Models used for exposure classes ING Bank has developed PD, EAD and LGD models for Commercial Banking and Retail Banking portfolios. PD, EAD and LGD models are subject to CRC (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, CRM is continuously updating and developing models within each exposure class. In total, CRM makes use of around 80 different internal models, which have the following features: › PD models: Probability of Default (PD) estimates the likelihood that a borrower defaults within a given time period based on an assessment of borrower specific information (e.g. financial information and qualitative information), payment behaviour and product related information. For the exposure classes Governments, Institutions and Corporates, with the exception of small and mediumsized entities, the models are mostly expert based scorecards based upon an assessment of borrower specific information. The small and medium-sized entities, Residential Mortgages and Retail models are country specific and are developed statistically or as a hybrid.
› LGD models: Loss Given Default is the measure of anticipated economic losses in a given Event of Default, taking into account the time value of money and includes both direct as well as indirect costs. LGD is facility-specific and expressed as a percentage of the EAD. LGD is largely a function of default scenarios, collateral, and guarantees obtained. Unsecured facilities typically have much higher anticipated loss ratios than secured facilities.
ING distinguishes four types of post default scenarios: › No Loss – Cure: the Borrower pays all overdue amounts (to the extend ING Bank is legally entitled to) and the asset becomes nondefaulted again. ING Bank does not experience any loss in the process. The relationship is not terminated. The borrower returns back to performing.
Securitisations ING Bank primarily plays three roles in its exposure to securitisations programs which are: ING Bank as Investor Retail Banking International has been the primary investor in securitisation transactions within ING Bank. Its core strategy was gathering customer deposits and providing lending products to its retail customers. The savings product is typically the first product to be launched in a country followed by mortgages and other retail products (current accounts, unsecured loans, credit cards etc.). The difference between retail liabilities and own originated retail assets is invested in high quality bonds and when appropriate in certain internal assets originated by other ING Bank entities. The ING Bank strategy has evolved to create more universal banks from the retail operations. In addition, the regulatory requirements for liquidity have become clarified over the last couple of years which decreases the attractiveness of securitisations as a form of liquid buffer. Therefore, ING Bank has greatly reduced its securitisation portfolio over the last years and the remaining portfolio is likely to run-off without replacement.
Credit risk policies ING credit risk policies provide for generic rules and roles and responsibilities that should always prevail within ING Bank. While allowance is given for discretionary variation to comply with local regulations, such variations must always comply with the content of a global ING Bank wide credit risk policy and approved by (local) credit risk. All credit risk policies are created according to the policy development standards and reviewed on a regular basis. Each policy has a credit risk sponsor and is created in close consultation with the various stakeholders within credit risk, front office and where applicable other corporate departments. All policies require approval by the Credit Risk Committee (CRC) and where applicable by the Global Credit Committee (GCC).
Credit risk systems and data standards The acceptance, maintenance, measurement, management and reporting of credit risks at all levels of ING Bank is accomplished through promotion of single, common credit risk data standards and the integration into common credit risk tools that support
The main credit risk systems are all accessed through a portal (Vantage), which also provides global tools for the customer domain, compliance, and regulatory reporting.
ING Bank main credit risk systems Global relationship database (GRID) One global counterparty database for all incorporated entities throughout the world, GRID is leading for all data related to an organisation, such as ownership (legal and economic), legal name, industry code, town and country of residence, town and country of incorporation, customer type, and customer segment. The data in GRID is static, which implies that it does not change (on average) more than once per year.
Integrated credit process environment (STARpro) STARpro is an integrated suite of applications, which manages various workflow processes related to counterparty on-boarding for most of the commercial and business banking activities. STARpro is actually a series of interrelated functions that are required to seek approval, such as: › Financial statements import and projection analysis; › Establishing and appealing risk ratings; › Customer due diligence (CDD) Risk Level determination; › MiFID classification determination; › Environment and social responsibility reviews; › Determining loan pricing; › Seeking credit risk approval (the analysis); › Administration of (standardised) documentation; Interagted credit process environment
The financial statements module provides the user with the ability not only to register a company’s financial statements in a common (IFRS-EU based) format, but also to project the company’s future financial position as a result of the transactions contemplated. This allows the common view on the company’s financial status to be communicated throughout ING and to form a consistent basis on decision making processes relying on financial information. This data is then aggregated and presented on the (read-only) browser-based Financial Statements component of STARpro.
Once a rating is approved the rating results are forwarded in real time to GRID. GRID then redistributes the rating (update) to the subscribing systems.
The Loan Pricer module is used to price loans and investments. It accesses existing data from within Vantage for existing deals and uses this data in the loan pricing component, a tool which assists the user in structuring and optimising a deal, while determining if the transaction meets ING Bank’s internal risk/reward requirements. Functionality includes the ability to create and compare different scenarios, and to search for break-even values.
The Masterscale used within ING Bank to rate clients was updated in May 2014 to include ING own collected data. This update resulted in the movement seen in Retail Banking International in rating A to BBB and is due to downward re-rating of mortgage clients in DiBa which is now in line with the bank-wide rating methodology. Similar movements were seen in Retail Banking Benelux in mortgages where outflow of WestlandUtrecht mortgages to NN Bank and the economic downturn reflected in the mortgage client ratings causing them to slip from BBB to BB. The big increase in AAA rated clients was due to the increase in investments with European sovereigns.
(1) Geographic areas are based on the primary country of risk and not based on country of residence for private individuals. (2) The top 5 exposures within Rest of Europe are to United Kingdom, Spain, France, Poland and Italy
Possible ratings 1–19 1–19 1–19 20-22 Typical ratings 1–14 15–17 18–19 20-22 Deterioration in risk Not significant Significant Significant Significant Significant intervention Not required Not required Required Required Impaired No No No Yes Account Ownership Front Office Front Office Front Office Front Office
Neither past due nor impaired 706,635 688,834 Consumer lending past due but not impaired (1–90 days) 5,143 6,810 Non-performing (1) 16,889 15,921 Total 728,667 711,565
Non-performing loans The ING Bank loan portfolio is under constant review. Generally, all loans with past due financial obligations of more than 90 days are automatically reclassified as non-performing. For the commercial lending portfolios there are generally reasons for declaring a loan non-performing prior to being 90 days past due. These include, but are not limited to, ING Bank’s assessment of the customer’s perceived inability to meet its financial obligations, or the customer filing for bankruptcy or bankruptcy protection. In some cases, a material breach of financial covenants will also trigger a reclassification of a loan to the non-performing category. ING Bank identifies as non-performing loans those loans for which it is probable, based on current information and events that the principal and interest amounts contractually due will not be collected in accordance with the contractual terms of the loan agreements.
Private Individuals 6,308 4,939 Real Estate 3,279 4,302 Builders & Contractors 1,119 1,132 Natural Resources 929 526 Transportation & Logistics 794 912 General Industries 776 730 Food, Beverages & Personal Care 695 800 Services 694 580 Commercial Banks 662 315
› Individually Not Significant Financial Asset (INSFA) Provisions: are made for acknowledged non-performing loans (ratings 20-22), if the exposure to a Borrower is below the threshold amount. Due to their small size, the IFRS-EU rules permit a collective approach to measuring these provisions.
At 31 December 2014, ING Bank held specific (ISFA) and collective provisions (INSFA) of EUR 3,519 million and EUR 1,696 million, respectively (2013: EUR 3,729 million and EUR 1,589 million respectively), representing the difference between the amortised cost of the portfolio and the estimated recoverable amount discounted at the effective rate of interest. In addition, there is EUR 780 million (2013: EUR 835 million) in provisions (IBNR) against the performing portfolio.
(1) At the end of 2014, the stock of provisions included provisions for amounts due from banks: EUR 6 million (2013: EUR 19 million)
› From non-performing to performing - The non-performing client, after forbearance measures have been granted, may be upgraded to a performing rating, only when 1) one year has passed since the forbearance measures were granted, 2) the granting of forbearance does not lead to the recognition of impairment or default, and 3) there is not any past-due amount or no concerns regarding the full repayment of the exposure according to the post-forbearance conditions. The total minimum reporting period of forbearance for any “cured” non-performing client will take three years: one year as non-performing and subsequently the “regular” two years as performing.
In contrast to the above, the non-performing forborne assets showed a decline of EUR 0.3 billion during 2014, which was driven by Real Estate clients in Rest of Europe. This outflow can be explained by write-offs and repayments of and by relatively large Real Estate clients.
The first two tables give a comprehensive overview of the collateralisation of the total portfolio of ING Bank.
The collateralisation of the consumer lending portfolio showed signs of recovery over the year 2014. A big improvement was seen in the collateralisation of the residential mortgages in DiBa Germany where an improvement was implemented to correctly recognise the last known cover value. In addition to this, the rise in collateralisation levels is due to increased housing prices seen all over ING Bank mortgage markets and due to stringent policies, which reduced mortgages granted with low VTL’s.
The valuation of financed properties at origination of a REF deal or the revaluation is always performed by a real estate appraiser. For commercial properties located in the Netherlands, an internal real estate appraiser (80% of the assets) or an external real estate appraiser (20% of the assets) performs the (re)valuation while for properties outside the Netherlands, the (re)-valuation is always performed through an external real estate appraiser.
(1) Including loans to ING Group and NN Group. (2) Excluding intercompany positions (3) “Others” comprises industries with outstandings below EUR 10 billion
The two tables above provide the collateralisation of the ING Bank’s Business Lending portfolio with a breakdown per geographical region or main market, which are defined based on the residence of the borrowers. The total increase in the business lending portfolio is in line with the increase in covers. The increase in collateralisation is observed in most regions and main countries, such as Africa, America, Australia and Netherlands. Exposures and covers in Asia decreased due to the deconsolidation of ING Vysya Bank, although the FX changes impacted adversely the decline in exposures and outstandings in Asia. In the Netherlands the exposures and covers decreased due to the de-risking in the Dutch Real Estate portfolio.
A key characteristic of the Investment and Money Market business is that typically little cover is given to support these exposures. 99.9% of Money Market and 96.9% of Investment exposure receives no covers. During 2014 these percentages increased slightly. The majority of ING’s investment positions are of high quality with 94% of the portfolio rated between AAA to A-, based on external ratings.
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 2014, the notional Pre-Settlement exposure that was cleared via CCPs increased by 7.4%.
An important element of the management of market risks in the banking books is the process of risk transfer. In this process the interest rate, FX, funding and liquidity risks are transferred from the commercial books through matched funding to Bank Treasury, where it is centrally managed. The scheme below presents the transfer and management process of market risks in the banking books: ING Group Annual Report 2014
Model disclosure of banking risk measures See Risk model governance and model validation section
Bank Treasury manages the strategic interest rate position excluding capital investments. The main objective is to maximise the economic value of the book and to generate adequate and stable annual earnings within the risk appetite boundaries set by ALCO Bank.
Year-on-year variance analysis In line with previous year the earnings with a one year horizon as per 2014 year end are relatively insensitive to rate changes, if compared to the net interest income. The earnings sensitivity for an upward shock has a positive impact. Positive earnings sensitivity implies that when rates increase, the positive impact on interest received on assets is larger than the negative impact of interest paid on liabilities.
Besides the change of the overall NPV-at-Risk exposure there is change in the exposure per accounting category. This is mainly the result of increased volume and duration of savings and at the same time a decreased duration of mortgages. As a result the exposure at amortised cost showed a larger move for the +100 bps shock. The impact of this move was mitigated by cash flow hedges, which revaluate through equity.
BPV banking books per accounting category amounts in thousands of euros 2014 2013
Year-on-year variance analysis In line with the increase in NPV-at-Risk, the overall BPV increased in 2014 with EUR 1.6 million. As for NPV-at-Risk this mainly results from a change in the strategic position. Besides the change of the overall BPV exposure there is a change in the exposure per accounting category. This is mainly the result of increased volume and duration of savings and at the same time a decreased duration of mortgages. As a result the BPV exposure at amortised cost showed an upward move. This move was mitigated by cash flow hedges, which revaluate through equity and an increased duration of investments. The decreased sensitivity of other currencies results from the deconsolidation of ING Vysya Bank.
Governance – FX translation result ING Bank’s strategy is to protect the target common equity tier 1 ratio against FX rate fluctuations, whilst limiting the volatility in the profit and loss account. Therefore, hedges are only done to the extent that they can be hedge accounted for against equity. Taking this into account, the common equity tier 1 ratio hedge is achieved by deliberately taking foreign currency positions equal to certain target positions, such that the target common equity tier 1 capital and risk-weighted assets are equally sensitive in relative terms to changing FX rates. A selection of emerging market currencies are exempted for the hedge.
The US Dollar is the main currency in terms of Net Exposure as the risk-weighted assets position in US Dollar is most significant besides Euro. In terms of sensitivities, fluctuations in the US Dollar are the main driver of the common equity tier 1 ratio as the US Dollar Net Exposure significantly deviates from the target. This deviation from the target for USD is mainly resulting from the limited capability to hedge the exposure without introducing P&L volatility. In 2014 the hedge of the common equity tier 1 ratio for foreign exchange rates of a selection of emerging market currencies has been ceased. The common equity tier 1 ratio is less sensitive for fluctuations in the other currencies.
Equity price risk in banking books Governance ING Bank maintains a strategic portfolio with substantial equity exposure in its banking books. Local offices are responsible for the management of the equity investments positions. Market risk is responsible for monitoring and reporting the regulatory capital for Equity Investments on a monthly basis. Market risk acts independently from the management of the equity investments in monitoring and reporting of the equity investments risk.
ING Bank has EUR 0.2 billion recognised at fair value through profit and loss and EUR 1. 5 billion is recognised at cost or revalued through equity (with impairments going through profit and loss).
Main exposure arises from office buildings in own use located in Netherlands and Belgium (EUR 0.8 billion), as well as retail and residential exposures in Europe (EUR 0.3 billion).
To include credit risk in the fair valuation, ING applies both credit and debit valuation adjustments (hereafter referred to as respectively, CVA and DVA). Own issued debt and structured notes that are valued at fair value are adjusted for credit risk by means of an own credit adjustment. Additionally, derivatives valued at fair value are adjusted for credit risk by a credit valuation adjustment. This credit valuation adjustment is of a bilateral nature; both the credit risks on the counterparty as well as on ING are included in the adjustment. All market data that is used in the determination of the CVA is based on market implied data. Additionally, wrong-way risk (when exposure to a counterparty is increasing and the credit quality of that counterparty decreases) and right way risk (when exposure to a counterparty is decreasing and the credit quality of that counterparty decreases) are included in the adjustment. ING applies CVA also for pricing credit risk into new external trades with counterparties. Risk limits and controls are in place to monitor and anticipate CVA risk on a daily basis. The CVA is managed by global risk governance, where the risk limits and controls for CVA are managed and monitored on a global level. Our approach on CVA risk management is driven by increased control, cost efficiency and the global scope of CVA.
Market Risk Management Product Control has the role to identify and challenge market data and pricing sources determine the parameters that will be used in the valuation models, and to calculate necessary value adjustments. When using valuation techniques, identified market data and sources used for the calculations are independently challenged, reviewed and validated on a regular basis, most of it daily. Price testing and valuation results are reviewed and validated by local and global parameter committees.
Reference is made to Note 43 ‘Fair value of assets and liabilities’ for the basis of the determination of the fair values of the financial instruments and related sensitivities.
(1) CVA risk is not included in VaR. (2) The total VaR for the columns Minimum and Maximum cannot be calculated by taking the sum of the individual components since the observations for both the individual markets as well as total VaR may occur on different dates.
Regulatory capital According to the Capital Requirements Regulation (CRR/CRD IV), regulatory capital for trading portfolios can be calculated using the standardised approach or an internal model approach. ING Bank received approval from the DNB to use an internal model to determine the regulatory capital for the market risk in most trading books of ING Bank. Market risk capital of CAD2 trading books is calculated according to the Basel 2.5 framework, using an internal VaR, Stressed VaR and Incremental Risk Charge model, where diversification is taken into account. On the other hand, market risk capital of CAD1 books is calculated using standardised fixed risk weights. In 2014, capital on all trading books is performed under the Internal Model Approach. Mismatches in FX risk from the banking books are incorporated under the Standardised Approach.
Incremental Risk Charge 426 438 Total Internal Model Approach 224 94 745 667
(1) Standardised model is applied to FX positions in banking books. (2) Amounts are in EUR billions
Sensitivities As part of the risk monitoring framework, Market Risk Management Trading actively monitors the daily changes of sensitivities of our trading portfolios. The following tables show the five largest trading foreign exchange positions and interest rate and credit spread sensitivities. The credit spread sensitivities are furthermore split in different risk classes and sectors. Due to the nature of the trading portfolios, positions change from day to day.
Credit Spread (CSO1 (2)) Credit Spread (CSO1 (2)) Netherlands –702 Germany –454 Germany 552 France 452 United States 115 Netherlands –384 Russia 97 Austria –86 Italy –94 Russia –79
2. Stress situation: › Stress funding & liquidity risk: The risk an organisation may become unable to meet its financial obligations when due, because insufficient cash is available or cannot be generated in time at a reasonable costs by attracting new unsecured funding or rolling over existing funding, or selling / repo-ing assets, potentially resulting in default.
ALCO Bank determines the liquidity risk (limit) framework and appetite after which this is cascaded down in the organisation under the responsibility of the regional and local ALCOs. ING Bank’s liquidity risk framework is based on the three lines of defence concept, whereby risk principles are implemented, monitored and controlled in conjunction with both first and second line functions within the Bank.
Bank Treasury is a 1st line function. Its main funding and liquidity responsibilities are to manage ING’s funding gap and ING’s regulatory liquidity position. Bank Treasury is ING’s primary contact to the market for long and short term funding, with exception of capital transactions which are under the responsibility of the Capital Management function and the execution of some specific structured funding products which are executed by Financial Markets under a mandate that provides strict guidance around pricing, volumes, optionalities and tenors.
› Funding diversification: › Limiting or reducing dependency on single providers › Concentration limits per funding sources
In the table below, the various funding sources are presented in the funding mix: ING Bank Funding Mix
The funding mix remained well diversified and according to targets set. Retail deposits accounted for 47% of the total funding mix, improved from 46% per 2013 year end. Ultimo 2014 the Loan-to-Deposit ratio (excluding securities at amortised costs) equals 1.04 (2013: 1.04).
› The buffer must be adequate in relation to the contractual and expected expiry calendars and other expected or planned developments.
As part of the liquidity buffer management, ING Bank also monitors the existing asset encumbrance. More information can be found in Pillar III.
Liquidity risk transfer and pricing Funds Transfer Pricing (FTP) is an internal measurement and allocation system that assigns a profit contribution to funds raised, lent, or invested. FTP is the pricing mechanism used within ING to transfer interest rate risk, basis risk and liquidity risk positions from commercial units to Bank Treasury. The FTP framework enables local ALCOs to set their local FTP levels and manage these risks for all internal transfers at local level. This means that these risks are transferred from the business to a separate Bank Treasury book where they can be monitored and managed more efficiently and effectively. The liquidity costs, benefits and risks are considered in the product pricing, design and offering and in every relevant Product Approval and Review Process (PARP) or deal approval and other related processes for commercial products by the business units.
In November 2014, the European Central Bank (‘ECB’) assumed responsibility for a significant part of the prudential supervision of banks in the Eurozone, including ING Bank, following a year-long preparatory phase, which included an in-depth comprehensive assessment of the resilience and balance sheets of the biggest banks in the Eurozone. ING Bank was among the seven Dutch institutions covered by the assessment (out of 130 institutions overall). While the ECB has assumed the supervisory tasks conferred on it by the Single Supervisory Mechanism (‘SSM’) Regulation, the DNB will still continue to play a big role in the supervision of ING Bank. The SSM has created a new system of financial supervision for countries within the Eurozone, with the possibility of non-Eurozone Member States participating by means of close cooperation. With the SSM only having been in place since November 2014, it is difficult at this stage to identify what exact impact the SSM will have on ING Bank. The SSM may have a significant impact on the way ING’s banking operations are supervised in Europe.
Governance At all levels in the organisation Non-Financial Risk Committees (NFRCs) are established to appropriately measure, manage and monitor the operational and compliance risks of a business unit or region and to ensure that appropriate management action is taken. NFRCs, chaired by the CEO of the entity, steer the risk management activities of the first and second line of defence in their entities. The Bank NFRC is the primary approval and oversight committee for non-financial risk matters.
The Head of Non-Financial Risk is responsible for developing the framework of non-financial risk policies and standards within ING Bank and for monitoring the quality of non-financial risk management in the divisions. The Non-Financial Risk Dashboard provides management on regional, divisional and Bank level with an overview of key risks within the NFR risk areas including compliance risks, information security risks, continuity risks, governance and control risks, fraud and unauthorised activities risks and personal and physical security risks, enabling management to focus and set priorities.
Advanced Measurement Approach (AMA) ING Bank has an Operational Risk Capital model in place in which the risk profile is closely tailored to the internal profile of ING Bank and its divisions by using scenario data for capturing severe risks and internal loss and Risk & Control Self-Assessment data for capturing day-to-day risks. The business has a strong role in assessing scenario severities and the Operational Risk Management function in validating the results. The internal data based calculation is combined with an external loss data (ORX) based calculation. In April 2013 ING Bank obtained accreditation for use of its enhanced AMA model for regulatory supervision purposes. In 2014, the set of scenarios has been further extended in such areas as cybercrime and compliance risk. ING Bank reports the regulatory capital numbers on a quarterly basis. The AMA capital for the fourth quarter of 2014 amounts to EUR 2,700 million. For the fourth quarter of 2013 the AMA capital amounted to EUR 2,822 million. ING Bank is currently not using any insurance or risk transfer mechanisms for the mitigation of risk in the context of the AMA capital calculation.
Operational risk Operational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. It includes the related risk of reputation loss, as well as legal risk but strategic risks are not included.
Cybercrime Cybercrime is an increasing threat to companies in general and to financial institutions specifically. Both the frequency and the intensity of attacks are increasing at a global scale. In 2014 ING has successfully finished its Cybercrime Resilience Programme to become more mature in being able to protect, detect and respond to e-banking fraud, Distributed Denial of Service (DDoS) and targeted attacks (also called Advanced Persistent Threats). The Cybercrime Resilience Programme has handed over the Cybercrime activities to the line organisation to ensure structural embedding.
Financial Economic Crime (“FEC”) policy The ING Bank FEC Policy provides a clear statement of what is required by all ING Bank entities in order to guard against any involvement in criminal activity, and to participate in international efforts to combat money laundering and the funding of terrorist and criminal activities. The requirements in the ING Bank FEC Policy cover minimum standards and controls related to: money laundering, terrorist financing, export trade controls, proliferation financing, sanctions (economic, financial and trade) and countries designated by ING Bank as Ultra High Risk Countries (UHRC). The effectiveness of those controls is reviewed periodically.
Management of ING Bank entities maintain appropriate local procedures that enable them to comply with local laws, regulations and the relevant ING Bank FEC Policy. Where local laws and regulations are more stringent, the local laws and regulations are applied. Likewise the FEC Policy prevails when the standards therein are stricter than stipulated in local laws and regulations and if not specifically forbidden (data privacy or bank secrecy).
Mid 2014 both the US and the EU announced Ukraine-related sanctions. Those sanctions restrict amongst others the dealing in specific (financial) products with certain named parties. Management of ING Bank entities use their existing control framework to ensure compliance with these sanctions.
Business risk Business Risk for ING Bank has been defined as the exposure to value loss due to fluctuations in volumes, margins and costs, as well as customer behaviour risk. It is the risk inherent to strategy decisions and internal efficiency. The calculation of business risk capital is done by calculation of two components, 1) Expense risk relates to the (in)flexibility to adjust expenses, when that is needed.
› Common equity Tier 1 capital, Tier 1 capital and total BIS capital – Tier 1 capital is defined as shareholders’ equity plus hybrid capital less regulatory adjustments. Common equity Tier 1, Tier 1 and BIS capital divided by risk-weighted assets equal the Common equity Tier 1, Tier 1 and BIS ratio respectively. Common equity Tier 1 capital is equal to Tier 1 capital excluding hybrid capital; › Adjusted Equity (ING Group) – This rating agency concept is defined as shareholders’ equity plus core Tier 1 securities, hybrid capital and prudential filters. See ‘Capital Base’ disclosures in this section. This capital definition is applied in comparing available capital to Group debt for ING Group; › EC – ING Bank uses Internal economic capital models to allocate capital for unexpected losses given 99.95% confidence level. These models capture credit risk, market risk, operational risks , business risks as well as diversification.
In 2014, ING participated in the targeted longer-term refinancing operations (‘TLTRO’) of the European Central Bank for an amount of EUR 5.7 billion. The TLTRO aims to stimulate lending to the real economy in the Eurozone. The interest rate on the TLTRO’s is fixed over the life of each operation plus a fixed spread of 10 basis points above the ECB refinancing year rate. Counterparties that have borrowed in the TLTROs but whose eligible net lending in the period from 1 May 2014 to 30 April 2016 is below the benchmark will be required to pay back their borrowings in September 2016. Interest will be paid in arrears when the TLTRO is repaid. Starting 24 months after each TLTRO, ING has the option to repay any part of the amounts allotted in that TLTRO at a six-month frequency.
(1) For ING Group: of which EUR 5,727 million to be replaced as capital recognition is subject to CRR/CRD IV grandfathering rules. This amount is presented net of positions on-lent to Insurance. For ING Bank: of which EUR 1,988 million is CRR/CRD IV compliant and EUR 3,739 million to be replaced as capital recognition subject to CRR/CRDIV grandfathering rules.
Shareholders’ equity (parent) 50,424 50,424 Deductions −4,809 −5,250 Group’s eligible common equity Tier 1 capital 45,615 45,175
Deduction common equity Tier 1 capital 14,103 4,631 Deduction Tier 1 capital 3,857 Deduction BIS capital 5,659
Common equity Tier 1 ratio Year-end actual CET 1 ratio 13.5% 11.2% 11.7%
Group debt decreased from EUR -4.9 billion at year-end 2013 to EUR -1.5 billion at 31 December 2014.
(1) The 2013 numbers have been restated to reflect the changes made in the IGD computation for NN Group NV and to adjust the ING Bank NV phased in numbers according to 2014 rules.
ICAAP/SREP process On a yearly basis ING Bank N.V. submits extensive documentation on the Internal Capital Adequacy Assessment Process (ICAAP) to its regulator as prescribed in the Basel II and Basel III frameworks. This documentation includes a description of ING’s internal capital models, its risk appetite framework, an asset quality analysis and a capital planning, both under normal circumstances and in certain stressed scenarios. This documentation is an important input for the regulator’s Supervisory Review and Evaluation Process (SREP) resulting in a letter to ING Management. With the change in supervision from the Dutch Central Bank to the European Central Bank in November 2014, the SREP is for the first time conducted by the ECB. The regulatory 2014 guidance indicated indicated that the minimum capital ratios ECB considers adequate for ING Bank consolidated are sufficiently covered by ING’s own capital standards. In addition the regulator examines on a regular basis ING’s internal models and processes, which resulted in several add-ons on ING’s economic capital requirements. Nevertheless ING capital position is more than sufficient to meet these requirements and as such these add-ons do not lead to incremental capital requirements compared to what results from ING’s own assessment.
Remeasurement of the net defined benefit asset/liability –254 –254 Unrealised revaluations property in own use –30 –30 Unrealised revaluations available-for-sale and other 5,450 77 5,527 Realised gains/losses transferred to profit and loss –133 –133 Transfer to insurance liabilities/DAC –1,428 –1,428 Change in cash flow hedge reserve 1,977 24 2,001 Unrealised revaluations from net investment hedges –110 –110 Exchange rate differences and other 612 –16 1,897 2,493 Total amount recognised directly in equity 6,368 –16 1,714 8,066 Net result 1,251 1,251
The comparative amounts for 2013 are restated for the change in accounting policy as disclosed in the section ‘Change in accounting policies in 2014’ in the Note 1 ‘Accounting policies’ of the consolidated annual accounts.
Receivables from group companies 11,609 9,417 Available-for-sale equity investment in Voya Financial Inc. 1,591 Other receivables, prepayments and accruals 557 220
On 7 November 2014, ING Group made the final repayment on the Core Tier 1 securities of EUR 1.025 billion to the Dutch State.
In 2014, ING Groep N.V. issued 18.0 million (2013: 9.3 million) (depositary receipts for) ordinary shares at par value in order to fund obligations arising from share-based employee incentive programmes.
Result for the year 1,251 1,251 Unrealised revaluations 71 –254 –183 –183 Changes in treasury shares –14 –14 –14 Repurchase premium –750 –750 –750 Transfer to share of associates and joint ventures reserve 180 180 180 Transfer to retained earnings 3,545 3,545 –3,545 Employee stock option and share plans 10 10 10 Impact of NN Group –4,263 –4,263 –4,263 Impact of deconsolidation of Voya 20 82 102 102 Changes in the composition of the group and other changes –1,273 3,434 2,161 2,161
The total amount of Equity in the parent company annual accounts equals Shareholders’ equity (parent) in the consolidated annual accounts. Certain components within equity are different, as a result of the following presentation differences between the parent company accounts and consolidated accounts: › Unrealised revaluations within consolidated group companies, presented in the Revaluation reserve in the consolidated accounts, are presented in the Share of associates and joint ventures reserve in the parent company accounts; › Foreign currency translation on consolidated group companies, presented in the Currency translation reserve in the consolidated accounts, is presented in the Share of associates and joint ventures reserve in the parent company accounts; › Revaluations on investment property and certain participations recognised in income and consequently presented in Retained earnings in the consolidated accounts, is presented in the Share of associates and joint ventures reserve in the parent company accounts.
Furthermore see Note 14 ‘Equity’ and the Capital Management section in the consolidated annual accounts for additional information, including restrictions with respect to dividend and repayment of capital.
The impact of the divestments on the annual accounts of ING Group is significant. In addition, judgement has been applied in determining when control of VOYA and NN Group is lost. We have tested the design and operating effectiveness of the controls over the governance, execution and accounting of the divestments in the year. We have assessed and verified the accounting treatment of each divestment transaction.
We assessed and tested the design and operating effectiveness of the controls over impairment calculations including the quality of underlying data and systems. For loan loss provisions calculated on an individual basis we tested the assumptions underlying the impairment identification and quantification including forecasts of future cash flows, valuation of underlying collateral and estimates of recovery on default. This included taking into consideration the impact of forbearance. For loan loss provisions calculated on a collective basis we tested, supported by our specialists, the underlying models including the model approval and validation process. We also tested the appropriateness and accuracy of the inputs to those models, such as recovery and cure rates, and where available, compared data and assumptions made to external benchmarks. Finally we assessed and tested the design and operating effectiveness of the controls over related disclosures including the disclosures for forbearance and cover values.
Reliability and continuity of electronic data processing (see page 315) ING Group is dependent on the IT-infrastructure for the continuity of their business processes. In the last few years, investments were made in the improvement of IT- systems and processes. As part of our audit procedures we tested IT- security, change and application controls embedded in ING Group’s key processes. In addition we assessed and tested the impact of changes during the year either from internal restructuring initiatives or from external factors such as the implementation of SEPA.
The insurance liabilities of NN Group’s reporting units are calculated based on a prudent prospective actuarial method. The specific methodologies applied may differ between reporting units. For traditional business, including in the Netherlands, assumptions are initially set at the policy issue date. For other investment type products, assumptions are based on management’s best estimate at the reporting date. The Group’s IFRS reserve adequacy test is a key test performed in order to ensure that insurance contract liabilities, net of deferred acquisition cost, are adequate in the context of expected future cash outflows.
Unit linked exposure NN Group (see page 222) Holders of the Group’s unit-linked products sold in the Netherlands where the customer bears all or part of the investment risk, or consumer protection organisations on their behalf, have filed claims or initiated proceedings against the Group and may continue to do so. A negative outcome of such claims and proceedings in respect of unit-linked products, settlements or any other actions for the benefit of customers by other insurers and sector-wide measures could result in substantial losses for the Group relating to compensation. The financial consequences of these legal proceedings cannot be reliably estimated or quantified at this point. Refer to note 51 of the annual accounts.
Responsibilities of the Executive Board and Supervisory Board for the annual accounts The Executive Board is responsible for the preparation and fair presentation of these annual accounts in accordance with IFRS-EU and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the Executive Board’s report in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Executive Board is responsible for such internal control as it determines is necessary to enable the preparation of the annual accounts that are free from material misstatement, whether due to fraud or error.
Pa re nt c om pa ny a nn ua l a cc ou nt s O
› Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
› We report that the Report of the Executive Board, to the extent we can assess, is consistent with the annual accounts.
Sale of Voya shares In March 2015, ING sold 45.6 million ordinary shares of Voya. In the public offering ING Group has sold approximately 32 million Voya shares at a price of USD 44.20 per share. In addition ING Group has sold to Voya approximately 13.6 million shares for an aggregate amount of USD 600 million. The gross proceeds to ING Group from the public offering and the concurrent repurchase by Voya amount to approximately EUR 1.8 billion at current exchange rates (USD 2.0 billion).
The market price of ING shares could decline due to any of the following risks, and investors could lose all or part of their investments. Additional risks of which the Company is not presently aware could also affect the business operations of ING and have a material adverse effect on ING’s business activities, financial condition, results of operations and prospects. In addition, the business of a multinational, broad-based financial services firm such as ING is inherently exposed to risks that only become apparent with the benefit of hindsight. The sequence in which the risk factors are presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
Adverse capital and credit market conditions may impact our ability to access liquidity and capital, as well as the cost of liquidity, credit and capital. The capital and credit markets have continued to experience substantial volatility and disruption over the past few years. Adverse capital market conditions may affect the availability and cost of borrowed funds, thereby impacting our ability to support and/or grow our businesses.
We operate in highly regulated industries. Changes in laws and/or regulations governing financial services or financial institutions or the application of such laws and/or regulations governing our business may reduce our profitability. We are subject to detailed banking, insurance, asset management and other financial services laws and government regulation in the jurisdictions in which we conduct business. Regulatory agencies have broad administrative power over many aspects of our business, which may include liquidity, capital adequacy, permitted investments, ethical issues, money laundering, anti-terrorism measures, privacy, recordkeeping, product and sale suitability, marketing and sales practices, remuneration policies and our own internal governance practices. Also, regulators and other supervisory authorities in the European Union (‘EU’), the United States (‘U.S.’) and elsewhere continue to scrutinise payment processing and other transactions and activities of the financial services industry through laws and regulations governing such matters as money laundering, prohibited transactions with countries subject to sanctions, and bribery or other anti-corruption measures.
Solvency II is aimed at creating a new solvency framework in which the financial requirements that apply to an insurance, reinsurance company and insurance group better reflect such company’s specific risk profile. Solvency II will introduce economic risk-based solvency requirements across all Member States for the first time. While Solvency I includes a relatively simple solvency formula based on technical provisions and insurance premiums, Solvency II introduces a new “total balance sheet” type regime where insurers’ material risks and their interactions are considered. In addition to these quantitative requirements (Pillar 1), Solvency II also sets requirements for governance, risk management and effective supervision (Pillar 2), and disclosure and transparency requirements (Pillar 3).
While the aim of Solvency II is to introduce a harmonised, risk-based approach to solvency capital, there is a risk of differences in interpretation and a risk of a failure by financial services regulators to align Solvency II approaches across Europe, resulting in an unequal competitive landscape. This risk may be exacerbated by discretionary powers afforded to financial services regulators in Member States.
Should NN not be able to adequately comply with the Solvency II requirements in relation to capital, risk management, documentation and reporting processes, this could have a material adverse effect on its business, solvency, results of operations and financial condition.
In addition to a ‘write-down and conversion’ power and a ‘bail-in’ power, the powers currently proposed to be granted to the relevant Dutch resolution authority under the Bank Recovery and Resolution Directive include the two categories of measures introduced by the Intervention Act, as described above. In addition, the Bank Recovery and Resolution Directive stipulates, among the broader powers to be granted to the relevant resolution authority, that it will confer powers to the relevant resolution authority to amend the maturity date and/or any interest payment date of debt instruments or other eligible liabilities of the relevant financial institution and/or impose a temporary suspension of payments.
There are certain differences between the provisions of the Intervention Act, the Bank Recovery and Resolution Directive and the SRM Regulation, which may further bring future changes to the law. We are unable to predict what specific effects the Intervention Act and the implementation of the Bank Recovery and Resolution Directive and the entry into force of the SRM Regulation may have on the financial system generally, our counterparties, holders of securities issued by or to be issued by us, or on us, our operations or our financial position.
General Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Concerns over the slow economic recovery, the European sovereign debt crisis, the potential exit of certain countries from the Eurozone, 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’), the level of U.S. national debt and the U.S. housing market, inflation/deflation levels, energy costs and heightened geopolitical issues, such as those in connection with Ukraine and Russia and subsequent economic sanctions on certain of Russian individuals and business entities imposed by the U.S. and European governments, all have contributed to increased volatility and diminished expectations for the economy and the markets in recent years.
European Sovereign Debt Crisis In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these EU ‘peripheral’ Member States to continue to service their sovereign debt obligations. Significant concerns regarding the sovereign debt of these countries, as well as certain other countries of the ‘core’ EU Member States are ongoing and, in some cases, have required countries to obtain emergency financing. These concerns impacted financial markets and resulted in high and volatile bond yields on the sovereign debt of many EU nations. If these or other countries require additional financial support or if sovereign credit ratings continue to decline, yields on the sovereign debt of certain countries may continue to increase, the cost of borrowing may increase and credit may become more limited. Despite assistance packages to Greece, Ireland, Portugal and Cyprus, the creation of a European Financial Stability Facility as a temporary rescue mechanism in May 2010, the approval of a further bail-out of Greece by the relevant government and monetary bodies of the Eurozone and the International Monetary Fund in March 2012, and the establishment of the European Stability Mechanism in October 2012 (which provided its first financial assistance in February 2013 for the recapitalisation of Spain’s banking sector), uncertainty over the outcome of the EU governments’ financial support programs and concerns regarding sovereign finances persisted during the course of 2014. Market concerns over the direct and indirect exposure of European banks and insurers to the EU sovereign debt further resulted in a widening of credit spreads and increased costs of funding for some European financial institutions. In December 2011, European leaders agreed to implement steps (and continue to meet regularly to review, amend and supplement such steps) to encourage greater long-term fiscal responsibility on the part of the individual Member States and bolster market confidence in the Euro and European sovereign debt, and the Treaty on Stability, Coordination and Governance (‘Fiscal Treaty’) was signed by 25 EU Member States in March 2012 and entered into force on 1 January 2014 and ratified by and entered into force for all signatory Member States in April 2014. However, the Fiscal Treaty needs to be implemented into national law of the relevant Member States within one year of the Fiscal Treaty entering into force and incorporated into the existing EU treaties, which is expected to take many years, and, even if such steps are implemented, there is no guarantee that they will ultimately and finally resolve uncertainties regarding the ability of Eurozone states to continue to service their sovereign debt obligations. Further, despite such long-term structural adjustments and improvements being proposed and implemented, the future of the Euro in its current form, and with its current membership, remains uncertain. The financial turmoil in Europe continues to be a threat to global capital markets and remains a challenge to global financial stability.
Risks and ongoing concerns about the debt crisis in Europe, as well as the possible default by, or exit from, the Eurozone of one or more Member States and/or the replacement of the Euro by one or more successor currencies, could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these European countries and the financial condition of European and other financial institutions, including us. For example, concerns regarding Greece’s potential exit from the Eurozone have created unease in the global economy in late 2014 leading to early 2015. Additionally, the possibility of capital market volatility spreading through a highly integrated and interdependent banking system remains elevated. In the event of any default or similar event with respect to a sovereign issuer, some financial institutions may suffer significant losses, following which they would require additional capital, and such capital may not be available. Market and economic disruptions stemming from the crisis in Europe have affected, and may continue to affect, consumer confidence levels and spending, bankruptcy rates, levels of incurrence of, and default on, consumer debt and home prices, among other factors. There can be no assurance that the market disruptions in Europe, including the increased cost of funding for certain government and financial institutions, will not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilise the affected countries and markets in Europe or elsewhere. To the extent uncertainty regarding the economic recovery continues to negatively impact consumer confidence and consumer credit factors, our business and results of operations could be significantly and adversely impacted. In addition, the possible exit from 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 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 Eurozone) may not recognise and/or enforce claims denominated in Euros (and/or in any replacement currency). The possible exit from the Eurozone of one or more Member States and/or the replacement of the Euro by one or more successor currencies could also cause other significant market dislocations and lead to other adverse economic and operational impacts that are inherently difficult to predict or evaluate, and otherwise have potentially materially adverse impacts on us and our counterparties, including our depositors, lenders, borrowers and other customers. 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, investment portfolio and AUM are exposed to these risks and may be adversely affected as a result. In addition, in the event of extreme prolonged market events, such as the recent global credit crisis, we could incur significant losses and may lead to USD funding shortage for EU Banks.
number of financial institutions in the form of unsecured debt instruments, derivative transactions and equity investments. For example, we hold certain hybrid regulatory capital instruments issued by financial institutions which permit the issuer to defer coupon payments on the occurrence of certain events or at their option. The EC has indicated that, in certain circumstances, it may require these financial institutions to defer payment. If this were to happen, we expect that such instruments may experience ratings downgrades and/or a drop in value and we may have to treat them as impaired, which could result in significant losses. There is no assurance that losses on, or impairments to the carrying value of, these assets would not materially and adversely affect our business, results of operations or financial condition.
Declining interest rates or a prolonged period of low interest rates 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; ING Group 352 Additional information Risk factors continued
› All these effects may be amplified in a (prolonged) negative rate environment. In such environment there may also be the risk that a rate is to be paid on assets, while there is no (partial) compensation on the liabilities. This will reduce our results of operations then › Rapidly increasing interest rates may result in: › a decrease in the demand for loans; › outflow of liabilities for example due to increased competition; › a material adverse effect on the value of our investment portfolio by, for example, decreasing the estimated fair values of the fixed income securities within our investment portfolio; › higher interest rates to be paid on debt securities that we have issued or may issue on the financial markets from time to time to finance our operations and on savings/other liabilities, which would increase our interest expenses and reduce our results of operations; › in case liability outflow is experienced this may result in realised investment losses, in case investments are to be sold when prices became depressed due to the higher interest rates and/or higher credit spreads. Regardless of whether an investment loss is realised, these outflows would result in a decrease in total invested assets, and may decrease our net income.
› decreased fee income associated with a decline in the value of variable annuity account balances invested in fixed income funds.
We may also be subject to claims made by third parties for (i) patent, trademark or copyright infringement, (ii) breach of copyright, trademark or licence usage rights, or (iii) misappropriation of trade secrets. Any such claims and any resulting litigation could result in significant expense and liability for damages. If we were found to have infringed or misappropriated a third-party patent or other intellectual property right, we could in some circumstances be enjoined from providing certain products or services to our customers or
We are subject to a variety of regulatory risks as a result of our operations in certain countries. In certain countries in which we operate, judiciary and dispute resolution systems may be less developed. As a result, in case of a breach of contract, we may have difficulties in making and enforcing claims against contractual counterparties and, if claims are made against us, we might encounter difficulties in mounting a defence against such allegations. If we become party to legal proceedings in a market with an insufficiently developed judicial system, it could have an adverse effect on our operations and net results.
ING’s Dutch insurance subsidiaries have issued, sold or advised on approximately one million individual unit-linked policies. As noted above, there has been for some time and there continues to be political, regulatory and public attention focused on the unit-linked issue in general. Elements of unit-linked policies are being challenged or may be challenged on multiple legal grounds in current and future legal proceedings and there is a risk that one or more of these legal challenges will succeed. Customers of ING’s Dutch insurance subsidiaries have claimed, among others, that (i) the investment risk, costs charged or the risk premium was not, or not sufficiently, made clear to the customer, (ii) the product costs charged on initial sale and on an on-going basis were so high that the expected return on investment was not realistically achievable, (iii) the product sold to the customer contained specific risks that were not, or not sufficiently, made clear to the customer (such as the leverage capital consumption risk) or was not suited to the customer’s personal circumstances, (iv) NN Group owed the customer a duty of care which NN Group has breached, or (v) the insurer failed to warn of the risk of not realising the projected policy values. These claims may be based on general standards of contract or securities law, such as reasonableness and fairness, error, duty of care, or standards for proper customer treatment or due diligence and may be made by customers, or on behalf of customers, holding active policies or whose policies have lapsed, matured or been surrendered. NN Group is currently subject to legal proceedings initiated by individual policyholders and is subject of a number of claims initiatives brought on behalf of policyholders by consumer protection organisations in which claims as set forth above or similar claims are being made. While to date less than 100 complaints are pending before the Dispute Committee of the Financial Services Complaints Board (the ‘KiFiD’), and less than 300 individual settlements were made, there is no assurance that further proceedings for damages will not be brought. As the current proceedings are only in early stages the timing of reaching any finality on these legal claims and proceedings is uncertain and such uncertainty is likely to continue for some time. As a result, although the financial consequences of any of these factors or a combination thereof could be substantial for the Dutch insurance business of ING and, as a result, may have a material adverse effect on NN Group’s and ING’s reputation, revenues, results of operations, solvency, financial condition and prospects, it is not possible to reliably estimate or quantify NN Group’s and ING’s exposures at this time. See ‘Note 54 Legal Proceedings’.
ING is exposed to the risk of claims from customers who feel misled or treated unfairly because of advice or information received. Our life insurance, non-life insurance, banking, investment and pension products and advice services for third-party products are exposed to claims from customers who allege that they have received misleading advice or other information from advisers (both internal and external) as to which products were most appropriate for them, or that the terms and conditions of the products, the nature of the products or the circumstances under which the products were sold, were misrepresented to them. When new financial products are brought to the market, ING engages in a product approval process in connection with the development of such products, including production of appropriate marketing and communication materials. Notwithstanding these processes, customers may make claims against ING if the products do not meet their expectations. Customer protection regulations, as well as changes in interpretation and perception by both the public at large and governmental authorities of acceptable market practices, influence customer expectations.
Factors that may impede our ability to implement the remaining elements of the Restructuring Plan successfully include an inability of prospective purchasers to obtain funding due to the deterioration of the credit markets, insufficient access to equity capital markets, a general unwillingness of prospective purchasers to commit capital in the current market environment, antitrust concerns, any adverse changes in market interest rates or other borrowing costs and any declines in the value of the assets to be further divested. Similarly, it may also be difficult to divest the remaining part of our insurance and investment management business through one or more followon transaction(s) and/or spin-off transaction(s). There can also be no assurance that we could obtain favourable pricing for a sale of the
While we continue to implement these strategies, there can be no assurance that we will be able to do so successfully or that we will realise the projected benefits of these and other restructuring and cost-saving initiatives. If we are unable to realise these anticipated cost reductions, our business may be adversely affected. Moreover, our continued implementation of restructuring and cost saving initiatives may have a material adverse effect on our business, financial condition, results of operations and cash flows.
There can be no assurance that we will pay dividends on our Ordinary Shares in the future. It is ING’s policy to pay dividends in relation to the long-term underlying development of cash earnings. Dividends can only be declared by shareholders when the Executive Board considers such dividends appropriate, taking into consideration the financial conditions then prevailing and the longer-term outlook. It is ING’s intention to pay a minimum of 40% of ING Group’s annual net profits to shareholders effective from 2015. The Executive Board proposes to pay a final 2014 dividend of EUR 470 million, or EUR 0.12 per (depositary receipt for an) ordinary share, subject to the approval of shareholders at the Annual General Meeting in May 2015. However, there can be no assurance that we will pay dividends in the future.
The information in this report relates to ING Group N.V. and all of its subsidiaries (hereafter ING Group). The scope of consolidation for prudential purposes is different of the accounting scope of consolidation as reported in the annual report in the note ‘Principal subsidiaries’. The difference is mainly due to the insurance businesses which are not included in the prudential scope of consolidation. The information in this section has not been audited by ING Group’s external auditors. The operational separation of the bank and insurance businesses as well as the classification of ING Group’s stakes in NN Group NV as ‘assets held for sale’ also has consequences for the treatment under Pillar III. For both Regulatory Capital and Asset Encumbrance, the information in this Pillar III report has been provided on ING Group level. The information on Credit Risk, Market Risk, Securitisations and Operational Risk focuses on ING Bank.
Enhanced Disclosure Task Force recommendations on financial disclosure ING is a member of the ‘Enhanced Disclosure Task Force’ (EDTF), a private sector group established by the Financial Stability Board (‘FSB‘) and composed of members representing both the users and preparers of financial reports, that published in the course of 2012 recommends for more comprehensive and consistent disclosures. For 2014, ING Group reaffirms its commitment to the EDTF report and implemented additional recommendations, next to the CRR/CRD IV disclosure requirements. Below an overview is given on where ING Group has implemented the EDTF recommendations.
Capital adequacy and risk-weighted assets 9 Minimum Pillar I capital requirements, including buffers, or minimum internal ratio 318 - 323; 365 10 Summarise composition of capital based on Basel Committee templates 366 11 Flow statement of regulatory capital movements since the prior reporting, including changes in common equity tier 1, tier 1 and tier 2 capital 366 12 Qualitatively and quantitatively discuss capital planning within a more general discussion of management’s strategic planning 260 - 261; 318 - 319 13 Analyse how risk-weighted assets relate to business activities 252 14 Capital requirements for credit risk per Basel asset class and major portfolios 370 15 Tabulate credit risk in the banking book per Basel asset classes and major portfolios 395 16 Flow statement to display movements in RWAs for the reporting period 368; 396 17 Basel Pillar III back-testing, including model performance and validation 273 – 274; 276; 379 - 380
Regulatory capital Capital Adequacy Rules – Basel III Accord The rules for required Regulatory Capital and Capital adequacy are based on the guidelines developed by the Basel Committee on Banking Supervision (The Basel Committee) and the European Union Regulation and Directives, as implemented by the Dutch Central Bank (and the ECB as of 3 November 2014) for supervisory purposes.
In 2010, the Basel III Accord was adopted and consequently translated into regulation by the EU in the Capital Requirement Regulation (CRR) and a Capital Requirement Directive IV. The CRR is binding for all EU member states and became effective per 1 January 2014. For more information, please refer to the chapter “Ongoing changes in the regulatory environment” in the Risk Management Paragraph.
Subordinated loans qualifying as Tier 1 capital (3) 5,727 5,727 5,727 Deduction of goodwill and other intangibles (1) –1,346 –1,009 – Provision shortfall (2) –525 –394 – Investments >10% FI, exceeding 10% threshold –5,659 –4,222 – Excess deductions allocated to CET1 capital 1,802 – –
(3) Assuming that non Basel III eligible Tier 1 and Tier 2 capital will be replaced by Basel III eligible equivalents before they stop to meet the Basel III grandfathering conditions. (4) After publication of the 2013 Annual Report, the 2013 end-of-year goodwill has been restated from EUR 1,035 million to EUR 1,057 million. (5) During the AQR in 2014 we learned that the CRR/CRD IV phases in differently from the phase-in we showed in the Pillar III section of the 2013 Annual Report.
The AIRB and SA approaches are explained in more detail in the Credit Risk Measurement section of the Risk Management paragraph. An analysis on the AIRB and SA portfolios with their accompanying tables is provided in the SA and AIRB Approach sections of Pillar III.
ING Bank uses the AIRB and the Internal Assessment Approach (IAA) for liquidity lines provided to Asset Backed Commercial Paper programmes and this is explained in more detail in the securitisation section.
Excluding equities and ONCOA. (1) Book size: organic changes in book size and composition (including new business and maturing loans). (2) Book quality: quality of book changes caused by experience such as underlying customer behaviour or demographics including changes to credit quality of portfolios.
(3) Model updates: model implementation, change in model scope or any change to address model malfunctions including changes through model calibrations /
› Book quality: Book quality remained relatively stable compared to last year. The increasing RWA by EUR 0.8 billion is the reflection of the deteriorated market circumstances through past years which was visible in the applied regulatory capital models. The downturn factors have been adjusted accordingly for the impacted portfolios, which were mainly the Belgian and Dutch mortgage portfolios and the Small and Medium sized businesses. On the other hand, market circumstances started to improve in 2014 as well, for example, by an upward trend of the Dutch NVM house price index reflecting an increase in house prices in the Netherlands towards the end of 2014.
› Model updates: The Sovereign LGD model was redeveloped in 2014. The key changes were related to replacing the flat 45% unsecured LGD level by different unsecured LGD percentage levels using plausible risk indicators and updating the cover type haircuts. This model redevelopment and multiple other less significant model changes resulted in an RWA decrease of EUR 2.2 billion.
› Methodology and policy: In January 2014 the CRR/CRD IV changes were implemented resulting in an RWA increase of EUR 9.7 billion. The main impact was caused by the implementing of a capital charge against extreme volatility in CVA, increased correlation for Counterparties, increased capital for Central Counterparties and an increased haircut for collateral. This large CRR/CRD IV impact was partly offset by an update to the ING Masterscale to reflect a more accurate risk measurement of the PD values of the low default portfolios and a methodology change to internal guarantees and an SME supporting factor to stimulate lending to SMEs. All in all, these changes and multiple smaller changes resulted in an RWA increase of EUR 3.4 billion.
Credit risk per exposure type and exposure class The table below shows the total READ and RWA for ING Bank by Basel defined exposure types for both the SA and AIRB portfolio per exposure class.
The growth in the Institutions portfolio was driven by the CRR/CRD IV change related to implementation of higher haircut for illiquid collateral which led to the increase in READ for Derivatives (EUR 12.0 billion). Increase in Revolving facilities to Central Banks also contributed to a rise in the exposure (EUR 1.7 billion) over the year. The deterioration of the average risk profile of the Institutions portfolio was partially caused by the shift of the low risk German Bond Investments to exposure class Sovereigns and partially by the Masterscale update, resulting in a shift from lowest to higher PD buckets.
The previously mentioned Masterscale update resulted in a shift between PD bands for this exposure class. Further improvement in the book also supported the reduction in the higher PD bands. The reduction in non-performing READ was mainly due to sale of several distressed real estate assets achieved in 2014.
LTV Residential Mortgages per country The table below shows the weighted average Loan-to-Value (LTV) ratio of the ING Bank Residential Mortgage portfolio per country. All LTV figures are based on market values. In most portfolios, ING uses house price development to index these market values. In several markets, customers provide additional collateral or (government sponsored) mortgage insurance programs are used. None of these additional covers are included in the LTV figures.
Also for Australia the upward trend in the house prices translated to an improvement of the Australian LTV from 66% in 2013 to 61% in 2014. Additionally, the ING Bank wide strategy to limit concentration in the residential mortgage portfolio and the ING Australia objective to only take on new mortgages which have a low LTV, resulted in an improved LTV.
Although the LTV increased over 2014, Turkey still has a relatively low LTV. In Turkey the house prices increased more than income over the past two years. This combined with the willingness of customers to take up higher loan amounts while the house prices are still increasing causes a higher LTV of newly issued mortgages and translates into an increased total average LTV.
Exposure at Default (EAD): The second element is the counterparty’s exposure at default. These models are intended to estimate the outstanding amount or obligation at the moment of default in the future. Since the fact that a counterparty will go into default is not known, and the level of outstanding that may occur on that date is also not known, ING Bank uses a combination of statistical, expert and hybrid models to estimate the Exposure at Default. With the exception of guarantees and letters of credit, the EAD is always equal to or higher than the associated credit risk outstanding, under the assumption that counterparties tend to absorb liquidity from available credit resources before financial problems become apparent to the counterparty’s creditors. The EAD is largely a function of the type of credit facility (revolving, overdraft, term) offered to the borrower.
Maturity (M): The fourth element is the time to the maturity of the underlying financial obligation. Regulations (CRR/CRD IV) cap the maturity element at five years, despite the fact that many obligations extend their facilities for longer than five years.
Other retail SB NL Client - Credit Risk Products 6,322 6,441 Retail NL Unsecured 4,362 4,452 SME Belgium 3,908 4,068
AIRB credit exposures by exposure class The next table gives an overview of the relevant parameters for determining the capital requirements for AIRB models.
Changes in risk parameters since last reporting date The table below shows the changes in risk parameters since last reporting date in percentages. This should be read in conjunction with the table in the paragraph ‘Disclosure of model outcomes’, above.
The CRR/CRD IV implementation impacted READ and RWA density. This is visible in Institutions, where an opposite movement is seen for RWA density, compared with PD and LGD. The addition of a factor in the risk weight calculation for qualified CCPs for Default Fund Contribution increased RWA density significantly.
Includes the AIRB portfolio only; excludes securitisations, equities and ONCOA. * Average PD 2013 includes performing loans only.
Both of the back-tests show that the expectations are quite in line with the observed default rate and the observed loss rate. For the Residential mortgages portfolio, the default rates and the loss rates exceed the predicted values as a result of shift of forborne assets from performing to non-performing, and the 1-year probation period put in place as a result of the implementation of the updated forbearance policy in 2014.
Sovereigns and their central banks 2,369 244 5 2,374 1,902 80.1% Non-central government public sector entities 173 118 173 85 48.9%
In spite of the portfolio growth, the RWA density decreased from 74.4% to 68.7%. This improvement is mainly due to the revision of the definition for “secured by immovable property” as the previous definition did not capture all covers correctly. The improvement is mainly seen for the exposure class “secured by commercial real estate” in the Australia retail portfolio.
Sovereigns and their central banks 1 943 1,430 2,374 Non-central government public sector entities 6 167 173
Excluding the impact of the de-consolidation of ING Vysya Bank, which was mainly seen in the 50% and the 100% risk weight buckets, there is an increase in the SA portfolio. The increase was mainly due to growth in Turkey and Poland Retail and was seen mainly in the 50% risk weight bucket. A decline in the 75% bucket was seen due to a transfer of the Dutch Private Banking portfolio from SA to AIRB approach.
The total risk costs for the year 2014 were just under EUR 1.6 billion confirming the downward trend since the end of 2013. Where the average quarterly risk costs over the years 2012 and 2013 were at EUR 550 million, since the beginning of this year they have trended downwards to stabilise at around EUR 400 million per quarter. The total stock of provisions decreased to EUR 6.0 billion due to the deconsolidation of ING Vysya Bank and slightly higher write-offs due to the sale of non-performing loans.
Includes both AIRB and SA portfolios; only Lending and Investments are included; excludes securitisations, equities and ONCOA.
Includes both AIRB and SA portfolios; excludes securitisations, equities and ONCOA. (1) Rest of the World
ING Bank has seen many of its Large Corporate customers obtain funding from capital markets in the course of 2014. This often leads to large undrawn commitments with ING Bank. These stand-by commitments are usually for top rated Corporates which have historically shown a reluctance to draw these facilities. In 2014, an increase in the undrawn commitments is mainly seen for Large Corporates in the Natural Resource industry of Structured Finance and Corporate and FI Lending as new limits were granted in these specific departments.
Counterparty credit risk The main activities that qualify under counterparty credit risk are derivatives trading activities and securities financing. As part of these activities, ING Bank enters into master agreements such as ISDA master agreements and Global Master Repurchase Agreements (GMRAs). Under the terms contained in sections related to Minimum Threshold Amounts and Minimum Transfer Amounts of Credit Support Annexes (CSA) or other similar clauses, both ING Bank and it counterparties may agree to pledge additional collateral to each other in the event that either party is downgraded by one of the established rating agencies. ING Bank has determined that under prevailing market conditions, a one notch downgrade would only have a limited effect on the amount of additional collateral that ING Bank would be required to pledge under these agreements. However, the actual amount that ING Bank may be required to pledge in the future may vary based on ING Bank’s portfolio composition of both derivatives and securities pledged in securities financing transactions, market circumstances, the number of downgrade notches as well as the terms and conditions of future CSAs or other similar agreements entered into.
Securities financing by product type The table below is based on the marked-to-market plus (regulatory) add-on methodology used for calculating CRR/CRD IV RWA for determining the gross exposures. The methodology to calculate the READ is called the Current Exposure Method (CEM) and together with the other building blocks (PD, LGD and Maturity) it allows ING Bank to classify virtually all of its Securities Financing exposures under the AIRB approach.
of which Pre Settlement 8,426 3,890 3,403 2,375 Institutions 98,854 1,349 5,110 4,379 1,578 of which Pre Settlement 162,348 47,381 34,779 36,840 Corporates 196,612 90,032 11,519 44,865 77,284 of which Pre Settlement 12,254 10,568 10,367 11,904 Residential Mortgages 269,832 424,231 2,636 29,867 217 of which Pre Settlement 0 Other Retail 31,199 24,006 1,016 7,048 5,313 of which Pre Settlement 136 65 63 149 Securitisations 6,927 0 0 0 0 of which Pre Settlement 112 112 112 158 SA Sovereigns 2,380 0 of which Pre Settlement 5 5 5 10 Institutions 2,069 0 86 1 of which Pre Settlement 361 287 113 117 Corporates 8,279 3,422 128 128 6 of which Pre Settlement 19 14 14 47 Residential Mortgages 5,780 12,868 1 of which Pre Settlement 0 0 0 0 Other Retail 9,160 1,929 235 4 15 of which Pre Settlement 1 1 1 2 Securitisations 0 0 0 0 0 of which Pre Settlement 0 0 0 0 Total Bank 725,159 558,673 20,673 88,552 84,726
Depending on ING Bank’s role as investor, originator, or sponsor the objectives, the involvement and the rules applied may be different. ING Bank is primarily engaged in securitisation transactions in the role of investor (in securitisations arranged by others). To a lesser extent, ING Bank is also an originator or sponsor of securitisations that are usually traded in the public markets. ING does not re-securitise its securitisations exposure and even though ING bank hedges its securitisation positions, such instruments are not recognized as credit risk mitigants for regulatory capital purposes.
Under the RBA, the risk-weighted assets (RWA) are determined by multiplying the amount of the exposure by the appropriate regulatory risk weights, which depend on: the external rating or an available inferred rating, the seniority of the position and the granularity of the position.
Securitisations Exposure Class (2) Securitisation Investor 6,357 7,544 –15.7% Securitisation Sponsor 1,458 2,314 –37.0%
ING exposure to securitisations has continued to decline in all regions and asset classes due to targeted efforts to decrease impairment risk, credit migration and concentration risk on ING’s non-trading books . Reduced liquidity facilities provided to the Mont Blanc conduit are reflected in the reduction in Sponsor securitisations. Decrease in Spain and United Kingdom was observed due to reduced investments in RMBS’s.
Sponsor securitisations In the normal course of business, ING Bank structures financing transactions for its clients by assisting them in obtaining sources of liquidity by selling the clients’ receivables or other financial assets to an ING originated Special Purpose Vehicle (SPV). The transactions are funded by the ING administered multi seller Asset Backed Commercial Paper (ABCP) conduit Mont Blanc Capital Corp. (rated A-1/P-1). Despite the conditions in the international money markets Mont Blanc Capital Corp. continues to fund itself externally in the ABCP markets.
The types of asset currently in the Mont Blanc Conduit include trade receivables, consumer finance receivables, credit card receivables, auto loans and RMBS.
The liquidity facilities, provided to Mont Blanc are EUR 896.2 million. The drawn liquidity amount as at 31 December 2014 is EUR 0 million.
Securitisations originated by a company may only be considered for balance sheet de-recognition when the requirements for significant credit risk transfer have been fulfilled. However, for a securitisation transaction to be recognised for RWA reduction, risk transfer alone may be insufficient due to the increasing impact of the maturity mismatch formula. As a consequence, the RWA of the retained tranches for one of the transactions would be higher than the total RWA of the underlying pool before securitisation, and therefore that transaction is treated for RWA purposes as if it was not securitised.
Compared to 2013, the increase in exchange traded equity exposures is mainly due to a new investment of EUR 73 million under ING Corporate Investment. As a result of IFRS 11 being effective as per 1 January 2014, joint ventures are now reported by means of equity accounting instead of proportionate consolidation. The increase in private equity exposures is mainly due to the inclusion of joint ventures of Real Estate Development (exposure of EUR 100 million).
› The deconsolidation of ING Vysya Bank led to an increase in MRWA of EUR 0.6 billion mainly related to the Foreign Exchange risk of the equity stake in ING Vysya Bank.
Capital elements Reserve Property revaluation reserve • • –102 Cash flow hedge reserve • –2,204 Available-for-sale reserve Debt securities • • –977 –1,680 Equity securities • • -253 –225 Currency translations reserve • • –847 P&L All items impacting P&L, excluding DVA • • –99 –174 –179 –39 –145 DVA own issued debt/structured notes • 194 DVA derivatives • 5 32 -9
Revaluation Reserve Impact The revaluation reserve for real estate, debt securities, equity securities and for currency translations will be part of Basel III equity. The revaluation reserve for cash flow hedges will not be part of Basel III equity. The interest rate sensitivity shown for debt securities is the unhedged interest rate sensitivity, i.e. debt securities in hedge accounting relations are excluded.
Cash and holdings at central bank 4,499 6,099 Securities issued or guaranteed by sovereigns, central banks and multilateral development bank 86,863 74,334 Liquid assets eligible at central banks (not included in above) 88,199 92,871 Other liquid assets 3,320 6,700 Total 182,880 180,004
The presented distribution of liquid assets over different classes represents the liquid assets across the whole bank. This includes also entities where restrictions may apply on transferability and convertibility due to regulatory constraints or other measures. The slight increase of the buffer in 2014 in comparison with 2013 is due to an overall increase in liquid securities.
Basis Point Value (BPV) The change in the Net Present Value of a cash flow or a pool of cash flows due to a one basis point change of the yield curve.
Combined ratio The sum of the claims ratio and the cost ratio for a non-life insurance company or a reinsurance company. A combined ratio of more than 100% does not necessarily mean that there is a loss on non-life insurance policies, because the result also includes the allocated investment income.
› Power to govern such policies under statute or agreement. › Power over more than half of the voting rights through an agreement with other investors.
Convexity The non-linear relationship between changes in interest rates and changes in bond prices and their Net Present Value. It is a very important market risk measure for portfolios containing embedded options.
Country of residence From the perspective of a given country, a resident is an individual or legal entity that has its major operations in the given country. All of ING’s customers and entities are said to be residents in only one country.
Credit Guarantee Scheme (CGS) in the Netherlands As part of the measures adopted to protect the financial sector, the Dutch State introduced a EUR 200 billion credit guarantee scheme for the issuance of medium term debt instruments by banks (the Credit Guarantee Scheme). ING Bank N.V. issued government guaranteed debt instruments under this Credit Guarantee Scheme (‘Government Guaranteed Bonds’) as part of its regular medium-term funding operations. The relevant Rules of the Credit Guarantee Scheme set forth the rules applicable to any issues under the Credit Guarantee Scheme and include information such as scope, denomination, tenor and fees payable by the banks.
Credit rating Credit ratings, as assigned by rating agencies (such as Standard & Poor’s and Moody’s), are indicators of the likelihood of timely and complete repayment (by ING) of interest and instalments of fixedincome securities.
Credit Support Annex (CSA) Supporting documentation for a collateral arrangement that accompanies a master agreement used in the execution of an over-the-counter derivative swap. The document clearly delineates the rules and procedures for the use of the collateral in the backing of the traded securities. A CSA may be executed as a separate document, or can be part of the master agreement.
Derivatives A derivative is a financial instrument or other contract with all three of the following characteristics: (a) Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a nonfinancial variable that the variable is not specific to a party to the contract (sometimes called the ‘underlying’.
Earnings Sensitivity (ES) Measures the impact on earnings resulting from changes in economic and financial conditions over a one-year horizon.
ESR Policies Our financing and investment policies, as well as our broader business ambitions are structured around strongly embedded social, ethical and environmental criteria. An extensive ESR policy framework is to guide our decisions for customer engagement and assessing finance proposals.
Financial asset Any asset that is: › cash › an equity instrument of another company › a contractual right to: › receive cash or another financial asset from another company › exchange financial instruments with another company under conditions that are potentially favourable › a certain contract that will or may be settled in ING’s own equity instruments.
› Certain contracts that will or may be settled in ING’s own equity instruments.
Forbearance activities Forbearance occurs when the client is considered to be unable to meet its financial commitments under the contract due to financial difficulties, and based on these difficulties ING decides to grant concessions towards the client by either loan modification or refinancing. Modifying the terms and conditions of the contract to enable the client to service the debt is defined as modification. Refinancing relates to putting in place a new loan contract to ensure the total or partial repayment of an existing loan contract, of which the debtor is unable to comply with. Examples of forbearance measures are: postponement and/or reduction of loan principal and/or interest payments, extended payment terms, debt consolidations and deferral of foreclosures.
Fully loaded CET 1 ratio The CRR/CRD IV Common Equity Tier 1 ratio calculated according to the 2019 end-state rule.
IGD Solvency ratio NN Group’s solvency position on a consolidated basis is calculated under the IGD and is calculated as the difference between (i) the consolidated assets eligible for inclusion in the calculation of the solvency margin based on the consolidated data; and (ii) the minimum amount of the solvency margin calculated on the basis of the consolidated data. The IGD capital is defined as shareholder’s equity plus hybrid capital, prudential filters and certain adjustments and is calculated in accordance with method three “method based on accounting consolidation” of the Dutch Financial Supervision Act. Required capital is based on the EU required capital base. In applying this method, a solvency deficit of an insurance subsidiary, if any, is taken into account, as well as regulatory adjustments of the Dutch insurance subsidiaries based on the Dutch Financial Supervision Act. The IGD Solvency I ratio is calculated by dividing the IGD capital by the EU required capital base.
Internal Rate of Return (IRR) Internal rate of return is the discount rate at which the present value of distributable earnings from new business equals the investment in new business (i.e. the projected return on the investment in new business) is calculated.
Initial Public Offering (IPO) When a company publicly offers its shares for sale for the first time on a stock exchange, this is called an Initial Public Offering (IPO). The most important goal of an IPO is to raise capital that the company can use to invest and expand.
Legal risk Legal risk is the risk related to: › A failure (or perceived failure) to adhere to applicable laws, regulations and standards.
› Contractual liabilities or contractual obligations that are defaulted or cannot be enforced as intended, or are enforced in an unexpected or adverse way.
Mortgage-backed Securities (MBS) A security whose cash flows are backed by typically the principal and/or the interest payments of a pool of mortgages.
The profit and loss account reflects the investor’s share in the results of operations of the investee.
Net operating ROE The Net operating ROE of the ongoing business (or a segment) is defined as the net operating result of the ongoing business (or a segment) divided by the average adjusted allocated equity of the ongoing business (or a segment) expressed as a percentage. The allocated equity is adjusted to include minority interests and exclude the revaluation reserves for debt securities, equity securities and properties in own use, the cash flow hedge reserve and the related crediting to life policyholders, to arrive at adjusted allocated equity. Net Operating ROE measures the Company’s profitability by comparing how much net operating result is generated with the money shareholders have invested. The higher the Net operating ROE, the more efficient the Company is in using its net assets and the better the investment return is to shareholders.
Nomination Committee The Nomination Committee, consisting of members of the Supervisory Board, advises the Supervisory Board on aspects such as the composition of the Supervisory Board and Executive Board.
Operational risk The risk of direct and indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.
A qualifying insurance policy is an insurance policy issued by an insurer that is not a related party of the reporting enterprise, if the proceeds of the policy: › Can be used only to pay or fund employee benefits under a defined benefit plan.
Projected unit credit method An actuarial valuation method that considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.
Problem loans In line with the IFRS, after a payment default of an obligor of more than 90 days, or the likelihood of a payment default of the customer, the particular loan and all other positions will be regarded as problem or non-performing loans.
Remuneration Committee The Remuneration Committee, consisting of members of the Supervisory Board, advises the Supervisory Board on aspects such as the terms and conditions of employment (including their remuneration) of Executive Board members and the policies and general principles on which the terms and conditions of employment of Executive Board members and of senior managers of ING and its subsidiaries are based.
(individuals, families, small businesses, large corporations and financial institutions, governments, public-private entities and supranational agencies), capital providers, employees, supervisors, regulators, civil society organisations, citizens and society at large.
Surrender The termination of a life or retirement contract at the request of the policyholder after which the policyholder receives the cash surrender value, if any, on the contract.
Sustainable assets under management / socially responsible investments Assets of customers registered at ING Bank, which are defined as sustainable following an assessment of environmental, social and governance (ESG) parameters / criteria.
Tier 2 capital Tier 2 capital shall consist of the following: (a) Capital instruments and subordinated loans where the conditions laid down in Article 63 (CRR) are met.
Treasury bills Generally short-term debt certificates issued by a central government. Dutch Treasury Certificates are regarded as Dutch Treasury Bills.
Underlying result Underlying result is a measure to evaluate the result of the segments. It is derived from the result in accordance with IFRS-EU by excluding the impact of divestments, discontinued operations and special items.
Any forward-looking statements made by or on behalf of ING speak only as of the date they are made, and, ING assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason.