Where we operate We operate in more than 40 countries in Europe, North America, South America, Middle-East, Asia and Australia
#1 ranking Our customer-centric focus has resulted in nine countries achieving first place in NPS compared with two or more selected local peers. NPS surveys were held in 11 countries with retail banking activities.
One-year price development of ING depositary receipts for shares Our share price has increased by 7.2% in 2014, outperforming all three banks indices.
› Number one ranked ‘diversified financials’ company in the Dow Jones Sustainability Index.
› Comfortably passed the European Central Bank’s Asset Quality Review and stress test.
Corporate Governance Chairman’s statement 62 Report of the Supervisory Board 64 Corporate Governance 68 Report of ING Trust Office 80 Report of ING Continuity Foundation 83 Conformity statement 84 Section 404 Sarbanes-Oxley Act 85 Remuneration report 87 Works councils 98
Additional information Risk factors 340 Additional Pillar III information 363 Glossary 399 General information 411
2014 was an important year for our customers and for ING. We launched our Think Forward strategy and have been working hard to raise the customer experience to a higher level. Customers across the world acknowledge our efforts. More and more want to do business with us. We extended more credit to support our business clients and accelerated sustainable transitions with our lending activities. This first integrated annual report highlights our efforts. I am proud to present a new report for a bank with a sharper purpose and a new strategy.
As a leading European bank active in more than 40 countries, we are well positioned for the future and are able to assist both our retail and commercial banking customers worldwide. I am proud that our customers value our efforts. ING was recognised by Financial Times’ The Banker as Best Bank in the Netherlands for the third consecutive year and Best Bank in Belgium for the second time in a row. ING Australia was again chosen as Australia’s most beloved bank by customers. These awards encourage us that we are delivering what our customers want and that we are fulfilling their needs. Furthermore, in 2014, ING welcomed over one million new customers and established half a million primary banking relationships. Earning the primary relationship is needed to get to know our customers well and to be relevant for them.
One of our key strategic priorities is developing analytics skills to understand our customers better. Advanced analytics are not only a means of combatting fraud and cybercrime, they can also give customers the tools to better understand their own finances, to make smarter decisions and reach their own goals. We continually assess how best to achieve our strategic goals of empowering customers, whilst respecting their privacy. This is an area I believe would benefit considerably from serious, informed public debate.
We actively look at opportunities and growth areas in the sustainability arena and are eager to partner with clients to finance their sustainability challenges. This resulted in a total amount of EUR 19.5 billion sustainable transitions financed at year-end 2014.
As a financial intermediary we take on financial risks that would otherwise be retained by individuals and within companies. At the same time we apply our expertise and resources to minimise the aggregate risk for ING.
By doing all of these tasks effectively, we seek to accelerate economic activity. Both individuals and companies improve their ability to make and act on decisions that would not be possible without financial intermediation. Through facilitating and promoting responsible decisions and accelerating transitions towards a sustainable economy, we empower our customers, providing them with a strong financial platform.
How we create value for our customers and other stakeholders in life and in business
› We pay for costs, such as wages and the cost of delivering our core functions; we pay tax at regular rates
› We reinvest part of our profits and have reinstated dividend payments to our shareholders.
EUR 19.5 bln sustainable transitions financed, represents the volume of business that ING
conducts with customers and projects that provide sustainable solutions and outperform their sector on environmental or social performance.
Our resources The main resources we have at our disposal to create value are our people, our capital and our network.
ING behaviours are the commitments we make to each other and the standards by which we will measure each other’s performance. Our behaviours are encapsulated in three phrases: you take it on and make it happen; you help others to be successful; and you are always a step ahead.
Retail Banking chapter and Commercial Banking chapter for more information about our network.
Innovation and information technology chapter for more information about how we are integrating innovation into our day-to-day business.
The success of our efforts should therefore be measured by the totality of the economic, social and environmental effects of our actions on all stakeholders. Some of these are currently not sufficiently captured by traditional management information systems. Like other organisations, we are gradually extending our knowledge and we are developing and/or implementing measurement systems that allow us to quantify these better so that we can communicate our performance more effectively to our diverse group of stakeholders.
Our stakeholders Our customers are key stakeholders for the business. We serve over 32 million customers in more than 40 countries. They include individuals, families, small businesses, large corporations and institutions (financial institutions, governments, public-private entities and supranational agencies). We report to our shareholders in the US, Europe and elsewhere in the world. Our other important stakeholders include other capital providers (bondholders), our more than 53,000 employees, supervisors, regulators, civil society organisations, citizens and society at large.
ING Group 6 Report of the Executive Board How we create value continued
Value creation and our purpose and strategy We have expressed our purpose as empowering people to stay a step ahead in life and in business.
Our purpose In March 2014, we articulated our newly defined purpose and the Think Forward strategy. We have defined our purpose as: ‘empowering people to stay a step ahead in life and in business’.
Many of our customers are self-directed. They expect solid support from their banking partner, but want to make their own decisions.
› NN Bank ING committed to create NN Bank as part of NN Group as a viable, standalone and competitive business. This project is underway.
Anytime, anywhere We work to make our services available where our customers are and when they need them. Banking should be possible anytime and anywhere.
The number of retail primary accounts is increasing. In 2014, we welcomed over one million individual customers and established half-a-million primary banking relationships.
ING Group 10 Report of the Executive Board Our strategy and progress continued
Think beyond traditional banking to develop new services and business models The marketplace to meet customers, whether retail or business clients, is evolving towards virtual networks. In order to address the future needs of customers, we need to think beyond traditional banking. Our customers will still be needing banking services, but it is less obvious that they need banks to deliver those.
There is increasing competition, much of it from new entrants from outside the industry. We are investing to stay relevant for current and future customers. As a consequence, we need to develop new services and business models. We have to be prepared to disrupt ourselves before we are disrupted.
Simplify and streamline To serve our customers effectively we need to operate as an agile, responsive business. The right people need to be able to take important decisions quickly.
We are reviewing existing mandates to give employees more scope to take decisions. Committees are only formed where decisions run across several mandates.
Operational excellence Operational excellence is key to delivering on the Customer Promise to our customers and serving them better and more efficiently in a digital world. To maintain this focus, we are working on setting clear operational excellence benchmarks and measuring performance throughout the company.
Our employees indicated that progress on internal process efficiencies was slow and that this was beginning to build frustration in the company. They also signalled that senior leaders should pay more attention to employees’ opinions.
Lending capabilities ING Bank is currently in the comfortable position of being able to fund its assets from its deposits to a large extent. We have strong savings gathering and lending capabilities and have achieved a lot through balance sheet optimisation, but savings and lending are not evenly distributed across our business units.
At Commercial Banking, we are growing our capabilities in Industry Lending, Working Capital Solutions and Trade Finance. Structured Finance has achieved a top-10 position globally.
Net lending increased by 3 percent in 2014. In our Ambition 2017 programme we aim for an approximate 4 percent annual increase.
These strategic strengths are supported by a disciplined and rigorous approach to managing costs, risk and capital resources.
The strength of our balance sheet attests to the quality of our risk management. We have consistently demonstrated our ability to generate capital and now have a limited requirement for professional funding.
Internationally, our thriving commercial banking network is active in over 40 countries. We operate a good mix of mature and growth businesses worldwide, which we believe provides both earnings stability and significant upside potential.
Challengers We strive to strengthen our market position in these markets. Our business units offer both retail and commercial banking services. Our retail activities are mainly direct banking services delivered online which provide a cost advantage over traditional banks.
ING Group 12 Report of the Executive Board Our strategy and progress continued
Our financial roadmap We have published financial targets for 2017 reflecting our ambitions. These include a common equity Tier 1 ratio above 10 percent, a leverage ratio at around 4 percent, 50–53 percent cost/income ratio and a 10–13 percent return on equity. As also stated in our Ambition 2017 programme, ING is committed to returning capital to shareholders through a sustainable dividend policy.
The financial roadmap for the period until 2017 will differ according to the country. In general, we are pursuing sustainable profit growth in our challenger and high-growth markets. We are managing our market leader businesses in Benelux countries to maintain income levels.
Macroeconomic developments In 2014, the development trajectories of the US and the UK on the one hand, and Europe on the other, diverged. The US economy continued to grow steadily and the Federal Reserve (Fed) was able to end part of its unconventional monetary policies, the monthly buying of securities (i.e. quantitative easing). For investors worldwide, one question dominated the picture in the second half of the year: when would the Fed start raising rates? This is expected sometime in 2015. The UK also saw healthy economic growth with interest rate increases expected there in 2015 as well.
Meanwhile in the eurozone, the recovery remained weak, unstable and uneven. Persistently low inflation (averaging 0.4 percent in 2014) and worries about imminent deflation prompted the European Central Bank (ECB) to take a series of unconventional measures. The main refinancing rate was lowered to 0.05 percent in 2014, while the interest rate on deposits held by banks at the ECB moved into negative territory, to -0.2 percent. The ECB implemented conditional long-term refinance operations and announced purchase programmes for covered bonds and asset-backed securities.
With the European economic recovery still distinctly lacklustre, the last quarter of 2014 saw the ECB repeatedly allude to possible additional measures in 2015. Quantitative easing was subsequently announced in January 2015.
Progress on regulatory initiatives that are most relevant to us This was an important year for ING, and for European banks in general.
The Capital Requirements Directive IV (CRD IV) came into force on 1 January 2014. This, and later refinements, implemented European regulation on capital, liquidity and other aspects such as remuneration. Broadly speaking, CRD IV is an essential step towards a single rule book in the European Union. However, we do have concerns with regard to the relatively large scope allowed for discretionary national measures.
Finally, the Dutch Parliament has approved the introduction of the Banker’s Oath, a set of principles that reconfirms the industry’s commitment to ethical behaviour. From 1 January 2015, it includes a disciplinary sanction mechanism for all Netherlands-based employees. Oath taking has been a requirement already for Members of the Executive and Supervisory Boards since 1 January 2013. The adopted legislation extends this to all internal and external employees working in the Netherlands who have a contract of employment with ING.
Digitisation and changing customer behaviour The future of banking will be in the digital domain. This digital revolution is already underway with customers adopting digital channels en-masse, especially with respect to mobile banking. The shift to mobile in retail banking is starting to be mirrored in commercial banking, albeit at a slower pace (and probably less far-reaching).
This can mean they expect to receive new services before we can develop them. Often, it is not us advising customers, but them telling us what they now need to get the service they require.
› Cultural change. Tapping more into the talents of employees. Further developing a transparent and diverse no-nonsense culture.
Materiality: finding out what matters most If we are to improve as an organisation, we need to identify and understand the most important issues for our stakeholders and how these relate to the actions and decisions that we take. To gain this understanding, we conduct regular materiality assessments to find out what the key priorities for our stakeholders are and their potential impact on our organisation. The results guide us in our strategic decision-making, stakeholder engagement agenda and reporting framework.
The materiality assessment also confirms that our purpose puts us on the right track for meeting stakeholders’ priorities. Empowering people to stay a step ahead in life and business encompasses both financial and non-financial components.
The indirect social and environmental impacts of our finance and investment policies are gaining more attention. Our stakeholders confirmed this in the materiality assessment: ‘Sustainable finance and investment policies’ moved up the list of high-priority issues. In recent years we have increasingly integrated sustainability into our core activities, which has also led to an increased focus on mitigating the harm of our finance and investment activities. We have an evolving Environmental and Social Risk framework and sustainable lending practices which guide our conduct in this area.
Labour practices 12 Diversity and equal opportunity at ING 13 Career development and employability of ING employees 14 Remuneration of ING employees
Economic contribution 1 Economic performance Our stakeholders want a financially healthy and stable company. It is one of our top priorities.
Trust is the cornerstone of successful banking relationships. Protecting the privacy of ING’s customers and ensuring the security and confidential treatment of data through the right rules and regulations helps us retain and gain the trust of our customers.
Customer Privacy and Data Security remained key. How we are balancing our responsibilities and Innovation and information technology.
We made further efforts to improve transparency, e.g. by trying to align processes more directly with customer priorities.
10 Stakeholder dialogue Stakeholders expect us to engage with them and to incorporate their views and concerns. This helps us make informed decisions and become a better organisation.
We are reviewing our current leadership programmes and tailoring these to be much more integrated with values, behaviours and diversity principles.
Environmental footprint 15 ING’s direct footprint By reducing our direct footprint (energy efficiency measures, limiting business travel) the environment benefits and we reduce costs.
Another example in this regard relates to the additional total loss absorbing capacity (TLAC) requirements for global systemically important banks (G-SIBs), proposed by the Financial Stability Board in November 2014 to ensure that, in case of a default, financial institutions can be resolved in an orderly manner without tax-payer support. Whereas ING understands and supports the concept of bail-in debt to increase banks’ going concern loss absorption, ING is concerned that the draft TLAC regulation in its current form would force banks to raise large amounts of professional funding, which would negatively impact the availability of financing in the broader economy.
We are now in a position to resume dividend payments to our shareholders in line with our policy of linking dividends to long-term underlying development of cash earnings.
Social, ethical and environmental criteria are strongly embedded in our financing and investment policies and practices. We have set clear targets to meet the growing demand for products and services that not only generate good financial returns, but also facilitate the transition towards a more sustainable economy. Our research teams actively explore business cases for sustainability.
This business model is founded on our strong conviction that we will only be successful in the long term if our business contributes to economic development, a healthy environment and a stable society.
In pursuing all these objectives we strive to ensure compliance with data protection laws and regulations and aim to provide optimal security of data as well as for all transactions, whilst respecting customers’ privacy.
The consideration we give to all interested parties may sometimes prevent us from publishing all details about our contacts with supervisors or other stakeholders. Information we share with these parties may also need to be kept confidential on competitive or supervisory grounds. For these reasons, we do not normally publish information about our interactions with policymakers and supervisors.
ING in Society section at ING.com for our relevant standpoints on public consultations.
We have been continually reviewing and amending our remuneration policies since 2008 in response to the ongoing review of the financial system, public debate and applicable regulatory developments.
Addition to loan loss provision 1,594 2,288 2,121 Underlying result before taxation 4,724 4,323 3,554 Underlying net result Banking 3,424 3,155 2,450 Divestments/special items –819 –124 684 Net result Banking 2,606 3,031 3,134 Legacy insurance businesses –1,355 515 1,228 Net result attributable to ING Group's shareholders 1,251 3,545 4,362
Total assets ING Groep N.V. 993 1,081 1,165 Shareholders’ equity ING Groep N.V. 50 46 51 Core Tier 1 securities ING Groep N.V. 0 1.5 2.3 Customer lending ING Bank N.V. 508 493 520 Customer deposits ING Bank N.V. 489 475 460
Net Promoter Score Retail Banking (number of countries with number one ranking) 9 (2) 6 7 Total number of Retail Banking primary relationships (in million) 8.2 7.7 n/a Sustainable transitions financed (in EUR billion) 19.5 n/a n/a Sustainable assets under management (in EUR million) 1,538 886 673 Employee engagement score 75% 74% 73% Total extrapolated CO2 emissions (in kilotonne) (3) 102 127 n/a
(2) Our Net Promoter Scores (NPS) in 2014 are based on the latest research results available over 3Q and 4Q. (3) We report on total extrapolated CO2 emissions (in kilotonne) excluding NN Group results. In 2012 no CO2 data were gathered in CO2 equivalent.
Risk costs approached normalised levels as the overall economic environment gradually improved. Nevertheless, the economy is volatile and a certain degree of political uncertainty remains.
The increase versus 2013 was caused by the annual net profit and increased revaluation reserves due to lower interest rates, partly offset by the impact on equity of NN Group’s IPO in July 2014.
The leverage ratio was up from 3.9 percent due to higher capital, which more than offset an increase in exposure.
Our focus on sustainability driven business resulted in EUR 19.5 billion Sustainable Transitions Financed at year-end 2014; and Sustainable Assets under Management increased to EUR 1,538 million, which underlies our client’s appetite for products and services that apply sustainability criteria.
About Retail Banking The customer – individuals, SMEs and mid-corporates – is at the heart of our retail business. Customers want easy and transparent products, tools and advice to empower them to take smarter financial decisions during their lifetime, such as when buying a house, saving for retirement or for their children’s education. We are prominent in innovative distribution via mobile, the internet, call centres and face to face.
These reflect ING’s three categories of markets: Market leaders, Challengers, and Growth markets. We are differentiating the implementation of our strategy by country.
The total number of customers at Retail Banking went up in 2014 to reach 32.6 million at year-end.
Retail Banking posted strong 2014 results. We have a good track record and strive to further leverage our strong market position.
Our deposit base positions us well to provide lending to our customers. We plan to further diversify the asset base and build sustainable market share.
ING Poland’s mobile app has been downloaded 700,000 times since its launch in 2012. In France, ING is the leading online bank.
In November, we announced a major change programme in the Netherlands to introduce a seamless, real-time customer experience across all banking channels. This should enable customers to do their daily banking when, where and how they want, and switch between channels with no interruption to their data or service.
We believe this omnichannel approach (swipe, click, call, face) to banking services will also lead to increased frequency of customer contact and will help us earn the primary relationship.
ING has comprehensive prevention, detection and responsive measures in place to defend against cyber attacks and reduce the level of any losses. Bank-wide, we have set up Cybercrime Expertise & Response Teams.
Think Forward in practice In March 2014, ING launched its new banking strategy “Think Forward”, which outlines the actions we are taking to secure our future as a leading European bank. The Bank’s customer promise – to deliver a differentiating customer experience with clear and easy, anytime/anywhere services that empower customers and keep getting better – is at the core of the changes in Retail Banking.
In the Netherlands, the Financially Fit customer philosophy aims to create consumer awareness to delve into their personal financial situation. We inspire consumers with web support, online seminars, financial information evenings at branches and an omnichannel application that gives insights into financial dilemmas. The Financially Fit articles and tools were accessed more than three million times.
What did we do? We organised, among other things, a Family Business Day; established Family Business Advisory Teams, which paid joint visits to targeted customers to inform them about what we can do for them, and invited customers to our local Inspiration Sessions and online seminars on family affairs. Sustaining the long-term continuity of their business in perfect harmony is key. We aim for customers to perceive us as their primary bank and strategic business partner.
Specific initiatives to support businesses include ING Turkey’s new “Generation to Generation Family Business” project. This nine-month programme seeks to increase the competitiveness and sustainability of the country’s family businesses. The aim is not only to bridge the gap between generations, but also to help them adopt strong financial policies and establish a robust corporate management structure.
Family businesses are important to ING. At ING Belgium, for example, we aim to provide shareholders of such companies with solutions that not only consider both private capital and business assets, but also the specific characteristics of “family shareholdership”. In 2014, we enhanced our services, including appointing 25 private bankers as “Adviser Family Businesses” and by co-operating with external partners; organising wellattended events and paying joint visits to companies.
Turkey, Poland, and Romania have improved their SME lending processes by reducing the response time to customers. Their processing times for lending approvals have fallen to only 48 hours.
We are already making headway. Of our total individual customers (32.6 million), we have 8.2 million customers with whom we maintain a primary relationship. At ING, primary customers are active payment customers, who – additionally – have recurrent income on the payment account and who are active in at least one extra product category. ING Poland also reached an important milestone during the year of one million primary customers.
ING-DiBa is known for making banking as simple as possible. But until not so long ago, becoming a new customer of ING-DiBa was far from straightforward. Potential customers had to queue up at a German post office. Not any longer.
A new online video identification system – introduced in 2014 – radically simplifies the process of joining the bank. Instead of having to queue potential customers just answer a couple of questions to qualify.
Video identification is a big leap forward in customer care, an example of the greater flexibility afforded online.
The Web Café is catching on. Since its launch, it has welcomed over 370,000 visitors. Each month, 50 percent of visitors are new.
Beyond banking Thinking beyond traditional banking is another strategic priority. We want to stay relevant for our customers, now and in the future, by offering products they cannot get elsewhere.
With the pilot launch of “Inge”, Dutch customers can now bank with ING by talking to their mobile or tablet. Inge, our new voice recognition feature, listens, understands, talks back and responds to simple instructions.
Driving sustainable progress in society We aim to empower people in life. Implicit in this is the idea that we help them gain the skills and insights they need to secure a sustainable financial future. Various channels and tools help to create awareness and develop knowledge and insight.
We contribute research and donate funds. We make our networks available and share core knowledge, expertise and skills.
ING Italy’s BitBumBam, a contest aimed at supporting projects and ideas that help new generations learn and develop through the innovative use of technology, raised EUR 40,000 and 18 months of mentorship from iStarter to help launch three innovative educational projects for families, children and school.
ING Groenbank is accelerating the transition to a sustainable society by helping private and business customers seize the opportunities sustainable practices have to offer.
ING Belgium has different ways of measuring customer satisfaction: It has set up a special web page for customers to provide feedback and suggestions.
The “One senior manager for 100 customers” initiative equips retail customers in Belgium with a dedicated ING contact whom they can contact for feedback on the products and services, suggestions and complaints. We have also introduced the “Easybox”, an initiative to collect ideas for improvement. It has already been rolled out in 300 branches and more than 1,000 employees use it. Over 200 Easybox improvement ideas have been received and directly addressed, and we intend to extend the use of the Easybox throughout the Belgian organisation.
ING Turkey accesses an external website platform (Sikayetvar.com) to monitor and respond to customer complaints. This website hosts a popular forum in Turkey for airing consumer issues. Currently, ING Turkey’s response time is 2.1 hours, while the sector average is 9.5 hours – this result delivered a number 2 ranking in “Best complaint management in banking sector”.
Operating expenses were up 1.8 percent, mainly due to higher Belgium bank taxes and increased IT costs, partly offset by a lower headcount in the Retail branch network. The strategic projects announced by ING Belgium in early 2013 are on track to realise EUR 160 million of annual cost savings by the end of 2017; of this amount EUR 105 million has already been realised.
Risk costs were down 22.4 percent to EUR 142 million. The decline was mainly in business lending, while risk costs for mortgages increased.
Challengers and Growth markets Retail Germany Retail Germany includes ING-DiBa Germany, ING-DiBa Austria and Interhyp.
Operating expenses increased by 9.2 percent on 2013. The increase primarily reflects an increase in headcount at both ING-DiBa and Interhyp, as well as investments to support business growth and attract primary banking customers.
Retail Rest of World The underlying result before tax of Retail Rest of World rose to EUR 651 million, from EUR 464 million in 2013, mainly reflecting better commercial results in Poland, Italy and Romania and lower losses in the UK Legacy run-off portfolio. This was in part offset by lower results from Turkey and a lower dividend from Bank of Beijing.
Conclusion Retail Banking performed well in 2014, returning strong results in a challenging economic environment. We grew our lending portfolio, attracted more customers and achieved higher levels of customer satisfaction.
We are accelerating the transition to a more sustainable economy. ING Groenbank attracts savings to fund sustainable projects.
We empower our clients to run better businesses Commercial Banking plays a key role in the new ING Bank strategy, focused on empowering clients to stay a step ahead. As a European-centric network bank with global franchises in Industry Lending, Financial Markets, Cash Pooling and Trade Finance, our goal is to deliver a differentiating client experience.
During 2014, the market environment, particularly the eurozone economy, was at times very challenging. Very high levels of bank market liquidity have led to a continuous pricing compression in most market segments, but we have maintained focus on our clients and our key strategic priorities. We believe we have achieved much and are well placed for the years ahead to sustain and reinforce our position as one of the leading European commercial banks.
Global economic growth will place increasing demands on natural resources and brings the risks of global warming. Our clients are responding by adopting more sustainable business practices, and we are adapting our lending to support them.
The loan portfolio is well diversified across sectors and geography. Structured Finance is split into three subsectors: the Energy, Transport and Infrastructure Group (ETIG), International Trade and Export Finance (ITEF) and Specialised Financing Group (SFG).
ITEF supports international trade in basic commodities such as oil, oil products, metals, grain, sugar and cotton. We also finance the export of capital goods and offer services to clients with long-term financing supported by export credit agencies. We provide over 1,000 clients worldwide with highly competitive products, through a strong global team and are recognised as one of the top three banks in commodity finance globally. ITEF surpassed its performance of 2013, despite challenging market conditions influenced by, amongst others, geopolitical tensions, the continued slow pace of economic activity and the considerable decline in oil prices towards the end of 2014.
We supported Gate Terminal to build new facilities for distribution of LNG via vessels and barges through a 15-year, EUR 76 million financing agreement. We acted as mandated lead arranger, together with three other banks and the European Investment Bank. Break bulk (or small-scale) services aim to split up largescale LNG shipments into smaller quantities. This enables the distribution of LNG as a fuel for maritime vessels, ferries, trucks and industrial applications. By using LNG as a fuel, barges, coasters, ferries, as well as heavy trucks, can reduce their carbon dioxide (CO2) emissions by up to 20 percent and their nitrogen oxide (NOx) emissions by up to 85 percent, while reducing sulphur and particle emissions to almost zero, thereby contributing to a low(er) carbon economy. ING clients N.V. Nederlandse Gasunie and Koninklijke Vopak N.V. are the initiators and partners in Gate Terminal B.V.
SFG coordinates global teams that are primarily arranging, underwriting and lending against business cash flows in sectors such as telecommunications, media and technology (TMT), healthcare and specialised support for the insurance industry. The business has a good presence in providing bank lending in the United States’ ‘mid-market’. In 2014 the business results were at record levels with both growth in income and reduced risk costs. Working in conjunction with colleagues in Financial Markets, we are investing in our capital market capabilities so as to further diversify and strengthen the Bank’s financing offering for our clients.
Real Estate Finance Real Estate Finance’s (REF) primary activity is lending to investors in income-producing real estate backed by first mortgages. In 2014, the profitability of REF has further improved, primarily driven by a strong decrease in risk costs, reflecting improvement in the quality of the portfolio. Markets have shown increased activity since the last quarter of 2013, although growth in the Netherlands, the largest country for REF within ING, is still modest.
Margins came under pressure in 2014 as a result of excess liquidity in loan markets, especially for the prized business of corporate clients with investment grade risk profiles. Even so, ING maintained its position as market leader in the Benelux and number one bookrunner in the syndicated loan market in Central Eastern Europe. Within the overall European syndicated loan market, our strong focus on client relationships and our broad European network footprint helped us maintain a top-10 bookrunner position.
Transaction Services We have been investing to grow our capabilities in selected areas in Transaction Services (TS), across International Payments & Cash Management, Trade Finance Services (TFS), Working Capital Solutions (WCS) and also Bank Mendes Gans (BMG). We seek to support our clients’ core processes and daily financial operations through tailor-made, integrated solutions and advice. These activities require a strong focus on operational processing. We are developing our business platforms by deploying new technologies and through increased standardisation across borders, products and services.
Financial Markets Financial Markets (FM) is a well-diversified business exposed to developed markets and fast-growing economies and focused on rates and currencies more than credit. FM is a client-driven business franchise. It aims to service ING’s institutional, corporate and retail clients with relevant financial markets products.
Through FM we provide our clients with a gateway to global institutional markets. We offer the full range of services, from treasury through to capital markets, risk management and structured financial products across four main business lines of Emerging Markets, Developed Markets, Global Equity Products, and Global Capital Markets. We aim to be a leading market player in our home markets, maintain a presence in all major international markets and offer specialist expertise in selected emerging markets and products.
A new sales organisation introduced at the end of 2013 has created a globally consistent structure and refined our strategy with stronger emphasis on our core clients. Our focus is on being the best service provider to our defined client base within our selected markets.
We continue to develop our core franchise in large home or multi-local markets by offering a standardised but comprehensive product set based on local expertise.
Creating a differentiating client experience Commercial Banking plays a key role in the new Bank strategy. The goal of creating a differentiating client experience is at the core of our transformation programme (see CB TOM). We further set out our strategic priorities on earning the primary relationship and developing analytics skills to understand our clients better.
Our strategic multi-year business transformation programme, the Commercial Banking Target Operating Model (TOM) started in late 2012. It aims to build a less complex bank and support our strategic priority of delivering a differentiating customer experience and best-in-class operational excellence.
Loans to renewable energy (2) 1,730 1,275 1,065 Loans to other projects (3) 768 224 3 Loans to environmental outperformers (4) 16,142 n/a n/a
(3) Loans to other projects 2013 amount now includes carbonefficiency projects and is based on exposure instead of outstanding amounts.
(4) Going forward, ING will report this amount to clients who have been identified as environmental outperformers based on an independent reputable data provider or internal client assesments.
Going forward, ING intends also to report the total amount of loans to ‘environmental outperformers’ in their sector to indicate our commitment to sustainability-driven clients. Implementation of this assessment process started in 2012 and as of end 2014, ING had sufficient data to report on this number, which as of year-end 2014 was EUR 16 billion. This represents 12 percent of our lending portfolio. Clients in our lending portfolio are assessed for their environmental performance in their sector either via the data provided by an independent reputable data provider (for listed clients) or ING’s internal client assessment. The environmental performance differs per sector.
Real Estate Finance was the co-lead arranger in the GBP 325 million refinancing of MediaCityUK, a dedicated hub in Manchester for the BBC, ITV and 200 creative and digital industry corporate tenants. The development received the world’s first Building Research Establishment Environmental Assessment Methodology (BREEAM) Sustainable Communities award for its sustainability standards and detailed environmental planning.
We co-financed SEK 1.28 billion for Swedish rail link owner and operator A-Train AB’s recent upgrade to electric trains running entirely on green energy from renewable sources such as hydropower, wind power and biofuels.
As a major relationship bank for Jacksonvillebased shipping and logistics company Crowley Maritime Corporation, ING was lead arranger of a USD 225 million term-loan facility for two state-of-the-art LNG-powered cargo vessels. The vessels will be significantly more fuel efficient and therefore reduce CO2 emissions by 38 percent and lower sulphur and particulates by over 90 percent.
In recognition of this effort, the United Nations Environment Programme Finance Initiative’s (UNEP FI) Banking Commission has invited ING to hold a position on their board. In this position, ING will co-lead the Positive Impact workstream which aims to inspire and stimulate banks to actively grow the transactions that contribute to a sustainable economy and have positive impact. By sharing ING’s approach we strive to define industry-wide best practices.
(1) Due to a deal reclassification, numbers reported previously have been slightly changed.
Through NPS we are able to learn what is important to our clients. This provides useful input to our transformation programme. It allows us to identify issues and forms a basis for strategic and client-specific improvements in products and services.
For instance, feedback highlighting the many ING entry points and the variation in service levels across products and locations has led to the creation of the CB Client Service Model. We also assess clients’ satisfaction with our overall relationship, the advice they receive and their direct contacts at ING. NPS is live in four countries and we are expanding roll-out of the approach in Europe and the US. Through this we measure the feedback of clients on a continuous basis during the year. A similar methodology is used to gather internal feedback and suggestions to continuously improve our processes and procedures.
We are striving to challenge the status quo and constantly seek new ways to deliver on our promise.
Net lending assets, adjusted for currency impacts, increased by EUR 6.3 billion in 2014, mainly due to strong growth in Structured Finance and Transaction Services, while the volumes in Real Estate Finance and the Lease run-off portfolio declined. Net funds entrusted decreased by EUR 2.3 billion in 2014.
We also financed the largest wind farm in the Philippines. When operational in 2015 the 150MW Burgos wind farm project will reduce some 200,000 tonnes of carbon annually – the equivalent of removing all cars from London for 10 days – and generate enough electricity to power over a million households. ING acted as the joint mandated lead arranger of a credit facility for EDC.
We entered the fast-developing wind-power market in Brazil with financing for Volatalia Energia do Brazil for three 30MW wind farms in one of the world’s best wind resource locations. ING acted as a joint guarantor for the issue of a guarantee for the company.
Project Finance International awarded Sarulla with “Asia Pacific Power Deal of the Year”
Financial Markets recorded an underlying result before tax of EUR 106 million, down from EUR 584 million in 2013, mainly reflecting a negative swing in CVA/DVA impacts (EUR -216 million in 2014 versus EUR 173 million in 2013). Excluding these impacts, the result was EUR 322 million versus EUR 411 million in 2013. The underlying result of Bank Treasury, Real Estate & Other was EUR 165 million, including EUR 50 million of redundancy provisions taken in the fourth quarter of 2014. Compared with 2013, the result before tax rose by 7.8 percent, mainly due to lower losses in the run-off businesses.
Risk costs declined to EUR 500 million (or 37 basis points of average risk-weighted assets) from EUR 867 million in 2013. The decrease was mainly visible in Real Estate Finance and – to a lesser extent – the lease run-off business, while risk costs were up in General Lending.
Products, services and procedures have been harmonised and simplified to further improve the client experience. Together with an integrated solution offering, we have made good progress in differentiating ourselves as the European network bank of choice.
In 2014, we delivered 14 senior banking programmes for the 330 top leaders. These programmes gave our leaders the holistic perspective of the bank and more insight into: › Our strategy and how value is created within a bank.
To create a set of behaviours that fully resonate with employees we asked their opinions. We reached out to our employees worldwide and invited them to play a role. Around 13,000 employees from across the globe participated and this data was combined with the outcomes of workshops involving more than 1,000 senior managers.
Unemployment is one of the greatest challenges Spain faces. At ING we are committed to contributing to society.
Effective performance management Effective performance management supports and enables our employees and helps them align their own performance with that of the company. All employees are enrolled in performance management processes which encompass a formal planning, mid-year review and year-end assessment. We offer coaching which can help employees further develop professionally and personally.
We are stepping up our various training and development activities but are also increasing the expectations we have on our staff to take responsibility and to actively work on their own competencies and skills. We invest in our employees and expect them to play an active role. The Steer your Career programme introduced in the Netherlands is one good example of this approach.
Employee engagement A yearly employee engagement survey looks at how engaged, enabled and energised our employees feel. The 2014 Sustainable Engagement score was 75 percent (2013: 74 percent).
Diversity At ING, more than 53,000 minds from all backgrounds, ethnicities and genders unite behind one purpose and one way of working.
We also have different networks within ING where diversity is stimulated in which we encourage our employees to participate. Examples of these networks are: › Crossing; an ING employee network focused on cultural diversity and aiming to bring about more cultural diversity within ING.
These initiatives aim to deliver reliable and modern banking systems that utilise easy and uniform processes and are supported by bank-wide information management.
The private cloud In 2014, we began the development of a private cloud infrastructure for ING. First implemented in ING Australia, our zero-touch private cloud will deliver digitised, automated processes for deploying IT infrastructure and standardised services worldwide. In November, 750 developers from all ING countries used a preliminary version of our private cloud services for the first time at ING’s global ‘hackathon’ event.
Inspiring the leadership team In April 2014 the Management Board Banking (MBB) visited Silicon Valley, USA, to learn about technology trends and innovative organisations. They spent time at the Singularity University (SU), whose mission is to apply exponentially accelerating technologies such as biotech, robotics and artificial intelligence to solve humanity’s grand challenges. Later in the year, ING’s Leadership Council attended the SU’s first European Summit in Amsterdam.
At ING’s first Innovation Day in May 2014, ING employees submitted over 700 ideas. Seven finalists competed for seed funding and prizes in a Lions’ Den event held in November 2014. The judges deemed all seven worthy of funding, and the multi-disciplinary pitch teams are now busy developing their ideas into working prototypes.
The Concept of One Our vision is of one global IT community, where engineers across ING share a common workspace, supported by easy-to-use tools and processes that facilitate international collaboration and promote replication of best practices: the Concept of One.
Like all banks, ING is an organisation with both financial and non-financial exposures. Meeting our strategic and financial objectives relies on an integrated approach to risk and capital management. Our risk management and capital management frameworks and procedures are designed to maintain financial stability for our customers, shareholders and other stakeholders in line with ING’s Think Forward strategy.
Corporate audit is the bank’s third line of defence. This provides an independent and objective assessment of the functional effectiveness of the first two lines.
The Bank continued to transform the debt securities portfolio into a liquidity book as part of the strategy to optimise the balance sheet.
Despite a gradual improvement in the Dutch economy, economic uncertainty continued. ING Bank’s non- performing loans increased to 3.0% which represents EUR 16.9 billion lending outstanding. The addition to the provision for loan losses decreased by 30% year-on-year to EUR 1,594 million. This combined with higher writeoffs resulted in a decline of ING Bank’s stock of provisions to EUR 6.0 billion at the end of 2014. ING Bank’s overall provision coverage ratio defined as the stock of provisions divided by the non-performing loans, decreased to 35.5%, from 38.6% at year-end 2013.
ING Bank’s loan-to-deposit ratio, excluding securities that are recorded at amortised costs, remained stable in 2014 at 1.04.
Adapting to regulatory changes ING closely monitors developments in financial regulation and accounting standards. It acts to ensure the Group is able to incorporate changes with minimal disruption.
Bank Recovery and Resolution Directive On 6 May 2014, the Bank Recovery and Resolution Directive (BRRD) was formally adopted, with implementation effective from 1 January 2015. The BRRD provides rules on insolvency proceedings in the case of failing banks with the aim of safeguarding financial stability and preventing public funding of losses. To comply with the new rules, banks across the EU will have to develop harmonised recovery plans, cooperate with resolution authorities and make necessary changes to capital holdings, business activities, legal and operating structures.
Single Supervisory Mechanism On 4 November 2014, under the Single Supervisory Mechanism (SSM), the European Central Bank (ECB) assumed full responsibility for banking supervision in eurozone countries. Prior to that, the ECB and the EBA carried out a comprehensive assessment including an asset quality review (AQR) and stress tests.
ING Group 50 Report of the Executive Board Risk and capital management continued
Low ESR low risk ESR low risk ESR medium risk Unacceptable risk (1)
ING Bank Risk management chapter in the consolidated annual accounts of this Annual Report, p260.
In June 2014, ING Group sold the last tranche of its stake in SulAmérica, generating approximately EUR 170 million in cash proceeds.
Capital optimisation transactions Our decision to redeem the EUR 1.5 billion 8% ING Group hybrid on the call date of 18 April 2014 has reduced the level of Tier 1 securities in the capital base. It was replaced in ING Bank’s capital structure by the EUR 1.5 billion 3.625% CRD IV eligible Tier 2 security that was successfully issued in February 2014 by ING Bank.
In February 2014, ING together with the Dutch State completed the unwinding of the Illiquid Assets Back-up Facility (IABF). The Dutch State has sold the remaining USD 11.5 billion of securities in the portfolio through three auctions at an average price of 77.3%. The proceeds were used to pay off the remaining loans from ING. Together with the settlement of fees, the unwinding resulted in a cash profit for the Dutch State of EUR 1.4 billion. The total estimated profit for the Dutch State, including the interest and premiums on the core Tier 1 securities is approximately EUR 5 billion.
In February 2014, ING also finalised the agreement in which it is released from all future financial obligations arising out of the closed Defined Benefit (DB) Pension Plan in the Netherlands. The Dutch DB Plan has ceased to be accounted for as a defined benefit plan and the
ING Group 52 Report of the Executive Board Risk and capital management continued
ING Bank has a capital target based on our risk appetite, which compares well with the peer group. ING Bank’s 2017 Ambition is to have a fully loaded CET 1 ratio of at least 10% with a comfortable buffer on top to absorb regulatory changes and potential volatility. The target for the leverage ratio will be approximately 4% (we are awaiting final regulations for this).
A strong capital base Despite the transfer of the Dutch Pension Fund, the implementation of CRR/CRD IV and the repayment to the Dutch State, ING Bank continues to maintain a strong and high-quality capital level with a fully-loaded common equity Tier 1 ratio of 11.4% and a phased-in CRR/CRD IV common equity Tier 1 ratio of 11.2%, thereby complying with CRR/CRD IV solvency requirements. The Tier 1 ratio decreased due to regulatory adjustments on equity, and the redemption of EUR 1.05 billion 8% Hybrid on 18 April 2014. ING Bank improved Tier 2 capital by issuing EUR 1.5 billion of CRR/CRD IV eligible Tier 2 securities.
Generating capital for future growth During 2014, capital generation was again strong, allowing ING Bank to pay EUR 1.2 billion in dividends to the Group so that it could repay EUR 1.2 billion of core Tier 1 securities to the Dutch State in March.
In the coming years the guiding principles for ING’s capital management will be capital generation, optimising the capital structure and further improving financial flexibility.
(1) Based on the share price at year-end and net profit per ordinary share for the financial year.
Shareholders and depositary-receipt holders with stakes of 3 percent or more More than 99.9 percent of the ordinary shares issued by ING Groep N.V. are held by Stichting ING Aandelen (ING Trust Office). In exchange for these shares, ING Trust Office has issued depositary receipts in bearer form for these shares. The depositary receipts are listed on the stock exchanges of Amsterdam, Brussels and New York (NYSE).
Corporate governance chapter pages 69–71 for more information about the share capital of ING Group.
Pursuant to the Dutch Financial Supervision Act, shareholders and holders of depositary receipts of ING Groep N.V. are required to provide updated information on their holdings once they cross threshold levels of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%. As of the publication date of this report, ING Group is not aware of shareholders, potential shareholders or investors with an interest of three percent of more in ING Group other than the ING Trust Office, the ING Continuity Foundation and Blackrock Inc as per year-end 2014.
ING Groep N.V. A- Negative A3 Negative A Negative ING Bank N.V. A Negative A2 Negative A+ Negative – Short term A-1 P-1 F1+
Sustainability ratings ING Group’s approach to sustainability is shaped by our specific skills and expertise as a financial company, our vision of the future and the expectations of our stakeholders. Reviews of our performance by sustainability research and rating agencies help us to improve our strategy and policies. ING’s 2014 scores and assessments for some of the key sustainability benchmarks and service providers are as follows: External reviews of our sustainability performance (1)
To receive press releases and other ING news, you can subscribe to the email service at www.ing.com. You can also download the ING Investors and Media app at www.ing.com, which provides access to the latest financial information and press releases both online and offline.
P.G. (Patrick) Flynn (54), member and CFO Executive Board ING Group and member and CFO Management Board Banking Patrick Flynn was appointed a member of the Executive Board of ING Group on 27 April 2009. He is responsible for all of ING’s finance departments. Before joining ING he was Chief Financial Officer Insurance, HSBC Insurance Holdings Ltd.
J.V. (Koos) Timmermans (54), member and vice-chairman Management Board Banking Koos Timmermans was appointed vice-chairman of the Management Board Banking as of 1 October 2011. From 1 October 2014, Koos Timmermans has, in addition to his current tasks which include aligning ING Bank’s activities and balance sheet with new and upcoming regulation, also assumed responsibilities for the Bank’s operations in the Benelux and ING’s sustainability department.
Financial and non-financial data All financial data in this integrated report are extracted or derived from, and in line with, our annual accounts. Non-financial performance data are published in this report on five topics: customers, sustainable business, HR, environment and community investment. We extract or derive data on sustainability-related business activities and HR from our regular business systems, in line with the data in our annual accounts. Data on environment, community investment and customers are gathered through our proprietary online data management system. The centralised data processing team at ING Group is assisted by an independent external agency (Royal HaskoningDHV) that helps to validate and process the large amount of non-financial data gathered from our operations worldwide.
Responsibilities of the Executive Board for the Report The Executive Board of ING is responsible for the preparation of the Report in accordance with the “Sustainability Reporting Guidelines” G4 (option Comprehensive) of the Global Reporting Initiative (GRI) and the reporting criteria developed by ING as disclosed in the chapter ‘About this report’ of the Report, including the identification of the stakeholders and the determination of material issues. The disclosures made by management with respect to the scope of the Report are included in the chapter ‘About this report’ of the Report.
Conclusion Based on our procedures performed, and with due consideration of the limitations described in the paragraph ‘Limitations in our scope’, nothing has come to our attention that causes us to conclude that the sustainability information in the Report, in all material respects, does not provide a reliable and appropriate presentation of the policy of ING for sustainable development, or of the activities, events and performance of the organisation relating to sustainability during 2014, in accordance with the “Sustainability Reporting Guidelines” G4 (option Comprehensive) of the Global Reporting Initiative (GRI) and the reporting criteria developed by ING as disclosed in the chapter ‘About this report’ of the Report.
The external environment The European economic recovery did not fully materialise in 2014. Related to this is the impact of geopolitical unrest in nearby regions, such as Eastern Europe. Some compensation has come from the low oil price, which has helped consumers’ purchasing power.
On the regulatory front, the start of the Single Supervisory Mechanism in November 2014 was important for ING and for European banks in general. The fact that the European Central Bank took over responsibility for the supervision of the major European banks can be regarded as a positive development for a global bank such as ING with a strong presence in many European countries.
ING can be proud of where the Company is today. The hard work of recent years is paying off. The Bank has posted a satisfactory set of results. ING’s financial strength enables the resumption of dividend payments to shareholders, another important milestone in the restructuring process.
We acknowledge the importance of sustainability and the fact that it needs to be an intrinsic part of ING’s strategy. We are therefore pleased that ING is presenting its first integrated report this year and eager to find out what the reactions will be.
The action points resulting from the 2013 self-assessment were acted upon during the year. The 2014 selfassessment questionnaire for the Supervisory Board, its Committees and its members, was conducted in December. An external consultant drafted the questionnaires as well as the report based on the outcome of the questionnaires. Furthermore, bilateral meetings were held between the chairman and each Supervisory Board member (for the chairman, a bilateral meeting was held between the vice-chairman and the chairman). The results and conclusions of the selfassessment questionnaire were discussed in the internal Supervisory Board meeting (without the CEO present). This discussion resulted in an action point to increase in depth discussion on strategy. In addition, the Supervisory Board would like to discuss more nomination related matters in the Internal Supervisory Board meetings next to the discussion in the Nomination Committee meetings. The Supervisory Board is pleased to confirm that the Supervisory Board and its committees continue to operate proficiently.
ING Bank’s interest margin, NPL ratio, risk costs and cost trends in general, as well as loan loss provisioning were discussed regularly. The Audit Committee discussed and confirmed the topics mentioned in the management letter by Ernst & Young. The Audit Committee was briefed on SEPA payment flows, the AQR review and the ECB stress test as well as on the financial control framework for a number of specific entities. In addition, the Audit Committee was informed on derivative
valuation models and the new extended auditor’s report. Given the new legislation which required ING Group to change its external auditor as of January 2016, the Audit Committee appointed a subcommittee to advise the Supervisory Board on the external auditor tender process and the preferred external auditor candidate firms.
In the first half of 2014, the financial risk and the nonfinancial risk reports for banking and insurance were discussed in detail in each Risk Committee meeting. Following the NN Group IPO, the detailed insurance risk report was only discussed in the Risk Committee of NN Group. At almost every meeting the Risk Committee was updated on the developments regarding the implementation of the Bank Recovery and Resolution Directive. This was also the case for the Asset Quality Review and the stress test, that were executed for DNB and ECB. Various stress test scenarios for ING Bank were discussed, while for Insurance, the status of Solvency II regulation was a frequent topic. The annual risk appetite statements for Insurance and Banking were reviewed and supported. The Recovery Plan for both ING Bank and NN Group were discussed and supported by the Risk Committee. The Risk Committee closely monitored the developments in Russia and Ukraine and the possible risks for ING. Each meeting ended with a general discussion on possible future risks.
Currently, only one Supervisory Board member, Eric Boyer de la Giroday qualifies as ‘non-independent’ as defined in best practice provision III.2.2 of the Dutch Corporate Governance Code. Mr. Boyer de la Giroday is considered not independent because of his position as Chairman of the Board of Directors of ING Belgium S.A./N.V. and his former positions as a member of the Executive Board of ING Group and vice-chairman of Management Board Banking of ING Bank N.V.
Annual accounts and dividend The Executive Board has prepared the annual accounts and discussed these with the Supervisory Board. The annual accounts will be submitted for adoption at the 2015 Annual General Meeting as part of the Annual Report. The 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.
Corporate governance chapter, pages 68-79 and the Remuneration report chapter, pages 87-97 for more information, which are deemed to be incorporated by reference here.
The application of the Corporate Governance Code by ING is described in the publication “ING’s implementation of the Dutch Corporate Governance Code”of 2010, which is available on the website of ING Group ( ), which is to be read in conjunction with this section and is deemed to be incorporated into this section.
Dutch Banking Code 2010 The Dutch Banking Code 2010 (“Banking Code”) is applicable to ING Bank N.V. and not to ING Group. The Banking Code can be downloaded from the website of the Dutch Banking Association ( ). The principles of the Banking Code as a whole are considered to be incorporated by reference in the Annual Report of ING Bank N.V. ING Bank's application is described in the publication “Application of the Dutch Banking Code by ING Bank N.V.”, available on the website of ING Group ( ). ING Group voluntarily applies the
Depositary receipts More than 99.9% of the issued ordinary shares are held by ING Trust Office (Stichting ING Aandelen). In exchange for these shares, ING Trust Office has issued depositary receipts in bearer form for these shares. The depositary receipts are listed on various stock exchanges (see page 54 for an overview of the listings). Depositary receipts can be exchanged upon request of the holders of depositary receipts for non-listed ordinary shares, without any restriction, other than payment of an administrative fee of one eurocent (EUR 0.01) per depositary receipt with a minimum of 25 euros (EUR 25.00) per exchange transaction.
The Board of ING Trust Office reports on its activities through an annual report, which has been included on pages 80–82.
The purpose of this delegation of authority is to allow ING Group to respond promptly to developments in the financial markets.
No Investor Relations Day or conference in which ING Group participates is held shortly before the publication of quarterly financial information.
Approximately 25 analysts actively cover and frequently issue reports on ING Group. A list of these analysts can be found under “Analyst Coverage” of the Investor Relations section of ING Group’s website. During 2014, ING Group did not provide any form of compensation to parties that are directly or indirectly involved in the production or publication of analysts’ reports, with the exception of credit-rating agencies.
ING Group presented at five industry conferences throughout the course of the year. In total, there were approximately 450 meetings (including conference calls) with institutional investors and/or analysts. Combined, conference presentations and face-to-face meetings with investors and/or analysts took place in more than 30 different cities across the globe.
Such information includes the notice for the General Meeting, the agenda, the place and time of the meeting, the address of the website of ING Group, the verbatim text of the proposals with an explanation and instructions on how to participate in the meeting (either in person or by proxy), as well as the reports of the Executive Board and the Supervisory Board. More complex proposals, such as proposals to amend the Articles of Association, are normally not included in the notice but are made available separately on the website of ING Group and at the ING Group head office.
Attending General Meetings For logistical reasons, attendance at a General Meeting by shareholders and holders of depositary receipts, either in person or by proxy, is subject to the requirement that ING Group is notified in advance. Instructions to that effect are included in the notice for the General Meeting.
General Meetings are webcasted via ING Group’s website ( ), so that shareholders and holders of depositary receipts who do not attend the General Meeting in person, may nevertheless follow the course of affairs in the meeting by internet webcast.
The following restrictions apply in respect of grants of voting proxies to holders of depositary receipts by ING Trust Office: › The relevant holder of depositary receipts must have announced his or her intention to attend the General Meeting observing the provisions laid down in the Articles of Association.
Proxy voting forms for shareholders and voting instruction forms for holders of depositary receipts are made available on the website of ING Group ( ). The submission of these forms is subject to additional conditions specified on such forms.
› The issuance of shares or rights to subscribe for shares, the restriction or exclusion of pre-emptive rights of shareholders, and delegation of these powers to the Executive Board, subject to a proposal by the Executive Board which was approved by the Supervisory Board.
Reporting Resolutions adopted at a General Meeting are generally published on the website of ING Group ( ) within one week after the meeting. The draft minutes of the General Meeting are, in accordance with the Corporate Governance Code, made available to shareholders and holders of depositary receipts on the website of ING Group ( ) no later than three months after the meeting. Shareholders and holders of depositary receipts may react to the draft minutes in the following three months, after which the final minutes will be adopted by the chairman of the meeting in question and by a shareholder or holder of depositary receipts appointed by that meeting. The final minutes are made available on the website of ING Group ( ). In a deviation from the provisions of the Corporate Governance Code, shareholders and holders of depositary receipts will not have the opportunity to react to the minutes of a General Meeting if a notarial report of the meeting is made, as this would be in conflict with the laws applicable to such notarial report.
For an overview of loans granted to members of the Executive Board, see page 92.
P.G. (Patrick) Flynn, chief financial officer (Born 1960, Irish nationality, male; appointed in 2009, term expires in 2017) Patrick Flynn is a Chartered Accountant and a member of the Association of Corporate Treasurers in the UK. He also holds a Bachelor’s degree in Business Studies from Trinity College Dublin. He was appointed a member of the Executive Board of ING Group on 27 April 2009. He is responsible for ING’s finance departments and Investor Relations.
Supervisory Board appointment and dismissal Members of the Supervisory Board are appointed by the General Meeting from a binding list to be drawn up by the Supervisory Board. The list will be rendered nonbinding if a resolution of the General Meeting to that effect is adopted by an absolute majority of the votes cast, which majority represents more than one-third of the issued share capital. Candidates for appointment to the Supervisory Board must comply with the suitability and reliability requirements set out in the Dutch Financial Supervision Act and must continue to meet these while in office.
Function of the Supervisory Board The function of the Supervisory Board is to supervise the policy of the Executive Board and the general course of events of ING Group and its business, as well as to provide advice to the Executive Board. In line with Dutch company law, the Corporate Governance Code and the Articles of Association, as well as the Supervisory Board Charter requires all members of the Supervisory Board to act in accordance with the interests of ING Group and the business connected with it, taking into account the relevant interests of all stakeholders of ING Group, to perform their duties without mandate and independent of any interest in the business of ING Group, and to refrain from supporting one interest without regard to the other interests involved. According to the Banker’s Oath that was taken by the members of the Supervisory Board, they will have to carefully consider the interests of all stakeholders of ING. In that consideration they will have to give paramount importance to the client’s interests.
Profile of members of the Supervisory Board The Supervisory Board has drawn up a profile to be used as a basis for its composition. It is available on the website of ING Group ( ) and at the ING Group head office.
In view of their experience and the valuable contribution that former members of the Executive Board can make to the Supervisory Board, it has been decided, taking into account the size of the Supervisory Board and ING’s wide range of activities, that such individuals may become members of the Supervisory Board of ING Group. There is, however, a restriction in that only one in every five other members of the Supervisory Board may be a former member of the Executive Board. In addition, this member must wait at least one year after resigning from the Executive Board before becoming eligible for appointment to the Supervisory Board.
In case of a conflict of interest, the relevant member of the Supervisory Board abstains from discussions
For an overview of loans granted to members of the Supervisory Board, see page 96.
Independence Annually, the members of the Supervisory Board are requested to assess whether the criteria of dependence set out in the Corporate Governance Code do not apply to them and to confirm this in writing. On the basis of these criteria, all members of the Supervisory Board, with the exception of Eric Boyer de la Giroday, are to be regarded as independent on 31 December 2014. Eric Boyer de la Giroday is not to be considered independent because of his position as Chairman of the Board of Directors of ING Belgium S.A./N.V. and his former positions as member of the Executive Board of ING Group and vice-chairman of the Management Board Banking of ING Bank N.V. On the basis of the NYSE listing standards, all members of the Supervisory Board are to be regarded as independent.
The organisation, powers and conduct of the Supervisory Board are detailed in the Supervisory Board Charter. Separate charters have been drawn up for the Audit Committee, the Risk Committee, the Remuneration Committee, the Nomination Committee and the Corporate Governance Committee. These charters are available on the website of ING Group ( ). A short description of the duties for the five Committees follows below.
On 31 December 2014, the members of the Corporate Governance Committee were: Henk Breukink (chairman), Carin Gorter and Jeroen van der Veer.
Composition of the Supervisory Board Committees can be found at ING Group’s website ( ), which is updated on a regular basis.
Most relevant ancillary positions: chairman of the Supervisory Board of Koninklijke Philips N.V. (listed company). Member of the Supervisory Board of Het Concertgebouw N.V. Chairman of the Supervisory Council of the Technical University of Delft.
Most relevant ancillary positions: chairman of the Supervisory Board of IMC B.V. Chairman of the Board of Stichting Administratiekantoor Koninklijke Brill.
H.W. (Henk) Breukink (Born 1950, Dutch nationality, male; appointed in 2007, term expires in 2015)
H.J.M. (Hermann-Josef) Lamberti (Born 1956, German nationality, male; appointed in 2013, term expires in 2017)
R.W.P. (Robert) Reibestein (Born 1956, Dutch nationality, male; appointed in 2012 as an observer, full member as of 2013, term expires in 2017)
Most relevant ancillary positions: member of the Supervisory Board of IMC B.V. Member of the Supervisory Board of Stichting World Wildlife Fund.
Object The Stichting ING Aandelen (“ING Trust Office”), a foundation organised under the laws of the Netherlands, has been incorporated on 22 January 1991. The articles of association were most recently amended on 7 October 2010 (the “Articles of Association”). The most recent amendments of the trust conditions for registered shares in the share capital of ING Groep N.V. (“Trust Conditions”) date from 2 September 2011.
Board meetings During the 2014 reporting year, the board of ING Trust Office (the "Board") held six meetings.
In these meetings, among other things, the following topics were discussed: › the new “Think Forward” strategy of ING Bank N.V. ("ING Bank"); › the Annual General Meeting of ING Group (“AGM”) of 12 May 2014, the use of the e-voting system, the items on the agenda of the AGM, the proxy voting results and the voting by ING Trust Office during the AGM 2014; › the annual report and the annual accounts of ING Trust Office and the results of the audit concerning the bookyear 2013; › developments of corporate governance and of relevant new legislation; › press releases of ING Group; › the proposal of ING Group to appoint KPMG as auditor; › the progress of the restructuring, more specific the IPO of NN Group N.V.; › the functioning of ING Trust Office and the composition of the Board; › the meeting and the preparation of the meeting of holders of depositary receipts of 19 November 2014; › developments at ING Group on the basis of the quarterly reports, the annual report of ING Group and the presentations of ING Group to analysts; › preparation of the meetings with the chairmen of the Executive Board and the Supervisory Board of ING Group on the basis of public information and press releases.
Depositary-receipts structure During the years 2010–2014, participation of shareholders other than ING Trust Office, and holders of depositary receipts in the decision-making process in Annual General Meetings of ING Group, continually increased from 41.3% to 54%.
ING Group's depositary-receipts structure was evaluated by the Executive Board and the Supervisory Board in 2010 and discussed in the 2010 Annual General Meeting. On the basis of this evaluation, the Executive Board and the Supervisory Board concluded that it would be premature to change or abolish ING Group's depositary-receipts structure in 2010 and that it would be appropriate to reconsider this as a part of a re-evaluation of ING Group's entire governance structure following the current restructuring of ING Group and the completion of the divestments approved by the 2009 extraordinary General Meeting.
Composition and remuneration Board of ING Trust Office The members of the Board are appointed by the Board itself for a maximum term of four years and may be reappointed two times. Holders of depositary receipts may make recommendations to the Board on persons to be appointed as members of the Board. The Board informs them about such purpose and in good time about, for what reason and according to which profile a vacancy must be filled, and also in which manner a recommendation should take place.
The Board currently consists of Herman Hazewinkel, chairman, Mick den Boogert, Paul Frentrop, Harrie Noy and Jolanda Poots-Bijl.
Contact details The contact details of ING Trust Office are: Jet Rutgers Telephone + 31 20 576 1226 E-mail: jet.rutgers@ing.nl Website: Amsterdam, 16 March 2015
The Executive Board is required to prepare the Annual Accounts and the Annual Report of ING Groep N.V. for each financial year in accordance with applicable Dutch law and those International Financial Reporting Standards (IFRS) that were endorsed by the European Union.
Conformity statement pursuant to section 5:25c paragraph 2(c) of the Dutch Financial Supervision Act (Wet op het financieel toezicht). The Executive Board is responsible for maintaining proper accounting records, for safeguarding assets and for taking reasonable steps to prevent and detect fraud and other irregularities. It is responsible for selecting suitable accounting policies and applying them on a consistent basis, making judgements and estimates that are prudent and reasonable.
› the ING Groep N.V. 2014 Annual Report gives a true and fair view of the position at the balance sheet date, the development and performance of the business during the financial year 2014 of ING Groep N.V. and the enterprises included in the consolidation taken as a whole, together with a description of the principal risks ING Groep N.V. is being confronted with.
Internal control over financial reporting Due to the listing of ING shares on the New York Stock Exchange, ING Group is required to comply with the SEC regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, or SOX 404.
These regulations require that the CEO (the chairman of the Executive Board) and the CFO of ING Group report and certify on an annual basis on the effectiveness of ING Group’s internal controls over financial reporting. Furthermore, the external auditors are required to provide an opinion on the effectiveness of ING Group’s internal controls over financial reporting. ING Group has long-established Business Principles and a strong internal control culture, which all staff must adhere to. SOX 404 activities are organised along the lines of the governance structure, and involve the participation of senior management across ING. Following the SOX 404 process, ING is in the position to publish an unqualified statement which denotes that the Company’s internal control over financial reporting is effective as of 31 December 2014. The SOX 404 statement by the Executive Board is included on this page, followed by the report of the external auditor as issued on Form 20-F.
Our internal control over financial reporting includes those policies and procedures that: › pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of ING; › provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorisations of our management and directors; and
To the Shareholders, the Supervisory Board and Executive Board of ING Groep N.V. We have audited ING Groep N.V.’s internal control over financial reporting as of 31 December 2014, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). ING Groep N.V.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on ING Groep N.V.’s internal control over financial reporting based on our audit.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
With effect from 2012, the law on prohibition of payment of variable remuneration to board members of financial institutions that receive state aid, the Dutch Bonus Prohibition Act (Wet bonusverbod staatsgesteunde ondernemingen), applied to ING in light of the State support that ING received in 2008/2009.
Remuneration policy for the Executive Board The current remuneration policy for the Executive Board was adopted by the Annual General Meeting (AGM) on 27 April 2010; adjustments to the remuneration policy were adopted by the AGM on 9 May 2011 for adjustment with regulatory requirements and on 12 May 2014 with respect to pensions for the Executive Board.
In compliance with the Dutch Banking Code, the Executive Board remuneration policy stipulates that total direct compensation is slightly below the median of the peer group and provides for a balanced mix between fixed and variable remuneration. Total compensation will be determined in line with the relevant market environment and will be reviewed from time to time by the Supervisory Board.
The performance objectives used for the allocation of variable remuneration are annually predetermined by the Supervisory Board.
Increased emphasis on long-term value creation The Executive Board remuneration policy combines the short and long-term variable components into one structure. This structure intends to support both longterm value creation and short-term company objectives. The emphasis on long-term performance indicators within the variable component of the compensation package is increased by means of deferral, holdback and clawback mechanisms.
Benefits Executive Board members will continue to be eligible for additional benefits (e.g. the use of company cars, contributions to company savings plans and, if applicable, expatriate allowances) which apply to other senior employees. Executive Board members may obtain banking and insurance services from ING Group subsidiaries in the ordinary course of their business and on comparable terms that apply to most other employees of ING in the Netherlands. In addition, tax and financial planning services will be provided to ensure compliance with the relevant legislative requirements.
It is the responsibility of ING’s Supervisory Board to take into account the interests of all stakeholders, including shareholders and employees, as well as business continuity and sustainable growth, when determining the Company’s remuneration policy.
Considering that the legal and regulatory environment is still undergoing changes, ING might experience further impact from that. In order to ensure that ING can adapt to these uncertain factors the Supervisory Board may re-evaluate the Executive Board remuneration policy from time to time.
Holdback, clawback and adjustments The Supervisory Board has the authority to impose holdback and/or clawback to variable remuneration allocated to a member of the Executive Board based on inaccurate data and/or behaviour that led to significant harm to the Company. The Supervisory Board also has the authority to adjust variable remuneration if application of the predetermined performance criteria results in undesired outcomes. Accordingly, the Supervisory Board has decision authority in situations not addressed in the policy.
2014 Executive Board base salary The base salary of all Executive Board members was set at the time of the introduction of the Executive Board remuneration policy in 2010. The base salary of the Executive Board has not been raised since 2010 as the Executive Board decided voluntarily not to accept a base salary increase until ING has repaid outstanding core Tier 1 securities from the Dutch State along with the restrictions put in force by the Dutch Bonus Prohibition Act, as introduced in 2012. As a consequence the base salary level remained also in 2014 at the 2010 level. After final repayment to the Dutch State, with effect from 8 November 2014, the base salary of the CFO and CRO was increased from EUR 750,000 to EUR 900,000 per year in order to bring the remuneration levels closer to the benchmark as set in the Executive Board remuneration policy and in accordance with the Dutch Banking Code.
2014 Executive Board variable remuneration Although, as from 7 November 2014 the prohibition to grant variable remuneration (in cash or otherwise) to Executive Board members expired, both the Supervisory Board and Executive Board felt it appropriate to forgo variable remuneration for performance year 2014.
The table below shows the remuneration awarded to the individual members of the Executive Board with respect to the performance years 2014, 2013 and 2012.
Variable remuneration in cash – – – Variable remuneration in shares – – – – – –
The table below shows the pension costs of the individual members of the Executive Board in 2014, 2013 and 2012.
(2) Wilfred Nagel was appointed to the Executive Board on 14 May 2012. The 2012 pension costs for him reflect the partial year as an Executive Board member.
Until 2010 the long-term incentive plan (LTIP) was in place at ING and includes share options and performance shares. The ING share options have a total term of 10 years and a vesting period of three years after which they can be exercised during the remaining seven years.
Deferred shares are shares conditionally granted, with the final shares awarded in three years (tiered) of which the ultimate value of each deferred share will be based on ING Group’s share price at the vesting date.
For the Executive Board members the following shares have vested during 2014: Shares vested for the Executive Board during 2014
Ralph Hamers (2) LSPP Upfront share units (3) 27 Mar 2013 27 Mar 2014 15,487 15,487 € 9.99
(2) Shares granted to Ralph Hamers in March 2013 were awarded for his performance in position previous to his appointment to the Executive Board.
(4) Shares granted to Wilfred Nagel in 2012 and 2013 were awarded for his performance in positions previous to his appointment to the Executive Board.
2. The cash component of variable remuneration will be abandoned resulting in variable remuneration for members of the Executive Board fully awarded in shares.
2014 Remuneration structure senior management The Executive Board remuneration policy, which permits a combination of fixed compensation (base salary) and variable remuneration (together ‘total direct compensation’), pension arrangements and benefits have been applied in full to members of the Management Board Banking. For senior management in banking, ING has shifted gradually to a more balanced mix of fixed and variable remuneration in line with the Executive Board remuneration policy and to put more emphasis on value creation. Exceptions may exist for high-value specialists and senior management working in certain divisions and/or geographical areas. The remuneration policy for senior management is in line with the requirements of the Capital Requirements Directive IV.
Under the Wbfo, credit institutions are permitted to set a cap higher than 100% of fixed remuneration for staff outside the EEA, provided that the higher cap is approved by their shareholders in accordance with the requirements laid down in CRD IV.
ING will make restrictive use of the permission to apply the increased cap. Where applied, the increased cap is based on performance delivered. The increased cap will be applied for 65 identified staff (both in- and outside the EEA) with respect to performance year 2014. For performance year 2015 ING expects to apply the increased cap to a maximum number of 120 employees outside the EEA. The increased number is due to the fact that the Wbfo applies to all staff (not only identified staff).
(2) The remuneration amounts of 2012 are excluding VAT. In 2012, remuneration was voluntarily capped at EUR 100,000 and EUR 90,000 for the chairman and vice-chairman respectively. The same cap applied for 2011. Amounts in excess of the 2011 cap amounting to EUR 13,000 for Peter Elverding and EUR 14,000 for Jeroen van der Veer are deducted from their remuneration relating to 2012.
ING shares and options held by Supervisory Board members Supervisory Board members are permitted to hold ING shares as a long-term investment. The table below shows the holdings by members of the Supervisory Board at 31 December 2014, 2013 and 2012.
The following table contains information on the options outstanding by, and awards vested for, the members of the Supervisory Board.
Stock options on ING Groep N.V. shares held by members of the Supervisory Board at 31 December 2014
Central works council 2014 M.L.R. (Michel) Vonk, chairman L.G. (Bert) Woltheus, deputy-chairman J.R.H.M. (Job) van Luyken, secretary H.P. (Hennie) Post, deputy secretary J.H. (Hans) de Boer, R. (Reinoud) Rijpkema, J. (Yoap) Brugmann, A. (Aad) Kant
O. (Otmar) Haneder, Austria F. (Franck) Goethals,Belgium N. (Nikolay) Mladenski, B. (Biliana) Petrova, Bulgaria M. (Martina) Jezkova, P. (Petr) Ullmann, Czech Republic M. (Mourad) Benzaaza, France U. (Ulrich) Probst, Germany N. (Nikolaos) Ploumis, Greece G. (Géza) Bodor, C. (Csilla) Dobos, Hungary G. (Gianluigi) Spina, N. (Nicola) Cerruti, Italy C. (Christophe) Guissart, A. (Alain) Back, Luxembourg J.R. (Jeffrey) Dinsbach, G.J. (Gerard) Veldman, L.F.F. (Leo) Teunissen,L.S.A. (Lea) De Weerd, J. (Jennifer) Wirjosemito, H. (Hennie) Post, the Netherlands A. (Agnieska) Brodzik, M. (Mieczyslaw) Bielawski, K. (Krzystov) Burnat,M. (Mariusz) Cieslik, Poland D. (Daniela) Plopsoreanu, Romania M. (Miroslav) Filega, Slovakia D. (Deiane) Vicente Coira, M.A. (Miguel) Hernandez Fernandez, N. (Nadia) Belajard Moya, Spain J. (John) Tabares, M.R. (Mark Robert) Brown, United Kingdom.
Parent company balance sheet 325 Parent company profit and loss account 326 Parent company statement of changes in equity 327 Accounting policies for the parent company annual accounts
Risk factors 340 Additional Pillar III information 363 Glossary 399 General information 411
– investments for risk of policyholders 39,589 98,765 – non-trading derivatives 4,384 8,546 13,951 – designated as at fair value through profit and loss 2,756 2,790 4,760 Investments 5 – available-for-sale 95,402 137,897 193,584 – held-to-maturity 2,239 3,098 6,545 Loans and advances to customers 6 517,478 531,655 563,385
EQUITY 14 Shareholders’ equity (parent) 50,424 45,776 51,303 Non-voting equity securities 1,500 2,250
Insurance and investment contracts 18 111,769 229,950 Amounts due to banks 19 29,999 27,200 38,704 Customer deposits and other funds on deposit 20 483,871 474,312 454,930 Financial liabilities at fair value through profit and loss 21
Net result from continuing and discontinued operations (before minority interests) 1,440 3,810 4,523
Amounts for 2013 and 2012 have been restated to reflect the changes in accounting policies as disclosed in the section ‘Changes in accounting policies in 2014’ on page 108 and the classification of NN Group as held for sale and discontinued operations. Reference is made to Note 33 ‘Discontinued operations’ and Note 57 ‘Other events’.
Net result from continuing operations attributable to: Equityholders of the parent 2,657 3,050 3,082
Earnings per ordinary share 34 Basic earnings per ordinary share 0.13 0.79 0.98 Diluted earnings per ordinary share 0.13 0.79 0.98
Earnings per ordinary share from continuing operations 34 Basic earnings per ordinary share from continuing operations 0.50 0.66 0.64 Diluted earnings per ordinary share from continuing operations 0.49 0.66 0.64
Other comprehensive income Items that will not be reclassified to the profit and loss account: Remeasurement of the net defined benefit asset/liability 41 –289 –942 –3,221 Unrealised revaluations property in own use –30 –7 –22
– deferred acquisition costs and value of business acquired –53 1,282 –484 – change in provisions for insurance and investment contracts –3,527 –8,503 –3,174 – addition to loan loss provisions 1,594 2,289 2,125
Investments and advances: – associates and joint ventures –528 –68 –26 – available-for-sale investments –85,799 –132,318 –143,681 – held-to-maturity investments –315 – real estate investments –483 –200 –60 – property and equipment –375 –388 –423 – assets subject to operating leases –34 –82 – investments for risk of policyholders –20,598 –56,008 –67,986 – other investments –6,348 –343 –369
Amounts for 2013 and 2012 have been restated to reflect the changes in accounting policies as disclosed in the section ‘Changes in accounting policies in 2014’ on page 108.
Remeasurement of the net defined benefit asset/liability 41 –254 –254 –35 –289 Unrealised revaluations property in own use –30 –30 –30 Unrealised revaluations available-for-sale investments and other 5,503 5,503 1,478 6,981 Realised gains/losses transferred to the profit and loss account –133 –133 –6 –139 Changes in cash flow hedge reserve 2,001 2,001 393 2,394 Transfer to insurance liabilities/DAC –1,428 –1,428 –718 –2,146 Share of other comprehensive income of associates and joint ventures 43 43 43 Exchange rate differences and other 2,384 2,384 –10 2,374 Total amount recognised directly in equity (other comprehensive income) 8,086 8,086 1,102 9,188 Net result from continuing and discontinued operations 1,251 1,251 189 1,440
Impact of issuance Undated Subordinated Notes 986 986 Repayment of non-voting equity securities –1,500 –1,500 Repurchase premium –750 –750 –750 Dividends –44 –44 Impact of deconsolidation of Voya 87 87 –5,100 –5,013 Impact of IPO NN Group 14 –4,263 –4,263 5,397 1,134 Purchase/sale of treasury shares –14 –14 –14 Employee stock option and share plans 4 8 87 99 13 112 Changes in the composition of the group and other changes 152 152 –384 –232
Authorisation of annual accounts The consolidated annual accounts of ING Groep N.V. for the year ended 31 December 2014 were authorised for issue in accordance with a resolution of the Executive Board on 16 March 2015. The Executive Board may decide to amend the annual accounts as long as these are not adopted by the General Meeting of Shareholders. The General Meeting of Shareholders may decide not to adopt the annual accounts, but may not amend these. ING Groep N.V. is incorporated and domiciled in Amsterdam, the Netherlands. The principal activities of ING Group are described in the section ‘ING at a glance’ in section 1.
IFRS-EU provides several options in accounting policies. The key areas in which IFRS-EU allows accounting policy choices, and the related ING accounting policy, are summarised as follows: › As explained in the section ‘Principles of valuation and determination of results’ and in Note 44 ‘Derivatives and hedge accounting’ ING Group applies fair value hedge accounting to portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve out’ of IFRS-EU; › Under IFRS 4, an insurer may continue its existing pre-IFRS accounting policies for insurance contracts, provided that certain minimum requirements are met. Upon adoption of IFRS in 2005, ING Group decided to continue the then existing accounting principles for insurance contracts under IFRS. Through its insurance holding company NN Group, ING operates in various countries and the accounting principles for insurance contracts follow local practice in these countries. NN Group’s businesses in the Netherlands apply accounting standards generally accepted in the Netherlands (Dutch GAAP) for its provisions for liabilities under insurance contracts; › ING’s accounting policy for Real estate investments is fair value, with changes in fair value reflected immediately in the profit and loss account; and
As at 31 December 2013, the difference between the book value and the estimated fair value of the GMDB reserves was EUR 219 million (before tax). Implementation of fair value accounting for GMDB represents a change in accounting policy under IFRS with a transitional impact of EUR –165 million after tax being reflected only in Shareholders’ equity as of 1 January 2014. This impact is included in the table on the next page.
IFRS 11 ‘Joint Arrangements’ and amendments to IAS 28 ‘Investments in Associates and Joint Ventures’ IFRS 11 ‘Joint Arrangements’ and the related amendments to IAS 28 ‘Investments in Associates and Joint Ventures’ eliminate the proportionate consolidation method for joint ventures that was applied by ING. Under the new requirements, all joint ventures are reported using the equity method of accounting (similar to the accounting that is already applied for Investments in associates). The implementation of IFRS 11 has no impact on Shareholders’ equity, Net result and/or Other comprehensive income. The impact of IFRS 11 is included in the table below.
Amendments to IAS 32 ‘Presentation – Offsetting Financial Assets and Financial Liabilities’ These amendments clarify the meaning of ‘currently has a legally enforceable right to set-off’ and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting and is applied retrospectively. There is no impact on Total equity, Net result and/or Other comprehensive income as ING already applied these principles.
Reference is made to Note 12 ‘Assets and liabilities held for sale’, Note 14 ‘Equity’, Note 33 ‘Discontinued operations’, Note 57 ‘Other events’ and Note 58 ‘Subsequent events’.
In November 2014, ING Group sold a further 34.5 million shares of Voya. ING Group sold 30.0 million Voya shares in the public offering. In addition, ING Group sold to Voya 4.5 million shares for an aggregate amount of EUR 138 million (USD 175 million). These transactions settled on 18 November 2014. The sale of the total of 34.5 million shares from the combined transactions reduces ING Group’s stake in Voya from 32.5% to 18.9%. As a result of these transactions, ING Group loses significant influence over Voya and accounts for its stake in Voya as an available-for-sale investment held for sale at 31 December 2014. These transactions resulted in a net profit after tax of EUR 418 million and is recognised in the profit and loss account in the line Net Result from disposal of discontinued operations in 2014.
Impairment The recognition and measurement of impairment is intended to be more forward-looking than under IAS 39 and the resulting impairment charge will tend to be more volatile. The impairment requirements apply to financial assets measured at amortised cost, FVOCI, lease receivables, and certain loan commitments and financial guarantee contracts. Initially, a provision is required for expected credit losses (‘ECL’) resulting from default events that are possible within the next 12 months (‘12 month ECL’). In the event of a significant increase in credit risk, a provision is required for ECL resulting from all possible default events over the expected life of the financial instrument (‘lifetime ECL’).
Reference is made to Note 43 ‘Fair value of assets and liabilities’ and the ‘Risk management’ section for the basis of the determination of the fair value of financial instruments and related sensitivities.
Impairment reviews with respect to goodwill and intangible assets are performed at least annually and more frequently if events indicate that impairments may have occurred. Goodwill is tested for impairment by comparing the carrying value (including goodwill) of the reporting unit to the best estimate of the recoverable amount of that reporting unit. The carrying value is determined as the IFRS-EU net asset value including goodwill. The recoverable amount is estimated as the higher of fair value less cost to sell and value in use. Several methodologies are applied to arrive at the best estimate of the recoverable amount. A reporting unit is the lowest level at which goodwill is monitored. Intangible assets are tested for impairment by comparing the carrying value with the best estimate of the recoverable amount.
Upon classification as held for sale, the carrying amount of the disposal group (or group of assets) is compared to it’s fair value less cost to sell. If the fair value less cost to sell is lower than the carrying value, this expected loss is recognised through a reduction of the carrying value of any goodwill related to the disposal group and the carrying value of certain other non-current non-financial assets. Any excess of the expected loss over the reduction of the carrying amount of these relevant assets is not recognised upon classification as held for sale, but is recognised as part of the result on disposal if and when a divestment transaction occurs.
› All resulting exchange rate differences are recognised in a separate component of equity.
Recognition and derecognition of financial instruments Recognition of financial assets All purchases and sales of financial assets classified as fair value through profit and loss (excluding investments for risk of policyholders), held-to-maturity and available-for-sale that require delivery within the time frame established by regulation or market convention (‘regular way’ purchases and sales) are recognised at trade date, which is the date on which the Group commits to purchase or sell the asset. Loans and receivables are recognised at settlement date, which is the date on which the Group receives or delivers the asset.
item is derecognised. For non-interest bearing instruments, the cumulative adjustment of the hedged item is recognised in the profit and loss account only when the hedged item is derecognised.
The fair values represent the estimated amount for which the property could be exchanged on the date of valuation between a willing buyer and willing seller in an at-arm’s-length transaction after proper marketing wherein the parties each acted knowledgeably, prudently and without compulsion. Fair values are based on appraisals using valuation methods such as: comparable market transactions, capitalisation of income methods or discounted cash flow calculations. The underlying assumption used in the valuation is that the properties are let or sold to third parties based on the actual letting status. The discounted cash flow analyses and capitalisation of income method are based on calculations of the future rental income in accordance with the terms in existing leases and estimations of the rental values for new leases when leases expire and incentives like rent free periods. The cash flows are discounted using market based interest rates that reflect appropriately the risk characteristics of real estate.
Deferred acquisition costs Deferred acquisition costs (DAC) are an asset and represent costs of acquiring insurance and investment contracts that are deferred and amortised. The deferred costs, all of which vary with (and are primarily related to) the production of new and renewal business, consist principally of commissions, certain underwriting and contract issuance expenses, and certain agency expenses.
profits (e.g. reflecting stock market performance or a change in the level of assets under management) may cause a lower/higher balance of DAC due to the catch-up of amortisation in previous and future years. This process is known as DAC unlocking. The impact of the DAC unlocking is recognised in the profit and loss account of the period in which the unlocking occurs.
Provision for unearned premiums and unexpired insurance risks The provision is calculated in proportion to the unexpired periods of risk. For insurance policies covering a risk increasing during the term of the policy at premium rates independent of age, this risk is taken into account when determining the provision. Further provisions are made to cover claims under unexpired insurance contracts, which may exceed the unearned premiums and the premiums due in respect of these contracts.
Interest Interest income and expense are recognised in the profit and loss account using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Fiduciary activities The Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group.
The difference between the net cash flow in accordance with the statement of cash flows and the change in Cash and cash equivalents in the balance sheet is due to exchange rate differences and is accounted for separately as part of the reconciliation of the net cash flow and the balance sheet change in Cash and cash equivalents.
Reference is made to Note 47 ‘Assets not freely disposable’ for restrictions on Cash balances with central banks.
Loans and advances to banks 11,833 10,895 24,183 30,011 36,016 40,906 Cash advances, overdrafts and other balances 614 1,634 495 475 1,109 2,109
As at 31 December 2014, Amounts due from banks includes receivables with regard to securities which have been acquired in reverse repurchase transactions amounting to EUR 4,162 million (2013: EUR 5,137 million) and receivables related to finance lease contracts amounting to EUR 59 million (2013: EUR 73 million).
As at 31 December 2014, the non-subordinated receivables amount to EUR 37,059 million (2013: EUR 42,995 million) and the subordinated receivables amount to EUR 60 million (2013: EUR 1 million).
Trading assets and trading liabilities include assets and liabilities that are classified under IFRS-EU as ‘Trading’ but are closely related to servicing the needs of the clients of ING Group. ING offers institutional and corporate clients and governments products that are traded on the financial markets. A significant part of the derivatives in the trading portfolio are related to servicing corporate clients in their risk management to hedge for example currency or interest rate exposures. In addition, ING provides its customers access to equity and debt markets for issuing their own equity or debt securities (‘securities underwriting’). Although these are presented as ‘Trading’ under IFRS-EU, these are directly related to services to ING’s customers. Loans and receivables in the trading portfolio mainly relate to (reverse) repurchase agreements, which are comparable to collateralised lending. These products are used by ING as part of its own regular treasury activities, but also relate to the role that ING plays as intermediary between different professional customers. Trading assets and liabilities held for ING’s own risk are very limited. From a risk perspective, the gross amount of trading assets must be considered together with the gross amount of trading liabilities, which are presented separately on the balance sheet. However, IFRS-EU does not allow netting of these positions in the balance sheet. Reference is made to Note 21 ‘Financial liabilities at fair value through profit and loss’ for information on trading liabilities.
Derivatives used in – fair value hedges 1,223 1,383 – cash flow hedges 1,254 4,630 – hedges of net investments in foreign operations 111 138 Other non-trading derivatives 1,796 2,395
The notional value of the related credit derivatives is EUR 83 million (2013: EUR 111 million). The change in fair value of the credit derivatives attributable to changes in credit risk since the loans were first designated amounts was EUR –10 million (2013: EUR –4 million) and the change for the current year was EUR –6 million (2013: EUR 2 million).
As at 31 December 2014, Loans and receivables designated as at fair value through profit and loss includes EUR 1,112 million (2013: nil) with regard to reverse repurchase transactions.
In 2014, the change in Investments includes EUR –61,014 million (EUR –69,249 million as per classification date) related to the classification of NN Group as held for sale and EUR –1,681 million related to the deconsolidation of Vysya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’. This overall change is partly offset by an increase in Available-for-sale debt securities (high-quality liquid assets) ahead of the introduction of the liquidity coverage ratio.
Amortisation –317 –650 1 –6 –316 –656 Transfers and reclassifications –167 –282 –167 –282 Changes in unrealised revaluations 995 23 11,326 –7,470 –2 –1 12,319 –7,448 Impairments –117 –177 3 –11 –114 –188
In 2014, Transfers and reclassifications includes transfers of investments in real estate funds from Available-for-sale investments to Associates and joint ventures and the transfer of the investment in SulAmérica S.A. from Associates and joint ventures to Available-forsale investments, both following changes in ownership interests.
In 2012, the decrease in the carrying value of the reclassified Loans and advances compared to 2011 was mainly due to disposals.
Impact on the financial years after reclassification: Carrying value as at 31 December 5,936 361 Fair value as at 31 December 5,982 426 Unrealised fair value losses recognised in shareholders’ equity (before tax) as at 31 December –98 nil Effect on shareholders’ equity (before tax) as at 31 December if reclassification had not been made 46 65 Effect on result (before tax) if reclassification had not been made nil nil Effect on result (before tax) for the year (interest income and sales results) 182 19 Recognised impairments (before tax) nil nil Recognised provision for credit losses (before tax) nil nil
Carrying value as at 31 December 20,551 1,189 Fair value as at 31 December 20,175 1,184 Unrealised fair value losses in shareholders’ equity (before tax) as at 31 December –902 –67 Effect on shareholders’ equity (before tax) as at 31 December if reclassification had not been made –376 –5 Effect on result (before tax) if reclassification had not been made nil nil Effect on result (before tax) after the reclassification until 31 December (mainly interest income) 629 n.a Effect on result (before tax) for the year (mainly interest income) n.a 47 Recognised impairments (before tax) nil nil Recognised provision for credit losses (before tax) nil nil
CBRE UK Property Fund LP 29 146 567 55 79 27 CBRE Retail Property Fund Iberica LP 29 118 1,322 902 67 CBRE Property Fund Central Europe LP 25 100 850 450 45 39 CBRE Retail Property Fund France Belgium C.V. 15 77 1,336 822 71 78
Disposals SulAmérica S.A., is a public listed insurance company in Brazil. In 2013, ING reduced its 36.5% stake in SulAmérica S.A. to approximately 21.5% through two separate transactions. Under the International Finance Corporation transaction, ING sold a stake of approximately 7.9% in SulAmérica S.A. for a total consideration of approximately EUR 140 million. Under the terms of the Larragoiti transaction, ING sold a stake in SulAmérica S.A. of approximately 7% to the Larragoiti family, swapped its remaining indirect stake for tradable units, and unwound the existing shareholder’s agreement. A net gain/loss of EUR 64 million (EUR 64 million after tax) was recognised in the Result from associates and joint ventures in the profit and loss account on these transactions in the second and fourth quarter of 2013.
In the first quarter of 2014, ING completed the sale to Swiss Re Group of 37.7 million units in SulAmérica S.A. The transaction further reduced ING’s stake in the Brazilian insurance holding to approximately 10.3%. ING received a total cash consideration of EUR 176 million. The transaction resulted in a net gain to ING of EUR 56 million which represents the difference between the carrying value and the fair value for both the 11.3% stake in scope of the transaction with Swiss Re and the 10% stake retained by ING which was recognised in 2014 in the profit and loss account in the line Result from associates. The remaining investment in SulAmérica S.A. was accounted for as an available-for-sale investment until the final divestment in 2014. Reference is made to Note 5 ‘Investments’ and Note 24 ‘Investment income’.
Real estate investments by year of most recent appraisal by independent qualified valuers in percentages 2014 2013
ING Group’s exposure to real estate is included in the following balance sheet lines: Real estate exposure (1)
Revaluation surplus Opening balance 449 470 Revaluation in the year –73 –5 Released in the year –16 Closing balance 376 449
In 2014, Changes in the composition of the group and other changes includes EUR –88 million related to the classification of NN Group as held for sale and EUR –40 million related to the deconsolidation of ING Vysya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Disposals –13 –18 –14 –9 –27 –27 Depreciation –133 –161 –193 –215 –326 –376 Impairments –4 –3 –7 Exchange rate differences 1 –10 1 –14 2 –24 Changes in the composition of the group and other changes –31 –10 –51 –19 –82 –29
In 2014, Changes in the composition of the group and other changes includes EUR –198 million related to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’, Note 33 ‘Discontinued operations’ and Note 57 ‘Other events’.
2014 – Changes in composition of the group and other changes In 2014, ‘Changes in composition of the group and other changes’ represents the reclassification of goodwill to ‘Assets held for sale’. This includes all goodwill that relates to businesses classified as held for sale. For 2014, the amount is EUR 103 million and relates to NN Group. As businesses to which these goodwill amounts relate are classified as held for sale, the related goodwill is no longer evaluated
Retail Netherlands 1 Retail Belgium 50 50 Retail Germany 349 349 Retail Central Europe 638 611 Commercial Banking 24 24 Insurance Europe 101
In 2014, goodwill of EUR 103 million was written-off, as NN group is expected to be sold below its carrying value. Reference is made to Note 12 ‘Assets and liabilities held for sale’, Note 33 ‘Discontinued operations’ and Note 57 ‘Other events’. Other changes in 2014 are mainly due to changes in currency exchange rates.
Such additional analyses were performed for the goodwill that was concluded to be impaired as set out above. For other reporting units, in both 2014 and 2013, the first step as described above indicates that there is a significant excess of recoverable amount over book value for both reporting units to which goodwill is allocated. As a result, a second step was not necessary and there is no significant exposure of goodwill impairment for sensitivities in the underlying assumptions.
In 2014, Changes in the composition of the group and other changes includes EUR –1,431 million related to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
During 2014, the (partial) divestments of Voya and the Taiwanese investment management businesses closed. As a result these businesses are no longer consolidated as at 31 December 2014. During 2013, the divestments of the insurance businesses in Hong Kong, Macau and Thailand, ING’s investment management business in Malaysia and Thailand, ING’s Insurance joint ventures in South Korea and India and ING Direct UK closed. Reference is made to Note 52 ‘Companies and businesses acquired and divested’.
Shareholders’ equity Included in Shareholders’ equity is cumulative other comprehensive income of EUR 3,466 million related to NN Group (2013: EUR 35 million related to Voya) related to Assets and liabilities held for sale.
Provision for non-participating life policy liabilities 18,152 27 18,179 Provision for participating life policy liabilities 47,661 87 47,748 Provision for (deferred) profit sharing and rebates 7,712 7,712 Life insurance provisions excluding provisions for risk of policyholders 73,525 114 73,639
Investment contracts for risk of company 772 772 Investment contracts for risk of policyholders 1,569 1,569 Total provisions for investment contracts 2,341 0 2,341
Reserve adequacy The provisions for insurance contracts are adequate at both the 90% and 50% confidence levels, both in aggregate for NN Group and for each of the segments. The provisions for insurance contracts in the segment Netherlands Life are approximately at the 90% confidence level.
Legal proceedings Insurance provisions include a provision for the estimated cost of the agreement with regard to unit-linked policies. For more information reference is made to Note 51 ‘Legal proceedings’.
Available-for-sale The remaining EUR 1.9 billion relates to Available-for-sale investments whose fair value is generally based on unadjusted quoted prices in inactive markets. This includes for example debt securities and shares in real estate investment funds and private equity investment funds for which the fair value is determined using quoted prices for the securities or quoted prices obtained from the asset managers of the funds. It is estimated that a 10% change in valuation of these investments would have no impact on Net result but would increase or reduce Shareholders’ equity of NN Group by EUR 190 million being approximately 0.9% (before tax) of Total equity.
Net defined benefit assets 589 1,006 1,590 Deferred tax assets 1,145 1,380 2,244 Reinsurance and insurance receivables 635 1,763 Property development and obtained from foreclosures 405 746 1,033 Income tax receivable 289 597 558 Accrued interest and rents 6,848 9,988 12,356 Other accrued assets 555 961 1,542
The total amount of borrowing costs relating to Property development and obtained from foreclosures, capitalised in 2014 is nil (2013: nil).
Other Other includes EUR 2,144 million (2013: EUR 3,400 million) related to transactions still to be settled at balance sheet date.
Ordinary shares All ordinary shares are in registered form. No share certificates have been issued. Ordinary shares may be transferred by means of a deed of transfer. A transfer of ordinary shares requires written acknowledgement by ING Groep N.V. The par value of ordinary shares is EUR 0.24. The authorised ordinary share capital of ING Groep N.V. currently consists of 14,500 million ordinary shares. As at 31 December 2014, 3,859 million of ordinary shares were issued and fully paid.
Unrealised revaluations –7 –5,527 –5,534 Realised gains/losses transferred to profit and loss –327 –327 Changes in cash flow hedge reserve –812 –812 Transfer to insurance liabilities/DAC 2,200 2,200 Impact of Voya –4 –444 2 –446
Net defined benefit asset/liability remeasurement reserve The change in the Net defined benefit asset/liability remeasurement reserve relates mainly to the transfer of all future funding and indexation obligations under ING’s current closed defined benefit plan in the Netherlands to the Dutch ING Pension Fund. Reference is made to Note 41 ‘Pension and other post-employment benefits’.
As at 31 December 2014, an amount of EUR 1,070 million (2013: EUR 987 million; 2012: EUR 911 million) related to the former Stichting Regio Bank and the former Stichting Vakbondsspaarbank SPN is included.
Total assets and Total liabilities of NN Group as presented above, to which the minority interest in NN Group related, are all presented in the Consolidated balance sheet in Assets held for sale and Liabilities held for sale in 2014. Total income and Total expenses of NN Group, to which the minority interest in NN Group related, are all presented in the Consolidated profit and loss account in Net result from discontinued operations.
16 Debt securities in issue Debt securities in issue relate to debentures and other issued debt securities with either fixed interest rates or interest rates based on floating interest rate levels, such as certificates of deposit and accepted bills issued by ING Group, except for subordinated items. Debt securities in issue do not include debt securities presented as Financial liabilities at fair value through profit and loss. ING Group does not have debt securities that are issued on terms other than those available in the normal course of business. The maturities of the debt securities are as follows: Debt securities in issue – maturities
The second offer was for the USD-denominated notes with a principal amount of USD 2.25 billion (3.90% fixed rate notes which were due on 19 March 2014). The aggregate principal amount of the notes repurchased was approximately USD 990 million or 44%, leaving a remaining amount outstanding of approximately USD 1.26 billion. ING Bank paid a purchase price of USD 1,026.66 per USD 1,000 principal amount for the USD denominated notes. In 2013, a charge of EUR 11 million (EUR 8 million after tax) was recognised in Other income - Other on the USD-denominated notes. These transactions were settled on 3 July 2013.
18 Insurance and investment contracts, reinsurance contracts In 2013, the provision for Insurance and investment contracts was presented gross in the balance sheet as ‘Insurance and investment contracts’. In 2013, the related reinsurance was presented as ‘Reinsurance contracts’ under Assets in the balance sheet.
Provision for life insurance for risk of policyholders 38,038 49 38,087 Life insurance provisions 105,615 171 105,786
In 2014, Changes in the composition of the group and other changes includes EUR –113,057 million related to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
As at 31 December 2013, the total Reinsurance exposure, including Reinsurance contracts and Receivables from reinsurers (presented in Other assets) amounted to EUR 343 million. There was no provision for uncollectable reinsurance in 2013.
In 2014, Changes in the composition of the group and other changes includes EUR –2,391 million related to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale and Note 57 ‘Other events’.
Liability relating to accident year prior to 2004 681 Total amount recognised in the balance sheet 3,316
Equity securities 4,658 3,713 Debt securities 6,661 7,396 Funds on deposit 37,753 32,880
The amount that ING Group is contractually required to pay at maturity to the holders of financial liabilities designated as at fair value through profit and loss is EUR 12,568 million (2013: EUR 13,427 million).
Notes to the consolidated profit and loss account 23 Interest result banking operations
Interest income on loans 20,186 21,570 24,798 Interest income on impaired loans 1 15 41 Total interest income on loans 20,187 21,585 24,839
Interest income on available-for-sale securities 2,008 2,070 2,507 Interest income on held-to-maturity securities 83 158 297 Interest income on trading portfolio 18,327 19,882 24,616 Interest income on non-trading derivatives (no hedge accounting) 1,520 1,175 1,578 Interest income on non-trading derivatives (hedge accounting) 5,977 6,675 6,297 Other interest income 61 –151 –131 Interest income banking operations 48,163 51,394 60,003
Interest expense on deposits by banks 338 440 623 Interest expense on customer deposits and other funds on deposit 5,355 6,618 9,140 Interest expense on debt securities 2,503 3,197 3,822 Interest expense on subordinated loans 1,185 1,347 1,422 Interest expense on trading liabilities 17,710 19,369 24,048 Interest expense on non-trading derivatives (no hedge accounting) 1,255 1,205 1,528 Interest expense on non-trading derivatives (hedge accounting) 7,123 7,873 7,905 Other interest expense 390 –356 –369 Interest expense banking operations 35,859 39,693 48,119
Retail Belgium –1 Commercial Banking –14 –3 –26 1 2 Corporate line banking –1 –11 25 Result on disposals of group companies
In 2014, Result of disposal of group companies includes EUR 202 million profit on the deconsolidation of ING Vysya. Reference is made to Note 7 ‘Investments in associates and joint ventures’, Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Net operating lease income comprises income of EUR 23 million (2013: EUR 18 million; 2012: EUR 2 million) and depreciation of EUR 18 million (2013: EUR 17 million; 2012: EUR 1 million).
In 2014, EUR 36 million impairments are recognised on Property development relating to real estate development projects and properties obtained from foreclosures.
As per 31 December 2014 total options outstanding consists of 41,685,852 options (2013: 55,321,834; 2012: 70,135,050) relating to equity-settled share-based payment arrangements and 10,873,755 options (2013: 12,970,608; 2012: 15,058,127) relating to cashsettled share-based payment arrangements.
Changes in option rights non-vested Options non-vested (in numbers) Weighted average grant date fair value (in euros)
Summary of stock options outstanding and exercisable 2014 Range of exercise price in euros
The fair value of options granted is recognised as an expense under staff expenses and is allocated over the vesting period of the options. The fair values of the option awards have been determined using a Monte Carlo simulation. This model takes the risk free interest rate into account (2.0% to 4.6%), as well as the expected life of the options granted (5 to 9 years), the exercise price, the current share price (EUR 2.90 – EUR 26.05), the expected volatility of the certificates of ING Groep N.V. shares (25% – 84%) and the expected dividend yield (0.94% to 8.99%). The source for implied volatilities used for the valuation of the stock options is ING’s trading system. The implied volatilities in this system are determined by ING’s traders and are based on market data implied volatilities not on historical volatilities.
As at 31 December 2014 total unrecognised compensation costs related to share awards amount to EUR 31 million (2013: EUR 53 million; 2012: EUR 102 million). These costs are expected to be recognised over a weighted average period of 1.3 years (2013: 1.5 years; 2012: 1.2 years)
Addition/(releases) of provision for reorganisations and relocations 469 222 458 469 222 458
Other operating expenses include lease and sublease payments in respect of operating leases of EUR 239 million (2013: EUR 206 million; 2012: EUR 234 million) in which ING Group is the lessee. No individual operating lease has terms and conditions that significantly affect the amount, timing and certainty of the consolidated cash flows of the Group.
In 2012, Net result from disposal of discontinued operations included the tax exempt divestment gain of EUR 745 million on the sale of the Insurance businesses in Malaysia.
Cash flows from discontinued operations The net cash flow from discontinued operations was as follows: Net result from discontinued operations – NN Group and Voya 2014 2013 2012
Sales proceeds of 2014 are not included in the table above, but are included in the Consolidated statement of cash flows as follows: › Sale of Voya shares which resulted in the loss of control in March 2014: EUR 950 million in ‘Net cash flow from investing activities – Disposals and redemptions: group companies’; › Reduction of interest in the Voya associate in September 2014 and November 2014: EUR 1,940 million in ‘Net cash flow from investing activities – Disposals and redemptions: associates and joint ventures’; and
Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
In 2012 and 2013, the attribution to non-voting equity securities also represented the amount that would be payable on the non-voting equity securities if and when the entire net result for the period would be distributed as dividend. This amount was only included for
Reference is made to Note 56 ‘Transactions with the Dutch State and the European Commission Restructuring Plan’.
Less: Net result from discontinued operations –1,406 495 1,280 Basic earnings from continuing operations 1,907 2,524 2,440 3,849.7 3,825.0 3,796.1 0.50 0.66 0.64
Basic earnings from discontinued operations –1,406 495 1,280 3,849.7 3,825.0 3,796.1 –0.37 0.13 0.34
Not included in cash and cash equivalents: – amounts due to banks –18,174 –15,749 –26,557 – amounts due from banks 27,330 30,530 22,273
Retail Belgium Income from retail and private banking activities in Belgium, including the SME and mid-corporate segments. The main products offered are similar to those in the Netherlands.
As of 30 September 2014, the Insurance segments (Netherlands Life, Netherlands Non-Life, Insurance Europe, Japan Life, Investment Management, Other and Japan Closed Block VA) ceased to exist, following the classification of NN Group as discontinued operations.
Underlying result as presented below is a non-GAAP financial measure and is not a measure of financial performance under IFRS-EU. Because underlying result is not determined in accordance with IFRS-EU, underlying result as presented by ING may not be comparable to other similarly titled measures of performance of other companies. The underlying result of ING’s segments is reconciled to the Net result as reported in the IFRS-EU Consolidated profit and loss account below. The information presented in this note is in line with the information presented to the Executive and Management Boards.
Underlying income – Net interest result - banking operations 12,376 12,376 – Commission income 2,290 2,290 – Total investment and other income 630 630 Total underlying income 15,296 15,296
Special items –1,021 –1,021 Intercompany eliminations between ING Bank and NN Group –55 –55
(1) Insurance Other comprises mainly the net result relating to warrants on the shares of Voya Financial.
Special items 1,259 –1,021 Intercompany eliminations between ING Bank and NN Group –70 –55
IFRS-EU (continuing operations) 15,560 11,853 2,657 Total net result from discontinued operations 12,901 13,926 –1,406 Net result IFRS-EU (continuing and discontinued operations) attributable to equity holder of the parent 28,461 25,779 1,251
Divestments –9 14 –41 Special items 109 –82 Intercompany eliminations between ING Bank and NN Group –129 –97
Reference is made to Note 33 ‘Discontinued operations’ for information on discontinued operations.
Underlying income – Net interest result - banking operations 11,664 11,664 – Commission income 2,173 2,173 – Total investment and other income 477 477 Total underlying income 14,313 14,313
Underlying expenditure – Operating expenses 8,638 8,638 – Additions to loan loss provision 2,121 2,121 – Other impairments Total underlying expenses 10,759 10,759
Special items –595 –595 Intercompany eliminations between ING Bank and NN Group –110 –110
– Total investment and other income 42 158 –39 235 1,156 –294 1,257
– Total investment and other income 34 136 –36 –273 637 –23 477
Other The actual return on the plan assets amounts to EUR 1,410 million (2013: EUR –302 million).
No plan assets are expected to be returned to ING Group during 2015.
Changes in the present value of the defined benefit obligation and other post-employment benefits for the period was as follows: Changes in defined benefit obligation and other post-employment benefits Defined benefit obligation Other post-employment benefits
Remeasurements: Actuarial gains and losses arising from changes in demographic assumptions 4 –10 6 Remeasurements: Actuarial gains and losses arising from changes in financial assumptions 1,595 243 Participants’ contributions 1 Benefits paid –204 –591 –2 Past service cost –12 3 Effect of curtailment or settlement –19,725 –138 –1 Exchange rate differences 103 –56 4 –2 Changes in the composition of the group and other changes –168 –1,418 –41 –27
2014 - Effect of curtailment or settlement In 2014, EUR 19,079 million is recognised in Effect of curtailment or settlement related to the Dutch defined benefit plan settlement as a result of the agreement that made the ING Pension Fund financially independent from ING.
Remeasurement of plan assets 1,207 –885 Actuarial gains and losses arising from changes in demographic assumptions –4 21 Actuarial gains and losses arising from changes in financial assumptions –1,682 –208 Transfer to Other reserves 27
In 2014, EUR 3,279 million is recognised in Transfer to Other reserves (pension settlement) related to the Dutch defined benefit plan settlement.
The accumulated amount of remeasurements recognised directly in Other comprehensive income (equity) is EUR 753 million (EUR 515 million after tax) as at 31 December 2014 (2013: EUR –5,113 million, EUR –3,802 million after tax).
Information on plan assets and defined benefit obligation per country The defined benefit obligation per country and the plan assets per country can be specified as follows: Plan assets and defined benefit obligation per country Plan assets Defined benefit obligation
As at 31 December 2014 the various defined benefit plans did not hold any investments in ING Groep N.V. (2013: nil)
The defined benefit plans in the United Kingdom and Belgium are not considered to be significant. Therefore, no more detailed information is disclosed.
Determination of the net defined benefit asset/liability The table provides the key assumptions used in the determination of the Net defined benefit asset/liability and the Other postemployment benefits.
The table discloses the financial impact on the defined benefit obligation if the weighted averages of each significant actuarial assumption would increase or decrease if all other assumptions were held constant. In practice, this is unlikely to occur, and some changes of the assumptions may be correlated.
Expected cash flows Annual contributions are paid to the funds at a rate necessary to adequately finance the accrued liabilities of the plans calculated in accordance with local legal requirements. Plans in all countries comply with applicable local regulations governing investments and funding levels. ING Group’s subsidiaries should fund the cost of the entitlements expected to be earned on a yearly basis.
The following benefit payments, which reflect expected future service as appropriate, are expected to be made by the plan: Benefit payments Defined benefit obligation
The average duration of the benefit obligation at the end of the reporting period is 17 years (2013: 20 years). This number can be subdivided into the duration related to: › active members: 12 years (2013: 26 years); › inactive members: 24 years (2013: 23 years); and › retired members: 13 years (2013: 11 years).
In 2012, ING reached final agreement on a new pension scheme for employees in the Netherlands. Two new separate pension funds were created, one for banking and one for NN Group. The new schemes took effect on 1 January 2014 and qualifies as a defined contribution scheme under IFRS-EU and replaced the existing defined scheme in the Netherlands. As of the start of the new defined contribution plan, the defined benefit plan stopped accruing new pension benefits. Accruals built up under the defined benefit plan remain valid. The change to the new pension scheme represented a curtailment under IFRS-EU and resulted in a release of provisions previously taken by ING to cover estimated future liabilities in the existing defined benefit plan which are no longer required. This release amounted to a one-off after tax gain of EUR 251 million (EUR 335 million before tax) and was recognised in 2012.
Cash flow hedges 897 –309 15 603 Pension and post-employment benefits –176 –230 197 8 276 75 Other provisions –19 –6 10 14 –1
Changes through net result for Unused tax losses carried forward and Loans and advances to customers in 2013 related mainly to an intercompany transaction that resulted in taxable profit in 2013, but did not impact the consolidated result under IFRS.
The following tax losses carried forward and tax credits will expire as follows as at 31 December: Total unused tax losses carried forward analysed by expiry terms No deferred tax asset recognised Deferred tax asset recognised
In 2014, the change in deferred tax assets for insurance operations is due to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
For the year 2013 the tax charge in the Netherlands increased with EUR 157 million to EUR 33 million caused by higher results in combination with less tax exempt income on divestments compared to 2012.
Tax exempt income (participation exemption) mainly includes non-taxable income on divestments, tax exempt share in result from associates and joint ventures and tax exempt gains on financial assets.
Investment contracts for risk of company 849 810 Investment contracts for risk of policyholders 1,588 1,588 Amounts due to banks 30,684 27,675 29,999 27,200 Customer deposits and other funds on deposit 484,918 474,003 483,871 474,312 Financial liabilities at fair value through profit and loss
– designated as at fair value through profit and loss 13,551 13,855 13,551 13,855
(1) Other assets do not include (deferred) tax assets, net defined benefit asset and property development and obtained from foreclosures. (2) Other liabilities do not include (deferred) tax liabilities, net defined benefit liability, prepayments received under property under development, other provisions and other taxation and social security contributions.
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 increases) are included in the adjustment. ING also applies CVA for pricing credit risk into new external trades with counterparties.
Methods applied in determining fair values of financial assets and liabilities (carried at fair value) 2013 Level 1 Level 2 Level 3 Total
Financial assets designated as at fair value through profit and loss 571 2,021 198 2,790 Available-for-sale investments 111,273 23,473 3,151 137,897
Level 2 – Valuation technique supported by observable inputs This category includes financial instruments whose fair value is determined using a valuation technique (e.g. a model), where inputs in the model are taken from an active market or are observable. If certain inputs in the model are unobservable, the instrument is still classified in this category, provided that the impact of those unobservable inputs on the overall valuation is insignificant. Included in this category are items whose value is derived from quoted prices of similar instruments, but for which the prices are modified based on other market observable external data and items whose value is derived from quoted prices but for which there was insufficient evidence of an active market. This category also includes financial assets and liabilities whose fair value is determined by reference to price quotes but for which the market is considered inactive.
Transfers out of Level 3 –293 –48 –3 –344 Exchange rate differences 9 –2 28 35 Changes in the composition of the group and other changes –609 –246 –2,090 –2,945
Financial assets Trading assets –286 22 –264 Non-trading derivatives 131 131 Financial assets designated as at fair value through profit and loss –67 –67 Available-for-sale investments –70 31 –39
Financial liabilities Trading liabilities –54 –54 Non-trading derivatives 14 14 Financial liabilities designated as at fair value through profit and loss –81 –81
Financial liabilities Trading liabilities –110 –110 Non-trading derivatives 315 315 Financial liabilities designated as at fair value through profit and loss –137 –137
Level 3 Financial assets and liabilities Financial assets measured at fair value in the balance sheet as at 31 December 2014 of EUR 240 billion include an amount of EUR 1.8 billion (0.8%) which is classified as Level 3 (31 December 2013: EUR 5.7 billion, being 1.9%). Changes in Level 3 from 31 December 2013 to 31 December 2014 are disclosed above in the table ‘Changes in Level 3 Financial assets’.
Of the total amount of financial liabilities classified as Level 3 as at 31 December 2014 of EUR 1.3 billion, an amount of EUR 0.7 billion (54%) is based on unadjusted quoted prices in inactive markets. As ING does not generally adjust quoted prices using its own inputs, there is no significant sensitivity to ING’s own unobservable inputs.
Furthermore, Level 3 financial liabilities includes approximately EUR 0.2 billion which relates to financial liabilities that are part of structures that are designed to be fully neutral in terms of market risk. As explained above, the fair value of each of the components of these structures may be sensitive to unobservable inputs, but the overall sensitivity is by design not significant.
At fair value through profit and loss Debt securities 161 5 Price based Price (%) 0% 114%
Loans and advances 164 5 Price based Price (%) 1% 100% Net asset value Price (%) 32% 38%
Loan pricing model Credit spread (bps) 696 696 Structured notes 343 Price based Price (%) 65% 110%
As ING has chosen to apply a 90% confidence level already for its IFRS valuation of fair valued financial instruments as of end of 2014, the downward valuation uncertainty has become immaterial, whereas the potential upward valuation uncertainty, reflecting a potential profit, has increased. Specifically for the AFS Equity positions the upward valuation uncertainty decreased.
Because of the approach taken, the valuation uncertainty in the table below is broken down by related risk class rather than by product.
Amounts recognised in the profit and loss account during the year 3 –80 –77 Revaluation recognised in equity during the year –27 –27 Purchase of assets 322 64 386 Sale of assets –192 –27 –219 Reclassifications 20 –26 –6 Exchange rate differences 1 1 Changes in the composition of the group and other changes –1,119 –128 –1,247
Non-financial assets Real estate investments 3 3 Property in own use –58 –22 –80
To qualify for hedge accounting under IFRS-EU, strict criteria must be met. Certain hedges that are economically effective from a risk management perspective do not qualify for hedge accounting under IFRS-EU. The fair value changes of derivatives relating to such nonqualifying hedges are taken to the profit and loss account. However, in certain cases, the Group mitigates the profit and loss account volatility by designating hedged assets and liabilities at fair value through profit and loss. If hedge accounting is applied under IFRS-EU, it is possible that during the hedge a hedge relationship no longer qualifies for hedge accounting and hedge accounting cannot be continued, even if the hedge remains economically effective. As a result, the volatility arising from undertaking economic hedging in the profit and loss account may be higher than would be expected from an economic point of view.
For the year ended 31 December 2014, ING Group recognised EUR –486 million (2013: EUR 871 million) of fair value changes on derivatives designated under fair value hedge accounting in the profit and loss account. This amount was partly offset by EUR 536 million (2013: EUR –963 million) fair value changes recognised on hedged items. This resulted in EUR 50 million (2013: EUR –92 million) net accounting ineffectiveness recognised in the profit and loss account. As at 31 December 2014, the fair values of outstanding derivatives designated under fair value hedge accounting was EUR –1,987 million (2013: EUR –3,172 million), presented in the balance sheet as EUR 1,223 million (2013: EUR 1,383 million) positive fair values under assets and EUR 3,210 million (2013: EUR 4,555 million) negative fair values under liabilities.
Included in Interest income and interest expense on non-trading derivatives is EUR 2,644 million (2013: EUR 3,456 million) and EUR 2,261 million (2013: EUR 3,220 million), respectively, relating to derivatives used in cash flow hedges.
(3) Included in remaining assets for which maturities are not applicable are property and equipment, real estate investments and investments in associates. Due to their nature remaining assets consist mainly of assets expected to be recovered after more than 12 months.
Customer deposits and other funds on deposit 424,283 27,995 23,806 5,344 2,405 38 483,871 Financial liabilities at fair value through profit and loss
48 Transfer of Financial Assets The majority of ING’s financial assets that have been transferred, but do not qualify for derecognition are debt instruments used in securities lending or sale and repurchase transactions. Reference is made to Note 54 ‘Structured entities’.
In 2014, ING sold financial assets (mortgages) for an amount of approximately EUR 990 million in the Australian market. The transaction resulted in full derecognition of the financial assets from ING’s balance sheet. This equates to a profit of EUR 17.5 million. Following this transfer, ING continues to have an on-going involvement in the transferred assets as servicer of the transferred assets for a term of four years.
49 Offsetting financial assets and liabilities The following tables include information about rights to offset and the related arrangements. The amounts included consist of all recognised financial instruments that are presented net in the balance sheet under the IFRS-EU offsetting requirements (legal right to offset and intention to net settle) and amounts presented gross in the balance sheet but subject to enforceable master netting arrangements or similar arrangement.
Reverse repurchase, securities borrowing and similar agreements 925 925 300 625 Other 195,489 –188,629 6,860 1 657 6,202
Impact of enforceable master netting arrangements or similar arrangements (1) Derivatives –4,825 3,176 1,649
Impact of enforceable master netting arrangements or similar arrangements (1) Derivatives –13,146 6,335 6,811
(1) Excludes commitments and contingent liabilities related to businesses classified as held for sale. In 2014 mainly NN Group (2013: mainly Voya).
A complaint has been filed against ING Bank in January 2015 in the New York District Court by Alfredo and Gustavo Villoldo and the executor of their father’s estate (‘Villoldo’). Villoldo holds two judgments against the Cuban government and other Cuban entities in the aggregate amount of USD 2.9 billion. Those judgments remain outstanding and uncollected. The complaint against ING Bank alleges that if ING Bank had complied with the applicable US sanction laws, Cuba assets would have been frozen by OFAC and available for execution and seizure by Villoldo. The complaint alleges that the acts set out in ING’s settlement with OFAC in 2012 constitute wire fraud, money laundering and fraudulent transfer and that Villoldo is therefore entitled to actual damages in the amount to be believed no less than USD 1.654 billion and treble damages of not less than USD 4.962 billion. At this moment it is not practicable to provide an estimate of the (potential) financial effect.
Since 2012, the AFM requires insurers to reach out to (activeren) policyholders by informing them on the financial gap between the projected value of their policy and the target capital in respect of non-accumulating policies and an overview of possible improvements, to encourage and enable such policyholders to take steps to improve their personal situation. In October 2014, the AFM published a report (Rapport Nazorg beleggingsverzekeringen) which describes, among other things, the individual activation scores of insurers as per 30 June 2014. In the report, NN has reported an activation score of 89% in respect of non-accumulating policies and has committed to realise an ambition level of 90–95% before year-end 2014.
In the state aid related proceedings between the EC, the Dutch State and ING before the European Union Courts, the Court of Justice rendered a final judgment on 3 April 2014 and dismissed the EC’s appeal against the General Court ruling of March 2012. As earlier agreed in November 2012 between ING, the Dutch State and the EC, the outcome of this appeal will not affect the EC approval of ING’s Amended Restructuring Plan. However, if ING does not fulfill any divestment commitment or does not meet any of the so called ‘2015 NN Bank-related commitments’, or in case of other material non-compliance with the Restructuring Plan, the Dutch State will re-notify the recapitalisation measure to the EC. In such event the EC may open a (legal) procedure against ING, require additional restructuring measures and/or take enforcement actions.
Arbitration proceedings have been initiated by the purchaser of NN Group’s former insurance subsidiary in South Korea alleging that the financial condition of this subsidiary was not accurately depicted. At this stage it is not possible to predict the financial impact of these proceedings, if any.
52 Companies and businesses acquired and divested Acquisitions effective in 2014 There were no significant acquisitions in 2014.
Divestments effective in 2014 Asia - ING’s Taiwanese investment management business In January 2014, ING agreed to sell ING Investment Management (IM) Taiwan, its Taiwanese asset management business, to Japanbased Nomura Asset Management in partnership with a group of investors. The transaction did not have a significant impact on ING Group results. The transaction closed on 18 April 2014. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 33 ‘Discontinued operations’.
ING Direct USA In June 2011, ING reached an agreement to sell ING Direct USA to Capital One Financial Corporation, a leading US-based financial holding company. In February 2012, ING announced that the transaction closed. Total proceeds of the transaction were approximately EUR 6.9 billion (USD 9.0 billion), including USD 6.3 billion in cash and USD 2.7 billion in the form of 54.0 million shares in Capital One, based on the share price of USD 49.29 at closing on 16 February 2012. These shares represented a 9.7% stake in Capital One at closing. The transaction resulted in a positive result after tax of EUR 489 million and had a positive impact on ING Bank’s core Tier 1
Liabilities Insurance and investment contracts 3,964 3,964 Financial liabilities at fair value through profit and loss 5 253 258 Customer deposits and other funds on deposit 63,744 29,383 93,127
ING International Nominee Holdings, Inc. United States of America 56% ING Life Insurance and Annuity Company United States of America 56% ING North America Insurance Corporation United States of America 56% Lion Connecticut Holdings Inc. United States of America 56% ReliaStar Life Insurance Company United States of America 56% ReliaStar Life Insurance Company of New York United States of America 56% Security Life of Denver Insurance Company United States of America 56% ING USA Annuity and Life Insurance Company United States of America 56% ING Investment Management Co United States of America 56% Security Life of Denver International Limited United States of America 56%
1. Consolidated ING originated Credit management securitisation programmes ING Group enters into synthetic securitisation programmes in order to reduce credit risk on certain assets. In synthetic securitisations, ING Group enters into a credit default swap (‘CDS’) with securitisation Special Purpose Entities (’SPEs’), in relation to which ING Group purchases credit protection in respect of residential mortgage loans and loans to corporates and small and medium-sized enterprises. The SPEs have hedged their exposure with investors through the issue of credit-linked notes or credit-linked commercial paper. As a result of these transactions, ING Group has transferred a part of its credit risk related to these loan portfolios to third-party investors.
ING Bank originated various securitisations with at 31 December 2014 approximately EUR 74 billion (2013: EUR 76 billion) of AAA rated notes and subordinated notes, of which approximately EUR 5.6 billion (2013: EUR 6.7 billion) are held by third parties. The underlying exposures are residential mortgages and SME loans. Apart from the third party funding, these securitisations did not impact ING Bank’s consolidated balance sheet and profit and loss.
55 Related parties In the normal course of business, ING Group enters into various transactions with related parties. Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. Related parties of ING Group include, amongst others, its subsidiaries, joint ventures, associates, key management personnel and various defined benefit and contribution plans. Transactions between related parties have taken place on an arm’s length basis and include rendering or receiving of services, leases, transfers under finance arrangements and provisions of guarantees or collateral. There are no significant provisions for doubtful debts or individually significant bad debt expenses recognised on outstanding balances with related parties.
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. Including this final payment, the total amount paid to the Dutch State is EUR 13.5 billion, containing EUR 10 billion in principal and EUR 3.5 billion in interest and premiums, giving the Dutch State and annualised return of 12.7%. During 2014, the Dutch State was fully repaid. As per 8 November 2014, the Dutch state is no longer a related party of ING Group. All other transactions between ING Group and the Dutch State are of a normal business nature and at arm’s length. For information on the non-voting equity securities, the Illiquid Assets Back-up Facility and the European Commission Restructuring Plan, refer to Note 56 ‘Transactions with the Dutch State and the European Commission Restructuring Plan’.
Assets from ING Bank N.V. and NN Group N.V. mainly include long-term funding. Liabilities to ING Bank N.V. mainly include short-term deposits.
Key management personnel compensation Transactions with key management personnel (Executive Board, Management Boards and Supervisory Board) and post-employment benefit plans are transactions with related parties. These transactions are disclosed in more detail as required by Part 9 Book 2 of the Dutch Civil Code in the remuneration report included in the annual report. The relevant sections of the remuneration report therefore are part of the annual accounts. For the post-employment benefit plans see Note 41 ‘Pension and other post-employment benefits’.
In 2014, three members of the Executive Board of ING Groep N.V. are also members of the Management Board of ING Bank.
(5) In 2014, the compensation of the Management Board NN Group reflects the extension of the Board by two members who were appointed following the IPO of NN Group and one new member who was appointed to the Management Board NN Group on 1 August 2014.
– Severance benefits 765 765 Variable compensation – Upfront cash 473 395 3,469 4,337
ING U.S. The awards consist of EUR 2.0 million in cash and EUR 6.4 million in deferred shares.
Key management personnel compensation (Supervisory Board) amounts in thousands of euros 2014 2013
Management Board members of ING Bank and NN Group (2013: including Voya) 1,075 800 4.1% 4.0% 130 60
Remuneration of the Executive Board and Management Board Bank is recognised in the profit and loss account in Staff expenses as part of Total expenses. Remuneration in respect of Voya Financial Inc. and NN Group is reflected in Net result from discontinued operations and does not impact the Total expenses. The total remuneration of the Executive Board and Management Board Bank as
Master claim agreement In 2012, ING Groep N.V., Voya Financial Inc. (formerly ING U.S., Inc.) and ING Insurance Eurasia N.V. entered into a master claim agreement to (a) allocate existing claims between these three parties and (b) agree on criteria for how to allocate future claims between the three parties. The master claim agreement contains further details on claim handling, conduct of litigation and dispute resolution.
In addition, in connection with the initial public offering, of Voya Financial Inc., ING Groep N.V. entered into several other agreements with Voya Financial Inc. such as a transitional intellectual property license agreement, a joinder agreement and an equity administration agreement.
It was agreed that these restrictions would apply for the shorter period of three years or until the non-voting equity securities have been repaid in full to the Dutch State: › An agreement with the Dutch State to alter the repayment terms of 50% of the non-voting equity securities; › Repayment of EUR 5 billion of the non-voting equity securities issued in November 2008 to the Dutch State; › Additional Illiquid Assets Back-up Facility payments as part of the overall agreement with the European Commission will have to be made to the Dutch State in the form of fee adjustments relating to the Illiquid Assets Back-Up Facility which resulted in a one-off pretax charge to ING of EUR 1.3 billion in the fourth quarter of 2009; › Launch of a EUR 7.5 billion rights issue, in order to finance the repayment of 50% of the non-voting equity securities and a mitigation of the capital impact of the additional Illiquid Assets Back-up Facility payment as part of the overall agreement with the European Commission to the Dutch State of EUR 1.3 billion; › Execution of the Restructuring Plan before the end of 2013; › If the overall return on the (remaining) non-voting equity securities (core Tier 1 securities) issued to the Dutch State is expected to be lower than 10% p.a., the EC may consider the imposition of additional behavioural constraints; and › The calling of Tier 2 capital and Tier 1 hybrids will in the future be proposed case by case to the Commission for authorisation, for the shorter period of three years starting from the date of the Commission decision or up to the date on which ING has fully repaid the non-voting equity securities (core Tier 1 securities) to the Dutch State (including the relevant accrued interest of core Tier 1 coupons and exit premium fees).
Under the amendments announced in 2012, the ultimate dates for divesting the insurance and investment management businesses changed as follows: › The divestment of more than 50% of ING’s interest in its Asian insurance and investment management operations had to be completed by year-end 2013, with the remaining interest divested by year-end 2016; › The divestment of at least 25% of ING’s interest in Voya has to be completed by year-end 2013, more than 50% had to be divested by year-end 2014, with the remaining interest to be divested by year-end 2016; ING Group 238 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
› The divestment of more than 50% of ING’s interest in its European insurance and investment management activities has to be completed by year-end 2015, with the remaining interest divested by year-end 2018; and as ING has committed to eliminate double leverage, proceeds from the divestments will be used to that end while ensuring adequate leverage ratios of the insurance holding companies.
The calling or buy-back of Tier 2 capital and Tier 1 Hybrid Securities continued to be proposed for authorisation to the European Commission on a case by case basis until the full repayment of the core Tier 1 securities to the Dutch State, but ultimately until 18 November 2014, whichever date comes first. Notwithstanding this restriction, ING was allowed to call the EUR 1.25 billion Hybrid originally issued by ING Verzekeringen N.V. on 21 December 2012. With full the repayment of the core Tier 1 securities to the Dutch State on 7 November 2014, this restrictions has ended as of this date.
Amendments to the Restructuring Plan in 2013 In November 2013, ING announced further amendments to the Restructuring Plan. ING announced that it will expand the scope of the base case Initial Public Offering (IPO) of NN Group to include ING Life Japan. In that context, ING and the Dutch State have reached an agreement with the EC on revised timelines for the divestment process of ING Life Japan and ING’s European insurance and investment management activities.
As part of the previously announced amended restructuring agreement with the EC in 2012, ING planned to divest more than 50% of ING’s Asian insurance and investment management businesses by the end of 2013. ING successfully divested most of these businesses over the course of 2013. Under the revised timelines announced, ING will divest ING Life Japan in line with the divestment timeline for ING’s European insurance and investment management activities. This means that the timeline to divest more than 50% of ING Life Japan has effectively been extended to year-end 2015, which is also the unchanged timeline to divest more than 50% of ING’s European insurance and investment management businesses. As part of the revised 2013 agreement, ING will accelerate the timeline to complete the divestment of 100% of ING’s European insurance and investment management activities by year-end 2016.
Credit Guarantee Scheme 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 mediumterm 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. ING Group paid a fee of 84 basis points over the issued bonds to the Dutch State to participate in the Credit Guarantee Scheme. In 2014, all these bonds were fully repaid. Reference is made to Note 16 ‘Debt securities in issue’.
57 Other events NN Group Initial Public Offering (IPO) On 2 July 2014, ING sold 77 million existing ordinary shares in the initial public offering of NN Group at EUR 20.00 per share. On 10 July 2014, the joint global coordinators, on behalf of the underwriters, exercised an over-allotment option to purchase 11.55 million of additional existing shares in NN Group at the same price. At the time of the IPO, a first tranche of EUR 450 million of the mandatorily exchangeable subordinated notes (the pre-IPO investments from the three Asian-based investment firms RRJ Capital, Temasek and SeaTown Holdings International) was exchanged into NN Group shares. The remaining two tranches (each for an aggregate amount of EUR 337.5 million) will be mandatorily exchanged into NN Group shares from 2015 onwards.
As a result of the above, ING’s ownership in NN Group declined from 100% to 68.1%. This transaction did not impact the profit and loss account of ING Group, as NN Group will continue to be fully consolidated by ING Group. In 2014, the transactions had a negative impact on shareholders’ equity of ING Group of EUR 4,263 million. This amount includes: › EUR 2,590 million, being the difference between the net proceeds of the IPO to ING and the IFRS carrying value of the stake in NN Group divested in the IPO (including the exercise of the over-allotment option); › EUR 661 million, being the difference between the market value of the NN Group shares exchanged for the first tranche of the mandatorily exchangeable subordinated notes and the related IFRS carrying value; and
Reference is made to Note 12 ‘Assets and liabilities held for sale’, Note 14 ‘Equity’, Note 15 ‘Subordinated loans’, Note 22 ‘Other liabilities’, Note 33 ‘Discontinued operations’ and Note 58 ‘Subsequent events’.
Establishment of NN Group In 2014, ING Verzekeringen N.V. (‘ING Insurance’) was the holding company of the insurance and investment management activities of ING. ING Insurance was a wholly owned subsidiary of ING Insurance Topholding N.V. (‘ING Topholding’), a wholly owned subsidiary of the ultimate parent ING Groep N.V. ING Topholding was a holding company with no other assets, liabilities and activities than its 100% holding ING Insurance. On 28 February 2014, ING Insurance and ING Topholding legally merged. Through this merger, the legal entity ING Insurance ceased to exist. The legal merger became effective on 1 March 2014 and on that date the merged entity was renamed NN Group N.V. (‘NN Group’). The merged entity NN Group N.V. is in substance a continuation of ING Insurance.
In March 2014, ING Group sold a further 13.3% of its interest in Voya reducing its interest to 43.2% whereby fulfilling the European Commission restructuring requirement to divest at least 50% of Voya before the 2014 year-end. Following this transaction, Voya was deconsolidated and is accounted for as an Investment in associate held for sale from the first quarter of 2014. The remaining investment in Voya was recognised at its fair value of EUR 2,914 million at the transaction date.
The share sale and the deconsolidation of Voya resulted in an after tax loss of EUR 2,005 million in the first quarter of 2014 which is recognised in the profit and loss account in the line ‘Net result from disposal of discontinued operations’. This amount reflects the difference between the IFRS book value and the market value of ING Group’s 57% stake in Voya at deconsolidation, and includes the release of corresponding revaluation reserves. The portion of the loss attributable to measuring the retained investment in Voya at its fair value amounted to EUR –1,467 million.
In September 2014, ING Group sold a further 10.8% to reduce ING Group’s interest in Voya to 32.5%. ING Group sold 22.3 million Voya shares at a price of USD 38.85 per share in the public offering. In addition ING Group sold to Voya 7.7 million shares for an aggregate amount of USD 300 million. The gross proceeds to ING Group from the public offering and the concurrent repurchase by Voya amounted to EUR 888 million (USD 1.2 billion). These transactions resulted in a profit of EUR 40 million in the third quarter of 2014 and are recognised in the profit and loss account in the line Net result from disposal of discontinued operations.
ING Vysya Bank to merge with Kotak Mahindra Bank In November 2014, ING Vysya Bank (Vysya) and Kotak Mahindra Bank (Kotak) announced their intention to merge their respective businesses. With a current shareholding of 42.7%, ING is the largest shareholder in Vysya. ING has indicated its support for the proposed transaction to Vysya and Kotak. In the proposed transaction, Vysya will be merged into Kotak. Shareholders of Vysya will receive 0.725 shares in Kotak for each Vysya share. Upon completion of the merger, ING would hold a stake of approximately 7% in the combined company, which will operate under the Kotak brand. ING’s holding in the combined company will be subject to a 1 year lock-up period from the closing of the transaction. The proposed transaction is expected to result in a pro-forma net profit for ING of approximately EUR 313 million to be recognised at the closing. The shareholders of Kotak and Vysya approved this transaction in January 2015. The proposed transaction is subject to customary regulatory approvals. The transaction is expected to close in the second half of 2015. As at 31 December 2014, Vysya is presented as held-for-sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’.
Together with the various management boards, Risk management formulates the risk appetite, strategies, policies and limits and provides a review, oversight and support function throughout ING Group on risk-related issues. The main financial risks ING Group is exposed to are credit risk (including transfer risk), market risk (including interest rate, equity, real estate and foreign exchange risks), liquidity & funding risk, insurance risk (via NN Group) and business risk. In addition, ING Group is exposed to non-financial risks, e.g. operational and compliance risks. The way ING Group manages these risks on a day-to-day basis is described in this Risk Management section.
Risk management benefits ING Group and its stakeholders directly by providing more efficient capitalisation and lower costs of risk and funding. The cost of capital is reduced by working closely with rating agencies and regulators to align capital requirements to risks. Risk Management helps business units to lower funding costs, make use of the latest risk management tools and skills, and to lower strategic risk. This enables them to focus on their customers with excellent service, fair and transparent products and pricing, thus maintaining a loyal customer base and a leadership position in our key markets and product franchises.
Voya Financial, Inc. Risk Management Governance During 2014, ING Group lost significant influence on Voya Financial, formerly ING U.S., with the reduction of its stake to 19% per end of 2014 from 57% per end of 2013. As a consequence, the Group Directors designated by ING Group under the Shareholder Agreement have stepped down from the Board of Directors of Voya. As at 31 December, the remaining stake in Voya was accounted as an available-for-sale investment since the loss of significant influence.
ING Group is involved in the risk management of NN Group through the participation of the ING Group CRO in the NN Group Supervisory Board and his role as chairman of the NN Group Risk Committee. The activities of NN Group are classified as held for sale and as discontinued operations. Therefore, they are not further discussed in the remainder of this section. For more information, please refer to the risk management section of the NN Group’s Annual Report.
Low interest rates ING Group is exposed to risk related to sustained low(er) interest rates, amongst others due to the ING Bank activities and its significant stake in NN Group. NN Group provides a number of life insurance, pension, income, investment and banking products that expose it
Sustained low interest rate levels could have a material adverse effect on NN Group’s revenues and results of operations, and could therefore also impact ING Group’s results. For the impact of the lower interest rates on ING Bank, reference is made to the section ‘Risk developments in 2014’ within the ING Bank Risk Management Paragraph.
Introduction Taking measured risks is the core of ING Bank’s business. ING Bank operates through a comprehensive risk management framework to ensure the risks are identified, well understood, accurately measured, controlled and pro-actively managed at all levels of the organisation so that ING Bank’s financial strength is safeguarded.
The risk management section describes the ING Bank business model, and the key risks that arise from it. It explains how the risk management function is embedded within the organisation based on the ‘three lines of defence’. This includes front office as ‘first line of defence’, risk management as independent observer in the ‘second line of defence’ and the internal audit function in the ‘third line’. The key risks resulting from the bank’s business model are managed by dedicated and specific risk management departments that each covers its own area of expertise. Each of these departments explains the respective governance framework, relevant risks and how they are expressed on a qualitative and quantitative basis within this report.
Introduction to risk section and mission 244 Introduction to Pillar III 370 Risk governance 248 Business model and risk profile 251 Risk appetite framework and stress testing 258 Economic capital 258 Regulatory monitoring 260 Risk developments in 2014 262
Credit risk tools 276 Credit risk portfolio 280 Credit quality 282 389 Credit restructuring 283 Forbearance 286 Credit risk mitigation 288 395
Business risk is the exposure to value loss due to fluctuations in volumes, margins and costs, as well as customers’ behaviour risk.
Risk management benefits ING Bank and its stakeholders directly by providing more efficient capitalisation and less volatile costs of risk and funding. The cost of capital is reduced by working closely with rating agencies and regulators to align capital requirements to risks. Risk Management helps business units to lower funding costs, make use of the latest risk management tools and skills, and lower strategic risk. This enables them to focus on their customers with excellent service, fair and transparent products and pricing. Thus maintaining a loyal customer base and a leadership position in our key markets and product franchises.
› The SB is responsible for supervising the policy of the MBB, the general course of affairs of the Company and its business (including its financial policies and corporate structure). For risk management purposes the SB is assisted by two sub-committees: › The Audit Committee, which assists the SB in monitoring the integrity of the financial statements of ING Bank, in monitoring the compliance with legal and regulatory requirements, and in monitoring the independence and performance of ING’s internal and external auditors; and
Risk management function The risk management function is embedded in all levels of ING Bank’s organisation. The CRO, who is a MBB member, bears primary overall responsibility for the risk management function. The CRO is responsible for the management and control of risk on a consolidated level to ensure that ING Bank’s risk profile is consistent with its financial resources and the risk appetite. The CRO is also responsible for establishing and maintaining a robust organisational basis for the management of risk throughout the organisation.
Total: EUR 138.0 Of which: Credit: EUR 110.2 Market: EUR 9.7 Operational: EUR 18.1
Total: EUR 3.9 Of which: Credit: EUR 3.3 Market: EUR 0.0 Operational: EUR 0.5
Definition Risk culture and risk awareness are not only issues for senior management during their strategy decisions, but something that every employee has to be aware of and consider in his daily business. It is promoting and being aware of collectively shared values, ideas and goals towards the organisational objectives and mitigating opportunities for unfavourable events to occur that can impact the ability of the organisation to achieve its objectives. Risk awareness is to be alert on potential threats that can occur in day-to-day business, which can be specific to the sector, the region or the clients ING Bank is doing business with.
Accountability In 2009, ING Bank introduced the Promoting Integrity Programme (PIP) a long-term, global, educational and behavioural change programme for the ING Bank employees. The role of the Executive Board in the oversight of corporate culture and successful implementation of the risk culture change is essential in this process.
Risk identification is performed periodically. In case of material internal or external change, an additional ad-hoc risk identification can be performed.
The importance of a risk is assessed based on the likelihood that the risk materialises and the financial or reputational impact should the risk occur. A risk that is not very likely to happen but has a huge financial impact when it does needs to be controlled. For a risk that is likely to happen at a higher frequency, but that has a modest financial impact, business management may decide to not mitigate and accept the consequences when it happens.
In order to achieve this risk ambition, ING Bank has the following targets: › Rating: have a rating ambition which is in line with the strongest among its peer group; › Be able to restore capital and liquidity position following a stress situation on its own strength; › Regulatory based: be in a position to meet current and forthcoming regulatory constraints and targets; and › Peer comparison based: have a risk profile that compares favourably to its main banking peers.
Step 2. Setting ING Bank Risk Appetite Framework Based on ING Bank’s risk assessment and risk ambition, specific targets are set for both financial and non-financial risks: Financial risk For financial risks, ING Bank expresses its risk appetite as the tolerance to allow key ratios to deviate from their target levels. Therefore, the high level risk ambition is translated into quantitative targets on ING Bank level for solvency risk, liquidity & funding risk and for concentration and event risk.
Stress testing Stress testing is an important risk management tool that supports the MBB with respect to strategic and capital planning. The purpose of stress testing is to investigate whether or not ING Bank will be able to meet its solvency and liquidity requirements in severe but plausible stress scenarios. Stress tests provide insight into vulnerabilities of certain portfolios, given certain assumptions related to the economy, financial markets and the political climate. Stress testing is also used to assess if the risk profile of ING Bank is in line with risk appetite.
As for the previous steps, the calculated impacts of the scenario are first discussed and approved in the STSC, and then in the BF&RC.
Depending on the outcomes of the stress test, and the possibly identified vulnerabilities, mitigating actions may be proposed. Approval of these mitigating actions takes place in the MBB.
Economic Capital Model disclosure This model disclosure section explains the methodologies and models used to determine economic capital (EC). The risk models for the EC calculations are reviewed on a periodic basis and validated by the internal Model Validation department. The Economic Capital calculation is also used as part of the CRR/CRD IV Pillar II Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) that is performed regularly by the supervisor.
Aggregation model The main processes executed in ING Bank’s economic capital aggregation model are depicted in the flowchart below. The light grey boxes show the processes performed by the model while the dark grey box indicates input from other risk departments.
› For market risk, the reported EC numbers increased mainly due to an update of the model parameters and an increase of the equity investment positions. This especially applies for the largest contributors: interest rate risk in the banking books and equity investments. For more information on the Market Risk EC, please refer to the ’Economic capital for market risk’ section.
Economic and Regulatory Capital (Bank diversified only) by risk type Economic capital Regulatory capital
› A reduction of ‘pro-cyclicality’ to avoid that banks would be required to increase their capital in difficult financial times when it is most scarce.
› Additional capital requirements for counterparty credit risk. › Higher loss absorbency capacity and special resolution regimes for ‘systemically important banks’ (SIBs). ING Bank has been designated as a global SIB (G-SIB) by FSB and a domestic SIB (D-SIB) by DNB. In accordance with EBA and FSB requirements, ING Bank disclosed its ‘Indicators of global systemic importance’ via a separate document on the corporate website ing.com.
› Liquidity and funding requirements via the so-called Liquidity Coverage Ratio and the Net Stable Funding Ratio. The aim of the first metric is to monitor a bank’s capability to survive a short-term liquidity stress, where the latter aims to ensure that long-term asset activities are similarly funded.
The execution of the AQR review process was both qualitative and quantitative; including extensive data integrity validation, onsite file reviews, collateral valuation and the recalculation of loan loss provisions. The ECB and national regulators engaged specialist consultants such as accounting firms, real estate appraisers, and financial modelling firms to undertake various aspects of the process. These external consultants reviewed and challenged ING Bank figures and processes.
Risk developments in 2014 Risk developments listed below are defined as the risks that may have a potentially significant impact on our business and for which it is difficult to quantify the impact on the organisation. They are triggered in general by unexpected events, and they may introduce volatility in earnings or impact ING’s long-term strategy. The sequence in which the top risks are presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
Dutch mortgages In 2014, the Dutch house prices increased every quarter for the first time since 2008, while the real economy showed a fragile recovery. The Dutch housing market is historically characterised by a housing shortage, high income tax with deductibility of interest on mortgages, and tax-driven mortgage products.
By the end of the year, the portfolio showed an elevated but still low percentage of non-performing loans (NPL). This was due to the implementation of the refined EBA’s NPL definition. The percentage 90 days overdue remained at a low level. Given the significant amount of mortgages in our credit portfolio, ING Bank closely follows all developments related to the Dutch housing market and its mortgage portfolio.
The ING Bank business model is to be a strong predominantly European bank, with leading positions in attractive, stable home markets, with options for future growth beyond Europe. ING Bank primarily extends credit to two types of customers; Retail customers made up largely of individuals and small businesses and Commercial Banking made up of larger corporate, financial and sovereign counterparties. In general, Retail customers tend to be served by country specific organisations while Commercial Banking counterparties are often multi-jurisdictional and even global. Therefore, it is important that the credit risk management department has both local product knowledge as well as understanding of global industries.
The overall credit risk appetite framework allows ING Bank to manage the portfolio and avoid undesired concentrations of credit risk. CRM is supported by dedicated credit risk information systems and internal credit risk measurement methodologies for all types of counterparties. CRM creates consistency throughout the credit risk organisation by providing common credit risk policies, methodologies and tools across the ING Bank. Credit risk managers use these tools and processes to manage credit risk within ING Bank.
Key developments in Credit Risk CRR/CRDIV came into effect from 1st January 2014 For the European Union Basel III has been transposed into law through the Capital Requirements Directive IV (CRDIV) and the Capital Requirements Regulation (CRR). CRR/CRDIV came into effect as of 1 January 2014 and ING Bank has complied with the requirements stated by these regulations. The impact of these regulations was mainly felt through (i) CVA Capital for the derivatives portfolio (ii) higher correlation for large regulated financial institutions (iii) increased haircut for securities financing business and (iv) increased risk weight for Central Clearing Parties. The Financial Markets portfolio was the one which was most significantly impacted by these new regulations along with parts of Retail Banking International, Corporate & FI Lending and Transaction Services units. The impact was seen through an increase in risk density in these units where the ratio of Credit RWA/READ increased.
Improved Credit Quality The credit RWA density, measured as total credit RWA divided by total EAD, showed an improvement indicating a better risk profile for the year 2014. Improvements were seen through a diminishing inflow in our NPL, fewer files in watch-list (2014: 2.5%, 2013:3.7%) and a decrease in additions to loan loss provisions (2014: EUR 1.6 billion, 2013: EUR 2.3 billion). Overall, the credit portfolio has improved with reduced inflows to problem loan departments, watch-list and a reduction in risk costs compared to 2013.
Move to the new Masterscale Since 2012, ING Bank has been working on a project to map the 1-19 rating grades to internal data instead of external rating agency scales. In March 2014, DNB approved the implementation of the new Masterscale (ING Bank internal rating methodology). As of Q2 2014, PD values of the ING Bank Masterscale were adjusted using internal observed default data history from 2005 until 2012 where previously Standard & Poor’s data was used. These adjustments are performed to reflect internal default experience, which is better compared to the more US based Standard & Poor´s data. This has made the Masterscale a better reflection of the risk profile of ING Bank and consequently has led to a net decrease in RWA. This change in methodology resulted in a release of EUR 3.7 billion in Credit RWA. The planning is to add each year a new year of internal default history to the data set.
Credit risk definitions Credit risk is the risk of loss from the default and/or credit rating deterioration of counterparties (including bond issuers). Credit risks arise in ING Bank’s lending, financial market and investment activities. Credit risk exposure is the total amount of outstanding plus the unused portion of commitments. It can be measured on various levels, such as customer, legal or economic one obligor group, product, portfolio, customer type, industry, and country. Each level can in turn be broken down from the consolidated ING Bank NV level to a local branch/unit level. As the distribution of the exposures is of great importance in correctly managing the credit risk exposure, ING Bank has established the credit risk appetite and concentration framework.
› Money market risk: arises when ING Bank places short-term deposits with a counterparty in order to manage excess liquidity. As such, money market deposits tend to be short-term in nature. In the event of a counterparty default, ING Bank may lose the deposit placed. Money market risk is measured as the notional value of the deposit, excluding any accrued and unpaid interest or the effect of any impairment.
ov er na nc e Pa re nt c om pa ny a nn ua l a cc ou nt s
A range of committees are in place at CRM level both at transactional and policy level. The Global Credit Committee for Transaction Approval (GCC(TA)) is the highest approval authority level within ING Bank (with the exception of MBB and ING Bank Supervisory Board), and is mandated to discuss and approve transactions entailing taking of credit risks. Next to that is the Global Credit Risk Committee Policy. ING Group Credit Risk Committee Policy or “GCC (P)” is the highest level ING Group body (with the exception of ING Group Executive Board), which is authorised to discuss and approve policies, methodologies and procedures related to Credit, Country and Reputation Risks within ING Group or exclusively ING Bank. Following the (partial) divestment of NN bank from ING Group, the GCC(P)’s main focus is on ING Bank items. The Credit Risk Committee (CRC) is the next highest level ING Bank body, authorised to discuss and approve policies, methodologies and procedures related to Credit Risk within ING Bank.
Risk culture Apart from supporting and promoting ING’s Business Principles, CRM has identified a number of areas that helps establish and develop sound risk culture. Key areas where CRM puts its focus on are: Risk Awareness Various activities are coordinated within CRM with the goal to update, inform and educate CRM employees and create awareness on factors that influence its activities e.g. Credit Risk Alerts address actual credit risk issues relevant to ING. The alerts are published on various ING intranet portals and distributed by email. Credit Risk Academies where senior leaders and financial specialists address topics ranging from local unit developments to specific credit risk related strategies are held on a regular basis. Short term assignments within risk and finance are promoted to allow experienced employees to heighten their risk awareness.
M e a su re d th ro u g h v a rio u s m e trics: E x p e cte d
x p o su re a t D e fa u lt (E A
Every country where ING has exposure has a country limit which is reviewed monthly and updated when needed. The country limit is a function of various factors including amount of capital consumption, GDP of the country, internal rating, and amount of funds entrusted generated. In case the utilisation is above 90%, the respective credit risk manager is expected to take action to bring the utilisation below 90% or to submit to the relevant approval mandate holders a country limit review requesting a higher limit to accommodate the increasing exposure. In case of countries with elevated levels of geo-political or severe economic cycle risk like Argentina, Ukraine and Russia in 2014, the monitoring is performed on a more frequent basis with strict pipeline and exposure management to protect ING Bank from adverse impacts.
Single name and sector concentration ING Bank has established the concentration risk framework in order to identify, measure monitor concentrations at country, portfolio and/or counterparty level. It consists of single name concentration i.e. losses due to the unexpected default of a single counterparty. Sector concentration (systemic risk): substantial increase of the ING Bank risk profile (expressed in increased risk weighted assets) due to the joint deterioration of a group of correlated counterparty/transactions, sensitive to the same external (macro-economic) factor(s) related to their geographic location, exposure class or industry. The LGD of a single name concentration is measured against a maximum LGD amount.
The Commercial Banking risk program is a detailed analysis of a defined product and/or industry that identifies the major risk drivers and mitigants, the internal business mandate, and proposes the minimum risk (including business) parameters – and potentially the maximum product and/or portfolio limit - to undertake that business. A risk program is always prepared by the Front Office responsible for the internal business mandate and requires an approval from the ING Bank Global Credit Committee (unless specifically delegated to a different approval mandate).
For further analyses of the ING RWA density compared with the BIS study, we refer to the Pillar III section.
Under regulatory guidance, an IRB bank is allowed to report portfolios on SA up to 15% of total credit RWA. In future, the permanent partial use of SA will be strengthened. This change is laid down in a recently published consultation document from EBA (as mandated in article 150 of the CRR). In this consultation document it is stated that if the number of material counterparties is limited and it would be unduly burdensome to implement IRB, IRB banks can use SA for parts of their portfolio. Exposures and RWA in scope cannot exceed 8% of the relevant exposures. In general, capital calculated with AIRB is more accurate and therefore has often a lower risk weight than when using the Standardised Approach (SA). This Supervisory Practice has an influence on the comparability of RWA across institutions.
Economic Capital (EC) reflects ING Bank’s own view on credit risk, which allows it to be used in decision making processes at transaction level, counterparty level and (sub) portfolio levels. Credit risk and transfer risk capital are calculated on all portfolios which contain credit or transfer risk, including investment portfolios. EC is the minimum amount of capital required to cover for unexpected losses within a 99.95% confidence level and a 12 months’ time horizon. It is used throughout ING Bank in the decision making process (mainly commercial banking), in risk adjusted counterparty and portfolio profitability measurement tools (commercial banking and retail), in investment and divestment decisions, in the country risk framework and in concentration risk management such as risk appetite statements (RAS) and the systemic risk reports (sector concentration report).
EC for securitisations is calculated by applying the Corporates formulae within the CRR framework (based on internal PD, EAD, DLGD values and remaining maturity).
The figure below provides a high level summary of the application of model outcomes (PD, EAD and LGD).
Model Life Cycle process stages: Sign-off points: Credit risk model governance All PD, EAD and LGD models are built according to the ING Bank internal credit risk modelling methodology standards and model life cycle. After thorough review of the documentation by the Model Development Committee (MDC) and Model Validation (MV), the Credit Risk Committee (CRC) approves the models. For certain local models, the approval authority is delegated by the CRC to the MDC. Each model has both a credit risk and a front office co-sponsor. Both the MDC and the CRC have participation from both credit risk officers as well as the front office to ensure maximum acceptance by the organisation. The capital impact from the implementation of approved models is reported to the DNB in a quarterly report. In addition, MV validates each model on an annual basis. During such periodical validation the model performance is analysed via amongst others backtesting. Most of the credit models reviewed by MV show a conservative observed performance compared to predicted levels.
Credit risk rating process In principle all risk ratings are based on a Risk Rating (PD) Model that complies with the minimum requirements detailed in the CRDIV, the DNB Supervisory Rules and EBA guidelines. This concerns all counterparty types and segments, including countries.
Risk ratings assigned to counterparties are regularly, at least annually, reviewed, and the performance of the underlying models regularly monitored. Over 95% of ING Bank’s credit risks have been rated using one of the in-house developed PD rating models. Within the AIRB Portfolio, the level of Regulatory compliant ratings exceeds 99% coverage by exposure. Some of these models are universal in nature, such as models for Large Corporates, Commercial Banks, Insurance Companies, Central Governments, Local Governments, Funds, Fund Managers, Project Finance and Leveraged Companies. While other models are more regional or country specific, such as PD models for SME companies in Central Europe, the Netherlands, Belgium, Luxembourg, as well as residential mortgage and consumer loan models in the various retail markets.
Under these exposure class definitions, it is possible for a private individual to be included under both residential mortgages and retail other.