and requires involvement of the following areas globally: Client Assessment: • Customer Domain Units (CDU): verify compliance with the applicable ESR policy. CDUs are responsible to assure that information in the Client ESR Assessment has been duly completed.
• Follows mainstream credit approval process • For all corporate transactions on legal entity level • Checks on country, impacts on indigenous peoples, alleged labour and human rights violotions, sensitive activities, media/NGO coverage
• Includes checks on ESR restrictions • Aligned with Risk Managers globally
Risk based drivers ING’s portfolio is dominated by secured lending especially in the areas of residential mortgages, leasing and commercial real estate. Secured lending tends to have a much lower LGD, given the collateral involved, which is a key driver of RWA calculations. Therefore the regulatory formula for residential mortgages tends to result in lower RWA, all other factors being equal.
Comparing capital levels across banks is a challenging exercise because of different risk profiles, differences in risk based drivers, practice based drivers and the regulatory environment (e.g. advanced internal rating based approach or the standardised approach). These factors have a substantial impact on the regulatory capital/RWA of a financial institution. ING continues to work with industry groups and strives to adhere to the latest BIS and EBA recommendations to improve the transparent reporting of the bank’s capital calculations.
• Exposure Class: The fifth element is the exposure class (a regulatory prescribed grouping of a common obligor type or product type) which is a driver for the correlation factor. To calculate risk-weighted assets the default correlation between a transaction and all other transactions in the portfolio is taken into account.
Securitisations ING has implemented the AIRB approach for credit risk. As a consequence, ING 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 under the RBA include Standard & Poor’s, Fitch and Moody’s.
• Scenario Simulation approach (Monte Carlo approach): Scenario Simulation approach is the most complex of the methods for PS risk calculations. This approach takes into account daily market conditions, including correlations between the risk factors and portfolio benefits. This Monte Carlo approach is currently used in ING for the largest volume of derivative products such as foreign exchange (FX) and interest rate derivatives.
Risk ratings assigned to clients are regularly, at least annually, reviewed, and the performance of the underlying models regularly monitored. Over 94% of ING’s credit exposures have been rated using one of the in-house developed PD rating models. Within the AIRB Portfolio, the level of Regulatory compliant ratings exceeds 99% coverage by exposure. Some of these models are global in nature, such as models for Large Corporates, Commercial Banks, Insurance Companies, Central Governments, Local Governments, Funds, Fund Managers, Project Finance and Leveraged Companies. While other models are more regional or country specific, such as PD models for Small Medium Enterprise (SME) companies in Central Europe, the Netherlands, Belgium, Luxembourg, as well as residential mortgage and consumer loan models in the various retail markets.
Models used for exposure classes ING has developed PD, EAD and LGD models for Wholesale Banking and Retail Banking portfolios. PD, EAD and LGD models are subject to CTRC (or in some delegated cases MDC) approval and changes which significantly impact the results require approval from the regulator before implementation. By nature, the above described exposure classes have different, specific characteristics. To capture these specific characteristics and to have suitable valuations and analyses in place, Model Development is continuously updating and developing models within each exposure class. In total, ING makes use of over 72 different internal models.
Changes in 2017 to credit risk models Model changes in 2017 were largely driven by follow up on existing regulatory guidance and overall resulted in a EUR 3.4 billion increase in RWA. The largest change was due to the introduction of a new PD and LGD model for the Dutch Mortgages portfolio. This update led to an increase of EUR 3.9 billion in RWA driven by the deterioration of the LGD. The recalibration of the German Mortgages models resulted in a decrease in RWA of EUR 1.2 billion.
The customer-centric data model conforms to the three core business needs of ING: • To transact efficiently with our counterparties; • To be compliant with our internal and external obligations; and • To monitor the risks we undertake.
The credit risk data lifecycle describes the interlinked stages of the lifecycle from data definition to data usage as shown in the figure below: Definitions Capture Exchange
Credit risk portfolio ING’s credit exposure is mainly related to traditional lending to individuals and businesses followed by investments in bonds and other securitised assets. Loans to individuals are mainly mortgage loans secured by residential property. Loans (including guarantees issued) to businesses are often collateralised, but can be unsecured based on internal analysis of the borrowers’ creditworthiness. Bonds in the investment portfolio are generally unsecured. Securitised assets such as mortgage backed securities and asset backed securities are secured by the pro rata portion of the underlying diversified pool of assets (commercial or residential mortgages, car loans and/or other assets) held by the security‘s issuer. The last major credit risk source involves pre-settlement exposures which arise from trading activities, including derivatives, repurchase transactions and securities lending/borrowing transactions. This is also identified as counterparty credit risk.
Lending Investment Money Market Pre-Settlement Total Total (ALL) 2016 AIRB SA AIRB SA AIRB SA AIRB SA AIRB SA AIRB + SA
During 2017, the total ING portfolio size decreased by 0.5% to EUR 842 billion READ (EUR 774 billion outstandings) mainly driven by foreign exchange rate changes partly offset by volume growth. The decrease related to foreign exchange rate changes was driven by the depreciation of the US Dollar (12.2%) and Australian Dollar (5.1%) against the euro. The concentration in SA portfolio increased mainly driven by a combination of volume growth and portfolio shifts from AIRB to SA approach.
The concentration in corporates slightly decreased mainly caused by shift in exposure from corporate lending SA bucket to residential mortgage SA bucket to align the scope with regular capital reporting practices. The increase in AIRB bucket was mainly driven by volume growth in the Wholesale Banking portfolios of Transaction Services, Corporate & Financial Institutions (C&FI) Lending and Structured Finance. The volume growth in C&FI Lending was mainly observed in Belgium and Germany, growth in Transaction Services was mainly witnessed in Asia while growth in Structured Finance was mainly observed in Europe. The growth was partly offset by the depreciation of the US Dollar which mainly impacted the Structured Finance portfolio.
Risk classes: ING Bank portfolio per line of business, as % of total outstandings1,2,3
The concentration in Non-Bank Financial Institutions decreased due to lower pre-settlement exposures in Wholesale Banking Netherlands and lower exposures in covered bonds and asset backed securities in Retail Challengers & Growth Markets. Further, the depreciation of the US Dollar against the euro caused a decrease in concentration in the Transportation & Logistics and Non-Bank Financial Institutions sectors within Wholesale Banking. Within Central Banks, the increase in concentration in Corporate Line is explained by the shift of the regulatory reserve deposits at the Dutch Central Bank from the Wholesale Banking. Following this shift the proportions of the other buckets in Corporate Line decreased.
Covers This section provides insight on the type of covers and to which extent a loan is collateralised. The cover disclosures are presented by risk category: Lending, Investment, Money Market and Pre-settlement. The cover amounts are presented by the most relevant collateral forms, being mortgages and financial collateral (cash and securities), and the most relevant third party obligation being guarantees. ING obtains covers which are eligible for credit risk mitigation under CRR/CRDIV, as well as those that are not eligible. Collateral covering financial market transactions is valued on a daily basis. To mitigate the credit risk arising from Financial Markets transactions, the bank enters into legal agreements exchanging financial collateral (high quality government bonds and cash).
A significant part of ING’s residential mortgage portfolio is provided in the Netherlands (42.0%), followed by other main markets such as Germany (24.7%), Belgium & Luxembourg (11.8%) and Australia (10.7%). Given the size of the Dutch mortgage portfolio, the valuation methodology to determine the cover values for the Dutch residential mortgages is provided below.
ING Bank’s residential mortgage outstandings increased mainly in Australia, Germany and Spain where the coverage ratio is nearly 100% and which further improved the VTL distribution. Mortgage outstandings in the Netherlands continued to decrease due to repayments combined with the run-off and transfer of WU Bank mortgages to NN Bank. Overall NPLs have shown a substantial improvement, especially in the Netherlands.
The use of Central Clearing Parties (CCPs) is becoming more important for the derivatives business and as a consequence the credit risk is shifting from Counterparties to CCPs. In 2017, the notional Pre-Settlement exposure that was cleared via CCPs formed 56.8% of the total notional (55.5% in 2016).
Belgium 5,165 3,761 2,880 2,215 5,463 3,368 2,871 2,455 Germany 4,481 2,091 1,397 2,264 5,300 2,757 1,842 3,479 Netherlands 6,701 4,174 2,771 4,062 9,146 5,859 3,741 4,848 Rest of Europe 104,788 22,404 17,637 24,260 124,173 31,656 26,648 25,481
Credit quality Following, the somewhat higher credit risk levels seen as a result of the financial crisis and economic downturn, credit quality has been improving since 2014 and also continued the improving trend in 2017.
Past due for 61–90 days 163 70 1 Based on consumer lending. The amount of past due but performing financial assets in respect of non-lending activities was not significant.
Aging analysis (past due but performing): ING Bank consumer lending portfolio, outstandings1
• Restructuring: A client is classified as Restructuring when there are concerns about the client’s financial stability, credit worthiness and/or its ability to repay, but where the situation does not call for recalling or acceleration of facilities or liquidating the collateral. ING’s actions aim to maintain the going concern status of the client by: • Restoring the client’s financial stability; • Supporting the client’s turnaround; • Restoring the balance between debt and equity; and • Restructuring the debt to a sustainable situation.
• Recovery: A client is classified as in Recovery when ING and/or the client concludes that the client’s financial situation cannot be restored and a decision is made to end the (credit) relationship or even to enter into bankruptcy. ING will prefer an amicable exit, but will enforce and liquidate collateral or claim under the guarantees if deemed necessary.
The table below represents the breakdown by industry of credit risk outstanding for lending and investment positions that have been classified as non-performing.
Services 578 689 Food, Beverages & Personal Care 570 705 1 Economic sectors not specified in above overview are grouped in Other.
The overall amount of NPLs decreased in 2017, mainly witnessed in the Private Individuals and Real Estate sectors. The decrease in NPLs for Private Individuals was mainly due to the improved credit quality in the Retail Benelux portfolio as a result of the improved economic conditions in the Netherlands and Belgium. The decline in NPLs in the Real Estate sector was observed in Real Estate Finance Netherlands and was driven by both cures and write-offs. Other significant decreases were witnessed in Food, Beverages & Personal Care, General Industries, Services and Builders & Contractors. The overall decrease in NPLs was offset by an increase in NPLs in the Natural Resources portfolio, observed in Wholesale Banking Structured Finance Netherlands and Belgium, and was driven by a few clients becoming non-performing during 2017. The decreased NPLs in “Other” were driven by the industries Telecom, Retail, Automotive and Media.
• Incurred But Not Recognised (IBNR) provisions: are made for the ‘performing’ loan portfolio as an estimate or proxy for the losses/defaults that may have already occurred in the portfolio. The PD time horizon used in the calculation of IBNR provisions refers to the period during which an asset is impaired (in default), but not yet recognised as such - due to lack of objective evidence – and the moment that objective evidence of impairment occurs and becomes available to ING (‘loss emergence period’).
Net addition to loan loss provisions 284 367 117 347 274 260 676 974
The favourable trend in risk costs continued during the year 2017. ING Bank recorded EUR 676 million of risk costs in 2017, down from EUR 974 million in 2016. Risk costs improved to 22 basis points of the average RWA (2016: 31 basis points). The total stock of provisions decreased by EUR 0.7 billion to EUR 4.6 billion as net additions were more than offset by amounts written off. The provisions coverage ratio decreased to 37.1% (2016: 39.0%) driven by a stronger decrease in provisions than a decline in non-performing loan outstandings.
Exposures with forbearance measures can be either performing (Risk Ratings 1-19) or non-performing (Risk Ratings 20-22). ING applies criteria to move forborne exposures from non-performing to performing as well as criteria to remove the forbearance status that are consistent with the corresponding EBA standards. An exposure is reported as forborne for a minimum of two years, plus a probation period of one year is observed for forborne exposures to move from non-performing back to performing.
ING implemented its forbearance policy in 2014. In 2016 based on a detailed re-assessment of the relevant standards set by EBA and subsequent regulatory guidance, ING tightened the definitions under its forbearance policy. As a result of these revisions in definition and scope, performing forborne exposure recognized by ING increased significantly in 2016 as measures taken in previous periods were then recognized as forbearance. Examples of measures taken were commercially justifiable measures, modifications of covenants as well as waivers of covenant breaches.
Wholesale Banking As per end of December 2017, Wholesale Banking forborne assets amounted to a total of EUR 6.2 billion, which represented 2.1% of the total Wholesale Banking portfolio.
Retail Banking As per end of December 2017, Retail Banking forborne assets amounted to a total of EUR 5.7 billion, which represented 1.3% of the total Retail Banking portfolio.
• Risk identification is a joint effort of the first and second line of defence (the ‘three lines of defence governance’ model is explained in the risk governance paragraph of the general risk management section). Its goal is to detect potential new risks and changes in known risks; • Identified risks are assessed and measured by means of various risk metrics to determine the importance of the risk to ING and subsequently to identify the control measures needed; • Control measures used by ING include policies, procedures, minimum standards, limit frameworks, buffers and stress tests; • An important element of risk management is to continuously monitor whether the implemented risk controls are executed and complied with and check that the controls are effective; and • Market risk management results and findings are reported to the governing departments and approval bodies.
This market risk paragraph elaborates on the various elements of the risk management framework for: • Market risk economic capital for trading and banking books; • Market risks in the banking books; and • Market risks in the trading books.
Economic capital for market risk Economic capital for market risk is the economic capital necessary to withstand unexpected value movements due to changes in market variables and model risk.
Embedded options, e.g. the prepayment option and offered rate option in mortgages in the banking books, result in non-linear interest rate risk in the banking books. The embedded options are economically hedged using a delta-hedging methodology, leaving the mortgage portfolio exposed to convexity and volatility risk. For the calculation of economic capital for this non-linear interest rate risk ING performs a Monte Carlo simulation.
Risk transfer to Bank TreasuryRisk transfer to Bank Treasury Risk transfer to Bank Treasury
From an interest rate risk perspective the commercial activities can typically be divided into three main product types: savings and demand deposits, mortgages and loans. - Savings and demand deposits are generally invested with the goal to hedge their value and minimize the sensitivity of the margin to market interest rates. Interest rate risk can arise when there is a lag between savings rate adjustments versus adjustments experienced through market rates or when market rate changes cannot be passed on to clients. The interest rate risk is modelled based on the stability of the deposit and the pass through rate. This takes into account different elements, such as pricing strategies, volume developments and the level and shape of the yield curve. Savings volumes are typically assumed not to be sensitive to interest rate shocks; - Interests rate risk for mortgages arises through prepayment behaviour. In modelling this risk, interest rate dependent pre-payments are considered. Next to dependence on interest rates, modelled prepayment may include other effects such as loan to value, seasonality and age of the loan. In addition, the interest sensitivity of embedded offered rate options is considered; and - Wholesale Banking loanstypically do not experience interest rate prepayment behavior they are hedged from an interest rate risk perspective and therefore not contain significant convexity risk.
Customer behaviour in relation to mortgages, loans, savings and demand deposits is modelled, based on extensive research. Per business unit and product type, exposures are typically segmented into different portfolios based on expected client behaviour. For each of the segments, model parameters for example for the pass through rate and customer behaviour are determined based on historical data and expert opinion. Models are typically back tested at least semi-annually and updated when deemed necessary. Model parameters and the resulting risk measures are approved by (local) ALCO.
In the following sections, the interest rate risk exposures in the banking books are presented. ING uses risk measures based on both an earnings and a value perspective. Net Interest Income (NII)-at-Risk is used to provide the earnings perspective and the Net Present Value (NPV)-at-Risk and Basis Point Value (BPV) figures provide the value perspective. Please note that corrective management actions are not taken into account in these figures although price adjustments are included in the earnings risk measure.
Developments relating to IRRBB During 2017 ING implemented a number of refinements to the risk measurement for IRRBB following the review and update of the interest rate risk policy and minimum standards. The following refinements were implemented during 2017: - To accommodate interest rate scenarios to go negative, while in previous years the downward scenarios contained a floor of 0% on the interest rates (in line with regulatory guidelines).
ING Group Annual Report 2017 270 - Implementation of currency specific scenarios calculated from historical data aligned to the overall risk appetite framework, whereas previously the same scenario (+/-100bps) for different currencies was applied.
Year-on-year variance analysis The revised IRRBB measures explain to a large extent the change in NII-at-Risk, foremost the difference in the shock applied. Previous year the earnings sensitivity was calculated based on an instantaneous upward and downward floored scenario of 100bps while as of March 2017, the NII-at-Risk is calculated based on a gradual upward – and downward unfloored scenario. In 2016 the same scenario (+/-100bps) for different currencies was applied while as of 2017 currency specific scenarios were calculated.
unfloored floored parallel ▼ parallel ▲ parallel ▼ +100 bps By business Wholesale Banking 309 -184 -157 -19 Retail Banking Benelux -492 -468 -224 -287 Retail Challengers & Growth Markets -368 -17 328 -435 Corporate Line Banking 1,476 -1,404 115 -1,186 Total 926 -2,073 61 -1,926
Year-on-year variance analysis The revaluation reserve relating to equity securities held in the available-for-sale portfolio moved from EUR 2,656 million per year end 2016 to EUR 2,474 million per year end 2017. In 2017 the AFS portfolio slightly decreased by EUR 41 million to EUR 4.0 billion, the decrease in the value of the investment in Bank of Beijing and some sales of equity stakes was largely compensated by the increase in value of the stake in Kotak Mahindra Bank.
Main exposure arises from office buildings in own use located in Netherlands and Belgium (EUR 0.78 billion), as well as retail and residential exposures in Europe (EUR 0.08 billion).
Fair values of financial assets and liabilities ING aligns the pricing sources it uses with the Fair Value Hierarchy. The best evidence of Fair Value are published price quotations in active markets. Where quoted prices are not available, other pricing sources and valuation techniques are used to determine fair value.
Examples of other pricing sources are, independent market vendors, brokers, or recent transactions. The range of prices obtained from these 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.
FI-FM Risk has the role to challenge the valuation and pricing sources used in the valuation models by Front Office. FI-FM Risk performs independent price verification to ensure that valuations are correct. The independent price verification and valuation adjustments are confirmed in the local parameter committee. To ensure segregation of duties between Front Office and FI-FM Risk, the systems for pricing and price testing are secured in order to prevent unauthorised access.
Basel Committee/CRD IV ING follows the regulatory framework set out in the Capital Requirements Regulation (CRR/CRD IV) for its regulatory capital calculations. The BCBS is performing a Fundamental Review of the Trading Book (FRTB), which may have a significant impact on the Pillar I calculations. In December 2017 the Governors and Heads of Supervision (GHOS) presented the final Basel 3 update package, in this package the new BCBS target date for implementation and start of reporting of FRTB is 1 January 2022.
Incremental Risk Charge The IRC for ING is an estimate of the default and migration risks for unsecuritised credit products in the trading book, over a one-year capital horizon, with a 99.9% confidence level. The same IRC model is used for all legal entities within ING with market risk exposure in the trading portfolio. Non-securitised trading positions of ING, which are subject to specific interest rate risk included in the internal model approach for market risk regulatory capital, are in scope of the IRC model. By model choice, equity is excluded from the model. For the calculation of IRC, ING performs a Monte-Carlo simulation based on a Gaussian copula model. The asset correlations used in the Gaussian copula model are determined using the IRB correlation formula. The rating change is simulated for all issuers over the different liquidity horizons (i.e. time required to liquidate the position or hedge all significant risks) within one year. Movements across different rating categories and probabilities of default are governed by a credit-ratings transition matrix. An external transition matrix is obtained from Standard & Poor’s (S&P). The financial impact is then determined for the simulated migration to default, or for the simulated migration to a different rating category, based on LGD or credit spread changes, respectively.
Stress Testing and Event Risk Stress Testing and Event Risk are valuable risk management tools. Event Risk evaluates the bank’s financial stability under severe but plausible stress scenarios and assists in decision-making aiming to maintain the bank being a financially healthy going-concern institution after a severe event occurs. In addition to the bank-wide stress test framework as described in the stress testing section, FIFM Risk performs separate stressed scenario tests under Event Risk framework to monitor market risks under extreme market conditions. Since VaR in general does not produce an estimate of the potential losses that can occur as a result of extreme market movements, ING uses structured stressed scenario tests to calculate Event Risk for monitoring the market risk under these extreme conditions. Event Risk is based on historical as well as hypothetical extreme scenarios. The result is an estimate of the profit and loss caused by a potential event and its world-wide impact for ING. The Event Risk number for the ING trading activity is generated on a weekly basis. Like VaR, Event Risk is limited by ALCO Bank.
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 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.
amounts in millions of euros 2017 2016 VaR (10 day 99%) 1 Maximum value 43 64 2 Average value 22 33 3 Minimum value 14 9 4 Period end 17 36 Stressed VaR (10 day 99%) 5 Maximum value 96 131 6 Average value 56 72 7 Minimum value 33 40 8 Period end 67 84 Incremental Risk Charge (99.9%) 9 Maximum value 158 292 10 Average value 114 207 11 Minimum value 78 120 12 Period end 78 120 Comprehensive Risk capital charge (99.9%) 13 Maximum value n/a n/a 14 Average value n/a n/a 15 Minimum value n/a n/a 16 Period end n/a n/a
Risk position changes were also reflected in the 10 day VaR and 10 day Stressed VaR statistics. Compared to 10 day VaR in 2016, in 2017 position changes led to lower maximum, average, and a lower 10 day VaR at year-end. Similar dynamics are observed in 10 day Stressed VaR. The overall decrease in IRC in 2017 was largely caused by decreased debt exposures to a number of sovereigns.
Credit Spread (CSO12) Credit Spread (CSO12) United States 341 United States 333 Supranational -92 Germany 173 India -78 Belgium 74 France 63 India -38 Netherlands -60 Poland -38 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.
Bank Treasury and Capital Management are 1st line of defence functions and its main funding and liquidity responsibilities are to manage ING’s (regulatory) liquidity and funding position. Bank Treasury together with Capital Management are ING’s primary contacts to the market for long and short term funding. In November 2017, it was approved to merge Bank Treasury and Capital Management into a new department named Group Treasury. This merge is expected to be completed by June 2018.
ING also monitors an internal net liquidity position metric, which is reported on a consolidated (bank) level for the main entities and split in euro and US Dollar. On a monthly basis ING reports the Liquidity Coverage Ratio (LCR) and an internally defined stress scenario related to a specific time-to-survive period. Additionally, on a quarterly basis, ING reports a number of internally defined stress scenarios related to specific time-to-survive periods as well as the Net Stable Funding Ratio (NSFR) which is reported based on EBA guidance.
In the contingency funding plan, contingency liquidity risk is addressed which specifically relates to the organisation and planning of liquidity management in time of stress. The contingency funding plans are developed in line with the ING Recovery Plan and are tested on a regular basis, both centrally and at business unit level.
ING believes that an effective control environment is essential to build and maintain sustainable businesses, and preserves and enhances the trust of its customers, employees and shareholders. The Orange Code sets the foundation for the high ethical standards ING expects from all its employees, business activities and partners. The Orange Code is a manifesto that describes our way of working. It is comprised of ING Values, requiring all staff to act with integrity, whilst being honest, prudent and responsible - and the ING Behaviours - our way of being that makes us different from the rest.
Risk & Control Self-Assessment Identification and assessment (RCSA) of non-financial risks inherent to ING products, activities, people, processes and systems provide management with an understanding of the operational risk profile. Based on the identification and assessment, internal controls are designed for mitigation of risks to remain within the risk appetite.
Business units and departments perform regular monitoring activities, BEAs and Risk & Control Self-Assessments (RCSAs) to identify and assess risks. These are conducted with involvement of the business and their ORM, IRM, Compliance and/or Legal departments. Based on the results of the risk assessment, response measures must be determined for the identified risks beyond the risk appetite.
The risk appetite (defined as the acceptable and authorised maximum level of risk) is set by the Supervisory Board based on a proposal made by the Bank NFRC and approved by the EB and MBB. Adherence to this risk appetite is monitored quarterly through the NFR Dashboard which reports the key non-financial risk exposures. The NFR Dashboard provides management at country, divisional and bank level with an overview of key risks within the non-financial risk areas including compliance risks, information security risks, continuity risks, control & processing risks, fraud, unauthorised activities risks, and personal and physical security risks, enabling management to focus and set priorities.
User Access Management (UAM) User Access Management (UAM) is an important element of our control framework to mitigate unauthorized and / or inappropriate access to our data and information. The standards of controls on UAM are high and best practices illustrate that the trends are towards further increasing requirements, resulting in a updated set of UAM requirements in 2017. We have started compliance testing and identified control deficiencies related to UAM at an early stage in 2017. A dedicated central UAM team coordinated, assessed, monitored and tracked remediation efforts that resulted in early response and early mitigation of deficiencies due to increased focus by the MBB, senior management and ING staff. These ongoing global initiatives resulted in a significant improvement in 2017. In 2018, management continue to enhance the internal controls, mitigation and monitoring the progress of mitigation and remediation.
Controls aiming to mitigate the compliance risks associated with the above mentioned risk areas are designed and applied to the dayto -day processes in the bank. The effectiveness of the controls is tested periodically, and senior management has responsibility that their processes are compliant with applicable laws and regulations, ING’s internal policies and the Orange Code.
The FEC Policy and Minimum Standards set the requirements for all ING entities to guard against any involvement in criminal activity. The requirements in the FEC Policy cover minimum standards and controls related to: money laundering, terrorist financing, export trade controls, proliferation financing, sanctions (economic, financial and trade) and countries designated by ING as Ultra High Risk Countries (UHRC).
Main developments in 2017 Regulatory developments Compliance with applicable laws and regulations is resource-intensive. Banks continue to be faced with new and increasingly onerous regulatory requirements, and we expect the scope and extent of regulations in the jurisdictions in which we operate to generally increase further.
Many countries, including the Netherlands, have entered into agreements (‘intergovernmental agreements’ or ‘IGAs’) with the US to facilitate the type of information reporting required under FATCA. While the existence of IGAs will not eliminate the risk of the withholding described above, these agreements are expected to reduce that risk for financial institutions and investors in countries that have entered into IGAs. IGAs often require financial institutions in those countries to report information on their US account holders to the taxing authorities of those countries, who then passes the information to the IRS.
Governance and risk management The governance and management of Business Risk differs from the risk types that have been described in the sections before. In the course of 2017 ING has developed explicit risk appetite statements regarding business risk, focusing on earnings stability and diversification of the business mix, as avoiding to put all eggs in one basket reduces the risk that volumes and/or margins will suddenly drop due to unexpected changes in the business environment for certain markets and products. Furthermore, the underlying risk types (expense risk and volume-margin risk) are also mitigated and managed in a different way. Expense risk is monitored and managed via the financial performance of the bank and the local units, whereby the reported expense numbers are compared on a quarterly basis with the 2020 Ambition of having a cost/income ratio between 50% and 52%. Deviations from this ambition are monitored as part of the financial projections that are discussed continuously within different parts of the organisation.
Capital management Objectives ING Group Capital Management (Capital Management) is responsible for the adequate capitalisation given regulatory constraints of ING Group and ING Bank entities at all times in order to manage the risk associated with ING’s business activities. This involves not only the management, planning and allocation of capital within ING Group, ING Bank and its various entities, but also the necessary capital market transactions, term (capital) funding and risk management transactions. ING takes an integrated approach to assess the adequacy of its capital position in relation to its risk profile and its operating environment. This implies taking into account the interests of its various stakeholders. Capital Management takes into account the metrics and requirements of regulators, rating agencies and internal risk based boundaries such as defined in the Risk Appetite Framework.
ING applies the following main capital definitions: • Common equity Tier 1 capital, Tier 1 capital and Total capital – Common equity Tier 1 capital is defined as shareholders’ equity less regulatory adjustments. Common equity Tier 1 capital including Additional Tier 1 (hybrid) securities and other regulatory adjustments is defined as Tier 1 capital. Total Capital is Tier 1 capital including subordinated Tier 2 liabilities and 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 deterministic 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.
To support orderly resolution, ING is required to meet minimum requirements for own funds and eligible liabilities (MREL). In addition, ING as a Global Systemically Important Bank (G-SIB) needs to comply with the total loss absorption capacity (TLAC) proposal published by the Financial Stability Board (FSB) in November 2015. The TLAC standard is being incorporated in the proposed Capital Requirements Directive and Bank Recovery and Resolution Directive revision. This legislation is not yet finalised. To improve the loss absorbing capacity for TLAC/MREL regulations ING Groep NV issued EUR 6 billion of senior HoldCo debt in 2017.
At the end of January 2017, the Single Resolution Board informed ING that it supports the designation of ING Group as the single point of entry for resolution purposes. Henceforth, ING Group will be the issuing entity for all TLAC/ MREL eligible debt consisting of additional Tier 1, Tier 2 and senior unsecured debt. The Single Resolution Board has not yet set legally binding MREL requirements. Any potential (higher) shortfall related to legally binding MREL requirements, new regulatory initiatives and balance sheet growth will be met with additional Group issuance.
G-SIBs will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, the TLAC term sheet requires ING to meet a minimum TLAC requirement including buffer requirements of at least 21.5% of the resolution group’s risk-weighted assets (TLAC RWA Minimum) as from 1 January 2019 and at least 23.5% as from 1 January 2022. Also minimum TLAC must also be at least 6% of the Basel III leverage ratio denominator (TLAC Leverage Ratio Exposure (LRE) Minimum) as from 1 January 2019, and at least 6.75% as from 1 January 2022. No buffer requirements will come on top of the leverage requirement.
Capital adequacy assessment As at 1 January 2014, the CRR/CRD IV capital rules entered into force. The capital position table reflects own funds according to the Basel III rules as specified in the CRR/CRD IV. As CRD IV will be phased-in gradually until 2019, the table shows the CRD IV positions according to the 2019 end-state rules and the 2017 rules. ING reports these metrics for ING Group and ING Bank. During 2017, ING Group and ING Bank were adequately capitalised.
− Interim profit not included in CET1 capital1 –1,670 –1,629 –1,670 –1,629
Available common equity Tier 1 capital 45,550 44,568 45,581 44,466 1 The interim profit not included in CET1 capital as per 31 December 2017 (EUR 1,670 million) includes EUR 44 million for 4Q2017 (YTD 4Q2017: EUR 2,603 million)
Basis of presentation ING Groep N.V. is a company domiciled in Amsterdam, the Netherlands and is registered at the Commercial Register of Amsterdam under number 33231073.
Changes in presentation In order to fully comply with the Resolution formats financial statements (Besluit modellen jaarrekening), the following adjustements have been made to the Consoidated statement of financial position. • Assets have been split into two subgroups, ‘Fixed assets’ and ‘Current assets’; and • Subgroups of ‘Non-current assets’ and ‘Current assets’ have been added.
Notes to the Parent company statement of financial position 1 Investments in group companies
Receivables from group companies include EUR 8,177 million subordinated loans provided by ING Group N.V. to ING Bank N.V. (2016: EUR 6,603 million).
As at 31 December 2017, the Share of participating interests reserve includes an amount of EUR 1,478 million (2016: EUR 1,325 million) related to the former Stichting Regio Bank and the former Stichting Vakbondsspaarbank SPN that cannot be freely distributed.
Changes in the composition of the group and other changes –333 –333
Reference is made to Note 18 ‘Equity’ and the Capital Management section in the Consolidated annual accounts for additional information, including restrictions with respect to dividend and repayment of capital.
Interest rate Year of issue Due date Notional amount in original currency 2017 2016
Reference is made to the ING Group Consolidated annual accounts, Note 17 ‘Subordinated loans’ and Note 18 ‘Equity’.
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 2017, EUR 193 million (2016: EUR 123 million) was pledged to ING Groep N.V. as collateral.
At the disposal of the General Meeting of Shareholders pursuant to Article 37 (5) of the Articles of Association 2,603
The Supervisory Board J. (Jeroen) van der Veer, chairman H.J.M. (Hermann-Josef) Lamberti, vice-chairman J.P. (Jan Peter) Balkenende E.F.C.B. (Eric) Boyer de la Giroday H.W. (Henk) Breukink M. (Mariana) Gheorghe R.W.P. (Robert) Reibestein G.J. (Hans) Wijers
The parent company annual accounts comprise: 1 The parent company statement of financial position as at 31 December 2017. 2 The parent company statement of profit or loss and statement of changes in equity for 2017. 3 The notes comprising a summary of the accounting policies and other explanatory information.
All components in scope for group reporting are audited by KPMG member firms. We sent detailed instructions to all component auditors, covering significant areas including the relevant risks of material misstatement and set out the information required to be reported to the group audit team. We visited component locations in the Netherlands, Belgium, Germany, United Kingdom and Singapore, where we performed reviews of the audit files from local auditors. We also performed an off-site file review of the work performed by the component auditor in Turkey. For all components in scope of the group audit, we held conference calls and/or physical meetings with the auditors of the components. During these visits, meetings and calls, the planning, risk assessment, procedures performed, findings and observations reported to the
Report of the Executive Board group auditor were discussed in more detail and any further work deemed necessary by the group audit team was then performed.
Estimation uncertainty with respect to the impairment losses on loans and advances to customers and bank Our observation We have reported to ING Group’s Audit Committee of the Supervisory Board our observations with respect to the loan loss provisioning and accordingly amended our audit approach. Overall, based on the procedures performed, we assess that the impairment losses on loans and advances to customers and loans and advances to banks are fairly stated in the annual accounts.
Risk of inappropriate access or changes to information technology and systems Description ING Group is dependent on its IT infrastructure for the reliability and continuity of its operations and financial reporting. ING Group continued to make efforts to improve IT systems and processes to increase the efficiency and effectiveness of the IT infrastructure and the reliability and continuity of the IT processing as well as to remediate deficiencies identified in the previous year. Our response Our audit approach relies to a large extent on automated controls and therefore procedures are designed to test access and change management controls over IT systems. Inappropriate access to an application or infrastructure could impact an automated control and therefore compromise financial data. Given the IT technical characteristics of this part of the audit, IT audit specialists are an integral part of our engagement team. IT audit specialists assessed the reliability and continuity of the IT environment, insofar as needed within the scope of our audit of the annual accounts. We examined the framework of governance over ING Group’s IT organisations and the IT general controls, access to programs and data, program changes and IT operations, including compensating controls where those were required. Our areas of focus related to the change management, logical access management and segregation of duties controls. Management has put efforts to remediate identified control deficiencies. We tested the design and operating effectiveness of user access management controls of the IT systems relevant for financial reporting. For those control deficiencies that were not remediated, we tested compensating controls that were not impacted by ineffective controls. For certain deficiencies during the period of remediation, 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.
Report on other legal and regulatory requirements Engagement We were engaged by the Annual General Meeting of Shareholders as auditor of ING Group on 11 May 2015, as of the audit for the year 2016 and have operated as statutory auditor ever since that financial year.
Description of responsibilities regarding the annual accounts Responsibilities of the Executive Board and the 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 Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Executive Board is responsible for such internal control as management determines is necessary to enable the preparation of the annual accounts that are free from material misstatement, whether due to fraud or error.
The Executive Board should disclose events and circumstances that may cast significant doubt on the Company’s ability to continue as a going concern in the annual accounts.
Our responsibilities for the audit of the annual accounts Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.
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 Germany and 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.
General Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. In 2008 and through early 2009, the financial services industry and the securities markets generally were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. Concerns over the slow economic recovery, the European sovereign debt crisis, the outcome of the negotiations between the UK and the EU following the UK referendum on EU membership (Brexit), the potential exit of other countries from the eurozone, increasing political instability in Europe, unemployment, the availability and cost of credit, credit spreads, quantitative easing within the eurozone through bond repurchases, the ECB’s targeted longer-term refinancing operation (‘TLTRO’), potential changes in US laws, regulations and policies governing financial regulation, foreign trade and foreign investment following the inauguration of a new US administration in January 2017, the level of US national debt and the US housing market, inflation/deflation levels, energy costs and geopolitical tensions around North Korea all have contributed to increased volatility and diminished expectations for the economy and the markets in recent years.
In addition, although the UK is not a member state of the eurozone, the decision of the UK to leave the EU remains a major political and economic event and may further destabilize the eurozone. The outcome of the negotiations between the UK and the EU 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. 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.
Declining interest rates or a prolonged period of low interest rates, as is currently the case, may result in: • lower earnings over time on investments, as reinvestments will earn lower rates; • increased prepayment or redemption of mortgages and fixed maturity securities in our investment portfolios, as well as increased prepayments of corporate loans. This as borrowers seek to borrow at lower interest rates potentially combined with lower credit spreads. Consequently, we may be required to reinvest the proceeds into assets at lower interest rates; • lower profitability as the result of a decrease in the spread between client rates earned on assets and client rates paid on savings, current account and other liabilities; • higher costs for certain derivative instruments that may be used to hedge certain of our product risks; • lower profitability since we may not be able to fully track the decline in interest rates in our savings rates;
• lower profitability since we may not always be entitled to impose surcharges to customers to compensate for the decline in interest rates; • lower profitability since we may have to pay a higher premium for the defined contribution scheme in the Netherlands for which the premium paid is dependent on interest rate developments and DNB's methodology for determining the ultimate forward rate; • lower interest rates may cause asset margins to decrease thereby lowering our results of operations. This may for example be the consequence of increased competition for investments as result of the low rates, thereby driving margins down; and/or
• a decrease in collateral values, • result in increased withdrawal of certain savings products, particularly those with fixed rates below market rates, • require us, as an issuer of securities, to pay higher interest rates on debt securities that we issue in the financial markets from time to time to finance our operations, which would increase our interest expenses and reduce our results of operations.
On the other hand, deflation experienced in our principal markets may also adversely affect our financial performance. In recent years, the risk of low inflation and even deflation (i.e., a continued period with negative rates of inflation) in the eurozone has materialized. Deflation may erode collateral values and diminish the quality of loans and cause a decrease in borrowing levels, which would negatively affect our business and results of operations.
Despite our efforts to maintain effective compliance procedures and to comply with applicable laws and regulations, we face the risk of non-compliance 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.
For European banks, the Basel III requirements were implemented through the Capital Requirements Regulation and Capital Requirements Directive IV (‘CRD IV Regulation’ and ‘CRD IV Directive’, respectively and together the ‘CRR’), which were adopted by the EC in June 2013 following approval by the European Parliament in April 2013. The CRD IV Regulation entered into force on 28 June 2013 and the CRD IV Directive on 17 July 2013, and all banks and investment firms in the EU (as opposed to the scope of the Basel III requirements, which apply to ‘internationally active banks’) were required to apply the new rules from 1 January 2014 in phases, with full implementation by 1 January 2019. The full impact of these rules, and any additional requirements for SIFIs or G-SIFIs, if and as applicable to the Group, will depend on how the CRD IV Directive is transposed into national laws in each Member State, including the extent to which national regulators and supervisors set more stringent limits and additional capital requirements or surcharges. In the Netherlands, the CRD IV Directive has been implemented through amendments to the Financial Supervision Act. In the next phase for regulatory requirements for banks’ risk and capital management, the regulators are focusing on the required capital calculations across banks. Since the start of the financial crisis there has been much debate on the risk-weighted capitalisation of banks, and specifically on whether internal models are appropriate for such purposes. These developments have suggested that stricter rules may be applied by a later framework. The BCBS released several consultative papers, containing proposals to change the methodologies for the calculation of capital requirements and is expected to issue further standards in this respect. Within these proposals BCBS suggests methods to calculate RWA using more standardised or simpler methods in order to achieve greater comparability, transparency and consistency. In November 2016, the EC proposed substantial amendments (commonly referred to as CRD V) to the CRR (including the CRD IV Directive), the BRRD and the Singe Resolution Mechanism Regulation to, among other things, implement these revisions in the EU legislation. Legislation is expected to be finalised in 2018. These proposals will likely impact the capital requirements for currently reported exposures (e.g. credit risk via revised standardised RWA floor) but may also lead to new capital requirements. The proposals cover multiple areas, including the Pillar 2 framework, the leverage ratio, mandatory restrictions on distributions, permission for reducing own funds and eligible liabilities, macroprudential tools, a new category of ‘non-preferred’ senior debt, the minimum requirement for own funds and eligible liabilities (MREL) and the integration of the TLAC standard into EU legislation. The proposals are to be considered by the European Parliament and the Council of the European Union and therefore remain subject to change. The final package of new legislation may not include all elements of the proposals and new or amended elements may be introduced through the course of the legislative process. Until the proposals are in final form, it is uncertain how the proposals will affect the Group or holders of its securities. The current proposals, as well as on the economic and financial environment at the time of implementation and beyond, can have a material impact on ING’s operations and financial condition and they may require the Group to seek additional capital.
Dodd-Frank established the Consumer Financial Protection Bureau (‘CFPB’) as an independent agency within the Federal Reserve to regulate consumer financial products and services offered primarily for personal, family or household purposes. The CFPB has significant authority to implement and enforce federal consumer financial laws, including the new protections established under Dodd- Frank, as well as the authority to identify and prohibit unfair, deceptive and abusive acts and practices. In addition, the CFPB has broad supervisory, examination and enforcement authority over certain consumer products, such as mortgage lending. Insurance products and services are not within the CFPB’s general jurisdiction, and broker-dealers and investment advisers are not subject to the CFPB’s jurisdiction when acting in their registered capacity.
Although the full impact of Dodd-Frank and its implementing regulations cannot be determined at this time, many of their requirements have had and may continue to have profound and/or adverse consequences for the financial services industry, including for us. Dodd-Frank, in its current form, could make it more expensive for us to conduct business, require us to make changes to our business model or satisfy increased capital requirements, subject us to greater regulatory scrutiny or to potential increases in whistleblower claims in light of the increased awards available to whistleblowers under Dodd-Frank and have a material effect on our results of operations or financial condition.
In addition, on 26 November 2015 the ‘Act on implementing the European framework for the recovery and resolution of banks and Investment firms’ (Implementatiewet Europees kader voor herstel en afwikkeling van banken en beleggingsondernemingen) came into force, implementing the ‘Bank Recovery and Resolution Directive’ (‘BRRD’) and partly amending the Intervention Act. Certain measures introduced by the Intervention Act were replaced, with respect to banking institutions, with measures based on the BRRD and the SRM Regulation, as described below. The BRRD came into effect on 2 July 2014. It includes, among other things, the obligation for institutions to draw up a recovery plan and for resolution authorities in the Member States to draw up a resolution plan, the resolution authorities’ power to take early intervention measures and the establishment of a European system of financing arrangements. The BRRD confers extensive resolution powers on the resolution authorities, including the power to require the sale of (part of a) business, to establish a bridge institution, to separate assets and to take bail-in measures. The stated aim of the BRRD is to provide supervisory authorities and resolution authorities with common tools and powers to address banking crises pre-emptively in order to safeguard financial stability and minimise taxpayers’ exposure to losses. In November 2016, the EC proposed amendments to the BRRD regarding the ranking of unsecured debt instruments in national insolvency proceedings (to include a new category of ‘non-preferred’ senior debt) and to enhance the stabilisation tools with the introduction of a moratorium tool.
In November 2015, the FSB published final standards on the adequacy of loss absorbing capacity held by G-SIBs. These comprise: (i) a set of principles on loss-absorbing and recapitalisation capacity of G-SIBs in resolution and (ii) a high level “termsheet” setting out an internationally agreed standard on the characteristics and adequacy of TLAC. The key requirement mandates G-SIBs to hold long-term debt that can be written down or converted into equity in the event that a G-SIB is put into liquidation, thereby providing a specific means of absorbing losses and recapitalising the G-SIB. The numbers are significant with the minimum standard requiring a G-SIB to hold TLAC of at least 16% of risk weighted assets and at least 6% of the leverage ratio denominator from 1 January 2019, and at least 18% and 6.75% respectively from 1 January 2022 on. In November 2016, the EC proposed amendments to the CRR and BRRD to implement the FSB’s minimum TLAC requirement for G-SIB that are intended to align the TLAC requirement with the minimum requirement for own funds and eligible liabilities (MREL). In October 2016, the BCBS issued a final standard regarding the regulatory capital treatments of TLAC holdings of other G-SBIBs, confirming that G-SIBs must deduct from their own TLAC exposures TLAC instruments and liabilities issued by other G-SIBS.
As of 1 October 2012, banks that are active in the Netherlands are subject to a bank tax pursuant to a tax regulation that also includes measures to moderate bonuses awarded to executives at such banks. Increased bank taxes in countries where the Group is active result in increased taxes on ING’s banking operations, which could negatively impact our operations, financial condition and liquidity. For information regarding historical regulatory costs incurred by ING, please refer inter alia to Note 26 ‘Other operating expenses’ to the consolidated financial statements.
Additional Tier 1 Securities In April 2015, ING issued USD 2.25 billion of Additional Tier 1 securities (‘AT1 Securities’) and in November 2016, ING issued USD 1 billion AT1 Securities. ING may issue additional AT1 Securities, or other instruments with similar terms (also known as contingent convertible bonds or ‘CoCos’), in the future. The Dutch parliament adopted Article 29a of the Dutch Corporate Income Tax Act of 1969 (Wet op de vennootschapsbelasting 1969) in 2015 to provide debt treatment of securities similar to the AT1 Securities for the purpose of Dutch corporate income tax (25% rate) and (indirectly) dividend withholding tax purposes (15% non-grossed up rate). The interest payment obligation of the AT1 Securities is EUR 90 million for the year 2015, EUR 135 million for 2016 and EUR 170 million for 2017. For 2015, 2016 and 2017 the amounts were treated by ING as a deductible interest expenses for Dutch corporate income tax purposes and as exempt for Dutch dividend withholding tax purposes. However, there is a risk that the EC will take the view, and that court would uphold such view if contested, that the tax deductibility of interest payments on the AT1 Securities is in contravention of the EC’s temporary state aid rules for assessing public support to financial institutions during the crisis (the ‘Revised State Aid Guidelines’). The Revised State Aid Guidelines provide for strengthened burden-sharing requirements, which require banks with capital needs to obtain shareholders’ and subordinated debt holders’ contributions before resorting to certain state aid measures. If a determination were made that deduction of interest payments on AT1 Securities and other similar securities, including those ING may issue in the future, is inconsistent with the Revised State Aid Guidelines, amounts ING would have to pay to the Dutch State with respect to interest payments that have previously been treated as an expense for Dutch corporate income tax purposes and that have been paid free of withholding taxes could be substantial, in particular if ING is unable to redeem the securities ( for the years 2015, 2016 and 2017 the total amount of payment in this respect could be EUR 158 million excluding interest). The terms of the AT1 Securities provide that ING can redeem the AT1 Securities only upon the occurrence of specific events (not including a determination that the tax treatment of the AT1 Securities is inconsistent with European rules against state aid) or after 5 years or 10 years (depending on the series) after their date of issuance.
We routinely execute a high volume of transactions, such as unsecured debt instruments, derivative transactions and equity investments with counterparties and customers in the financial services industry, including brokers and dealers, commercial and investment banks, mutual and hedge funds, insurance companies, institutional clients, futures clearing merchants, swap dealers, and other institutions, resulting in large periodic settlement amounts, which may result in our having significant credit exposure to one or more of such counterparties or customers. As a result, we could face concentration risk with respect to liabilities or amounts we expect to collect from specific counterparties and customers. We are exposed to increased counterparty risk as a result of recent financial institution failures and weakness and will continue to be exposed to the risk of loss if counterparty financial institutions fail or are otherwise unable to meet their obligations. A default by, or even concerns about the creditworthiness of, one or more of these counterparties or customers or other financial services institutions could therefore have an adverse effect on our results of operations or liquidity.
Investors also may not be able to enforce judgments of US courts under the US federal securities laws in courts outside the United States, including the Netherlands. The United States and the Netherlands do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, we may not be able to enforce in the Netherlands a final judgment for the payment of money rendered by any US federal or state court based on civil liability, even if the judgment is not based only on the US federal securities laws, unless a competent court in the Netherlands gives binding effect to the judgment.
• Through our ‘Power for Youth’ partnership with UNICEF, we aim to reach 335,000 adolescents in six developing countries by 2018, helping them to develop the social and financial knowledge and skills needed to build a brighter future.
• Our employee engagement score is above 70% (bi-annual). • ING achieved an overall engagement score of 77% in 2016. The next employee engagement survey will take place in 2018.
• EUR 76 million was spent on training and development in 2017
• The total extrapolated amount of carbon emissions decreased to 64 kilotonne CO2e from 74 in 2016 and has reduced 37% since 2014.
Understanding what matters the most Our materiality analysis approach combines quantitative and qualitative research which provides for a holistic understanding of stakeholder expectations and more effective engagement. a We used a three-year cycle with a quantitative assessment involving 1,500 respondents across five countries and six stakeholder groups in 2015, and qualitative assessments in 2016 and 2017 across business units. The results of this analysis guide us in our strategic decision-making, stakeholder engagement agenda and reporting framework.