You’ve just ordered and paid for your lunch. At the same time, you reserved tickets for the cinema that night. A few minutes later you place an order to buy shares in an investment fund. These are things you already do with your smartphone. But what will the technology of the future be? Every day ING works to improve the customer experience. In this annual report, we survey the innovations that are changing banking today and ones that could emerge in the future. At ING, we’re always looking for the next step ahead.
• ING is working to increase the pace of innovation, developing new services and business models. We do this by investing in and partnering with fintechs and by being the only Dutch bank to join R3, a consortium of more than 40 leading global banks collaboratively exploring ways to use blockchain technology in financial markets.
Our brand value Number 27 most valuable bank brand in the world (EUR 7.2 billion, 1 January 2016).1
After the “Key figures” chapter, we explain how Retail and Wholesale Banking activities are furthering ING’s strategy. The key resources we deploy to create value are the focus of the next two chapters: “People” and “Operational excellence and innovation”.
This is followed by the “Corporate Governance” section and the annual accounts. Additional information is included in the appendix.
CEO statement 2 How we create value 5 Our strategy and progress 7 Market and regulatory context 14 What matters most to our stakeholders 17 Key figures 23 Retail Banking 25 Wholesale Banking 33 People 41 Operational excellence and innovation 46 Risk and capital management 50 ING shares 56 Composition of the Executive Board and Management Board Banking 59 About this report 60 Assurance report of the independent auditor 62
We continue to simplify and streamline our organisation so that we have the flexibility to respond to fastchanging customer needs and low-cost competitors. In the Netherlands we have introduced agile working based on end-to-end, multidisciplinary teams across the whole organisation. This delivers customer improvements from design to product delivery at lower cost and with shorter time to market than previously required.
In 2015, ING delivered strong performance and we made progress implementing our Think Forward strategy. We continued to work to empower our customers with tools that give them better insight into their finances, and products and services that make banking easier. We are committed to the sustainable development of society through responsible financing and to supporting our clients with sustainable transitions.
Since becoming CEO of ING, I have become increasingly aware of the dangers of climate change and of the responsibility the private sector has to drive positive change in this area. In 2015, I signed a letter together with CEOs of international companies calling on the private sector to work actively with governments, policymakers and civil society to combat climate change. In the run-up to the COP21 UN climate conference in Paris in November and December, ING announced it would stop financing new coal-fired power plants and thermal coal mines worldwide, and not accept new clients whose businesses are more than 50 percent dependent on them.
Committed people are key to delivering for our customers and for our future success. In 2015, ING conducted an Organisational Health Index survey (OHI) that measures an organisation’s ability to adapt for future success. Employees’ responses revealed that ING’s organisational health is strong. ING was also named 2016 European Top Employer by the Top Employers Institute.
We are on the right track. And we are supported by the strong digital and innovative culture in our DNA and our position as disruptors in many markets where we were pioneers with ING Direct. But we need to move faster to respond to the change happening around us. To do that we are focusing on key priorities that are crucial to our future success. These include growing consumer and SME lending, improving operational excellence in areas like straight-through processing and digital availability of services, increasing retail cross-buy and generating more fee income.
Drive sustainable progress We believe that our main role as a bank is to support the sustainable development of the communities and societies where we operate. Our sustainability efforts focus on two areas: promoting financial empowerment for retail customers and supporting sustainable transitions for companies.
Our strategic direction is clear and it is confirmed by the developments we see around us in customer behaviour and market trends. The disruption in the banking landscape is a major challenge for all banks. At ING, our past as pioneers in direct banking, our ambitions as a leading bank in terms of the digital customer experience and the growing number of customers who entrust their financial affairs to us make us confident we can help shape the future of financial services and lead change. To support this we are taking important steps to adapt our organisation and strengthen our internal performance culture.
With our commitment to sustainability we are making a positive contribution to the future development of society and at the same time creating exciting new opportunities for our customers and ourselves.
Ralph Hamers Chief Executive Officer ING Group our stake in insurer NN Group from 68.1% to 25.8% at year’s end and have now deconsolidated NN Group. With this step the price leadership and acquisition bans mandated by the EC no longer apply. In early 2016, we further reduced our stake in NN Group to 14.1%. We are on track to meet the EC requirement to completely divest our insurance interests by the end of 2016.
Human We believe that in addition to assisting its customers, a bank should also give employees the means to shape and improve their own futures. We champion selfreliance. It is what we want to enable in our customers and in our over 54,000 colleagues. As an employee you can discover what motivates you, develop your talents and take charge of your career. We believe that investing in human capital will generate increased revenues, more satisfied colleagues and customers and enhanced economic performance.
Financial As a bank, our value chain involves the inflow and outflow of money. We facilitate payments and transactions, and we take in savings and transform them by making them available in the form of loans. Our 2015 profitability was strong, enabling us to support economic development by paying wages, taxes and dividends.
2. Banks and other financial institutions are where people can deposit their savings. Without this function people would have to store and protect their savings themselves.
Human • Increase in Human Capital Return on Investment to 2.48 • Employee engagement score (bi-annual) of 75%
Financial • Ensuring stability: 12.7% Common Equity Tier 1 ratio • Shareholders value: EUR 2,515 million dividend • Responsible tax principles: global effective tax rate for continuing activities of 26.5% • Fees and interest results: EUR 14.9 billion
Environmental • EUR 23.8 billion sustainable transitions financed • EUR 2.6 billion sustainable assets under management • ESR is applied to 100% of our corporate loans
Intellectual • Employees submitted 3,000 ideas to our Innovation Fund • Almost 3,000 employees work in an agile way
Regulation is another challenging area for financial services. Many regulations have been introduced since the financial crisis to increase the stability of the banking system. New regulatory initiatives in the pipeline could further increase capital requirements for banks, putting pressure on returns. This will require banks to look for new sources of income and to lower costs. At the same time, EU initiatives to create a Digital Single Market are increasing competition, but the slow pace of development of the European Banking Union makes it challenging to benefit from cross-border opportunities.
Purpose In 2015, we continued to build on our Think Forward strategy to empower customers and provide them with a differentiating customer experience. That includes a focus on being leaders in the digital customer experience based on easy, 24/7 access, simple products and services, and tools to help customers make sound financial decisions.
Those goals are reflected in our Customer Promise to be clear and easy, make financial services available anytime-anywhere, empower, and to keep getting better for customers.
We financially empower by making banking accessible and easier to understand in line with our Customer Promise. We serve communities where we operate through programmes to teach financial literacy in schools. Through our partnership with UNICEF we support life skills training, including financial literacy training for adolescents in less developed countries.
Financially Fit The Financially Fit initiatives enable customers in the Netherlands to make decisions that improve their financial situation. These include an online tool to plan retirement income, and a partnership with an employment agency to help mortgage customers who have been made redundant. At ING, we’re always looking for the next step ahead.
Customers will soon have tools at their fingertips to make all their financial decisions, from buying shares to renovating homes. Will they be happy to be their own money managers?
Pre-approved loans - Poland Starting in 2015, an advanced analytics project in Poland has been using data mining to offer retail and small business customers pre-approved loans. By the end of 2015, these included pre-approved loans for 94,000 entrepreneurs to help them grow their businesses.
4. Think beyond traditional banking to develop new services and business models Thinking beyond traditional banking is crucial given that disruption in the banking industry puts a significant portion of revenues at risk. Our payments value chain is already under threat from many bank and nonbank players. To be successful, banks need to expand the concept of what a bank is and what it means to customers, by for example finding ways to be relevant to customers earlier in their purchasing decision-process.
Bazar - Romania The Bazar mobile app aims to revolutionise shopping. It is available to customers of ING Romania and provides users with tailored shopping promotional offers and allows them to collect and store loyalty cards, make mobile payments and save money. With merchants including adidas, Lego and MOL involved, 26,000 ING users redeemed 146,000 promotional offers, enrolled 17,000 loyalty cards and generated more than EUR 5 million in sales by the end of 2015.
Strategic priorities To deliver on our Customer Promise and create a differentiating customer experience, we have identified four strategic priorities: 1. Earn the primary relationship The better we know our customers, the better we will be able to empower them to make smart financial decisions and continue to be relevant for them. We can do this best if they do a range of banking with us – if we are the bank our customers go to for their daily transactions. We call that the primary relationship.
Agile working in the Netherlands and Spain We have simplified and delayered the organisations in Spain and the Netherlands. Both introduced the agile methodology and now work in autonomous, multidisciplinary teams to deliver an omnichannel customer experience.
2. Operational excellence Operational excellence requires continuous focus to ensure that ING’s operations deliver a seamless and flawless customer experience. Our operational excellence vision concentrates on delivering the Customer Promise. That means we need to upgrade and streamline our processes and IT systems, transforming ING into a next generation digital bank. We aim to bring best-in-class service to customers every day and at the right price. At the same time that we pursue our digital bank ambition, we are also making significant investments to provide stable IT systems and platforms to ensure we are there for our customers when they need us and to provide them with the highest standards of data security.
Our savings and lending franchises performed well. Net customer deposits grew by EUR 25.1 billion, or 5.1 percent. Our core lending grew by net 4.2 percent, or EUR 21.7 billion, in 2015, demonstrating the strength of our lending business. There was good growth in Industry Lending, which also supported lending growth in Challengers & Growth Markets. This is driving sustainable growth in the balance sheets of these countries where we have strong savings franchises.
We support our Wholesale Banking clients with a global network operating in over 40 countries. We added to this network in 2015, expanding our presence in the Americas, Asia and Europe.
Our strong balance sheet attests to the quality of our risk management. We are among the best-capitalised listed banks in the eurozone. We consistently demonstrate our ability to generate capital and now have a limited need for professional funding.
Our capital position was further strengthened in 2015 by the reduction of our stake in NN Group from 68.1% to 25.8% at year’s end and the divestment of our remaining stake in Voya Financial Inc. These transactions improved ING Group’s Common Equity Tier 1 ratio and also turned double leverage at the Group level into a cash surplus, providing us with ample financial flexibility. In early 2016, our total stake in NN Group was further reduced to 14.1%. We are well on track to sell our stake in NN Group by the end of 2016.
Lower interest rates helped shore up eurozone credit demand. Bank lending to households accelerated modestly in 2015, while lending to businesses finally turned positive after three years of deleveraging. Marked differences between countries remain, with credit growth generally more positive in northern European countries, while still negative in southern ones.
The Greek crisis has not materially influenced the eurozone recovery. Within the eurozone, Germany in particular was able to take advantage of the weaker euro by increasing its exports, offsetting deteriorating exports to emerging markets. Domestic demand in Germany
Three key trends are having a major impact on ING and its competitors. First, our financial performance is linked to the prevailing uncertain economic conditions and low interest rate environment. Second, the financial services sector is subject to increasing regulatory scrutiny and costs. Third, digitalisation and changing customer behaviour are reframing our markets. In combination, these trends are altering the competitive context in which we operate.
Competitive landscape Technology is removing a number of the barriers to entry that once insulated our business. We face competition from many different directions, with relatively new players providing more segmented offers to our customers and clients. Technology giants, payment specialists, retailers, telecommunication companies, crowd-funding initiatives and aggregators are all encroaching on traditional banking services. Our clients, in turn, are willing to consider these offers.
After the first full year of operating under the new supervisory framework, banks’ experiences are generally positive. The SSM aims to create the institutional conditions for overcoming fragmentation in supervisory practices. It is important that common methodologies and a shared culture are created within the SSM. That takes time. Some banks may experience challenges in the short term as they come to terms with the SSM supervisory approach. We expect that the SSM will increase its transparency as the system gets embedded.
• Cultural change. Tap more into the talents of employees. Further develop a transparent and diverse no-nonsense culture.
• Ongoing uncertainty about regulatory changes,including capital requirements and national discretion.
• Financial sector has an unfavourable public image in many countries.
This presents a huge opportunity for banks. Mobile users tend to check in much more often and banks are well placed to take advantage of this more frequent contact. The richness and sheer quantity of the data available
These high-priority issues show that we need to balance financial and non-financial expectations if we want to effectively address stakeholders’ concerns. Our purpose fits well with this, as empowering people to stay a step ahead in life and business encompasses both financial and non-financial components.
Transparency and openness were just as important as in 2014, and many stakeholders are increasingly expecting more in this area. Banks, entrusted with details of companies and private individuals, must continuously weigh pros and cons between transparency and privacy.
For the 2015 materiality assessment, ING reached out to senior management and six stakeholder groups (business and retail customers, investors, NGOs, regulators and employees) in five countries. All were asked to rank a range of topics by significance.
Our materiality matrix 2015 - high-priority issues for our stakeholders and ING
Fair operating practices K Regulatory developments L Anti-competitive behaviour prevention M Corruption prevention N Sustainable finance and investment policies
ING Netherlands to form the new Regulatory and International Affairs department as of 1 January 2016. This better reflects its international scope and broader focus. The department helps analyse relevant proposed regulation and developments, research their potential effects, and support ING’s businesses in formulating their standpoint and strategy.
Even so, we feel it is our duty to manage and report on our own direct environmental impact, as climate change is one of the biggest global challenges of our time.
We try here to strike a balance between respecting the confidentiality of our customers and being transparent and responsive to what society and our stakeholders ask of us. The majority of the money that we lend goes to consumers (personal loans and mortgages). We generally do not publish their names nor those of the companies that we invest in or finance, which respects customer confidentiality and our “duty of care”.
Analysing data helps us innovate and serve our customers better. For instance, by studying the data from our mobile banking apps we can improve those apps and the services they provide. We can also use advanced analytics to offer customers products that are most relevant to them.
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, and we will continue to do so. We also respect different national conventions and changing international standards on responsible remuneration.
We take a variety of factors into consideration when determining compensation plans, including functional complexity, the scope of responsibilities, aligning risk and reward, our ability to attract and retain the best talent possible and meeting the long-term objectives of the company and its stakeholders. These factors differ for each role, business line and country. Another factor is the context of the international labour market. ING, with 70 percent of our activities outside the Netherlands, cannot afford for its remuneration to differ significantly from similar companies for a long period. ING’s Executive Board is, however, currently remunerated well below the standard for comparable international and Dutch companies.
Read more in the “Wholesale Banking” chapter on sustainable transitions financed.
We respect laws and regulations. We anticipate regulatory developments and aim to act in accordance with the expectations of society. In 2015, we established a Global Regulatory Affairs business unit to oversee adherence to laws and regulations.
M Corruption prevention Bribery and corruption are criminal offences and are clear violations of the ING Values. ING has a zero tolerance policy on bribery and corruption. We expect all our employees to always do business in accordance with the highest standards of ethical behaviour and honesty.
We also aim to have a positive impact in the communities where we are active and in society in general. We pay special attention to young people, because we are convinced that good financial habits are developed early on. We fund research, make donations and share our knowledge by, for example, volunteering as guest lecturers in the primary school programmes “Coltiva il tuo sogno” (Grow your dreams) in Italy and “Orange Drops” in Turkey. Our “Power for Youth” partnership with UNICEF aims to reach 335,000 adolescents in six less-developed countries by 2018, helping them to develop the social and financial knowledge and skills they need to build brighter futures for themselves, their families and their communities. In 2015, ING and UNICEF marked the tenth anniversary of our partnership with an important milestone: together we have now given a million children access to quality education.
We want to be sure our efforts are really driving sustained improvements in the financial behaviour of our customers and society. To know whether we are helping more people to stay a step ahead each year, we are measuring our performance in this area. In 2015, 20.5 million 1 people felt financially empowered. We also had more than 90 million 1 interactions with customers and non-customers through financial empowerment initiatives like the Financially Fit Test in the Netherlands, which we plan to roll out to all ING Retail Banking business units to extend our impact.
Read more in the “Operational excellence and innovation” chapter on how ING deals with data privacy and security.
Accelerating innovation Continuous innovation is necessary to keep up with changing customer expectations.
3 There used to be an overlap with allocated assets in the sustainable investment funds and the managed sustainable investment portfolios. We therefore made a correction in 2014 and 2013.
ING Groenbank ING Groenbank is a 100 percent subsidiary of ING Bank and finances sustainable investment by offering lending services at favourable rates to sectors such as organic farming, renewable energy generation, sustainable construction and the re-use of waste materials, all with a strong focus on the Netherlands. All assets underlying ING Groenbank loans must receive Dutch government
In November 2014, ING Netherlands launched the FWD NL programme. In what was likely a first for the banking industry, and inspired by successful “digital disruptors” like Netflix and Spotify, we have redesigned our organisational structure and introduced a new agile way of working in multidisciplinary teams. The goal is to create a more efficient and flexible organisation that delivers a seamless, real-time “omnichannel” experience that enables customers to do their daily banking when, where and how they want, and to switch between channels with no interruption to their data or service. The new organisation was launched in June, starting with the head-office of ING Netherlands, with “tribes” made up of “squads” which are multidisciplinary teams responsible for the entire customer value chain from product design to delivery. We have restructured the complaints department to simplify handover procedures and first results show that new customer contact forms that integrate chat and social media functionality have significantly improved customer satisfaction.
Financial inclusion ING Groenbank also directs up to ten percent of its balance sheet towards financial inclusion activities, with microfinance – focused on female entrepreneurs – as a main component. We have seen a shift from microfinance aimed at starting entrepreneurs towards the financing of small and medium-sized enterprises (SMEs), and are diversifying our activities to include SMEs as loan beneficiaries. The Turkish portfolio, initiated with EUR 30 million from ING Groenbank and paid back to ING Groenbank at the end of 2015, is a successful example with a total of 50,000 SME clients. To support our and the financial inclusion sector’s move towards SME finance, our “A Billion to Gain 2016” research – to be published in the second half of 2016 – will focus on SME finance. The research is conducted in cooperation with the World Bank and the Global Partnership for Financial Inclusion (GPFI).
Non-financial dilemmas Data privacy is a material topic for customers and other stakeholders. We are faced with the dilemma of customers expecting us to know their needs and preferences so that they are provided with an individual, tailored service, while at the same time they do not want their personal data used for anything without their explicit consent. A related dilemma concerns fair pricing: the more we know about a particular customer, the more fairly we can price a loan, for example. We are governed by binding Global Data Protection Policies (GDPPs) that ensure we comply not just with legal and regulatory requirements for data privacy but also take customers’ wishes into consideration.
The net production of customer lending (excluding Bank Treasury, currency impacts, transfers of WestlandUtrecht Bank mortgages to NN Bank and the sale of mortgage portfolios in Australia) was EUR 6.8 billion in 2015. Net core lending, also excluding the run-off in the WestlandUtrecht Bank portfolio, increased by EUR 9.0 billion, driven by growth outside of the Netherlands. Net customer deposits (excluding Bank Treasury and currency impacts) grew by EUR 20.9 billion in 2015.
Operating expenses were slightly lower at EUR 6,430 million compared with EUR 6,456 million in 2014, which included EUR 349 million of redundancy provisions, mainly related to the further digitalisation of our banking services in the Netherlands. Excluding these provisions, expenses rose by EUR 323 million, or 5.3 percent, of which almost half was as a result of higher regulatory costs. The remaining increase was mainly due to business growth in the Challengers & Growth Markets, IT investments in the Netherlands, some smaller restructuring provisions in the Benelux and a provision for potential compensation related to certain floating interest-rate loans and interest-rate derivatives that were sold in the Netherlands. This was partly offset by cost savings from restructuring programmes. The underlying cost/income ratio improved to 57.3 percent from 59.2 percent in 2014.
Risk costs declined 39.4 percent to EUR 433 million from EUR 714 million in 2014, both in residential mortgages and business lending, supported by a recovery in the Dutch economy.
Operating expenses increased 8.9 percent compared with 2014 to EUR 842 million. The increase mainly reflects higher regulatory costs, an increase in headcount at both ING-DiBa and Interhyp, as well as investments to support business growth and attract primary banking customers. The cost/income ratio improved to 44.1 percent from 47.8 percent in 2014.
The net addition to loan loss provisions declined to EUR 57 million, or 23 basis points of average risk-weighted assets, from EUR 72 million, or 29 basis points, in 2014, reflecting better performance in the German mortgage book.
Total underlying income rose by EUR 33 million, or 1.4 percent, to EUR 2,369 million. This increase is attributable to higher interest results stemming from higher volumes
• ING Poland was crowned “Mobile Bank of the Year” at the annual Mobility Trends “Golden Bell” awards.
Conclusion Retail Banking performed well in 2015, delivering strong results in a challenging economic environment. We welcomed more new customers, and empowered retail customers and small businesses by lending more. In addition to the many awards won by our Retail Banking businesses across the world, we were ranked number one for customer satisfaction (as measured by the Net Promoter Score) in seven of our markets.
Wholesale Banking plays a key role in the bank’s Think Forward strategy. The development of our lending capabilities, in particular in our funding-rich countries, helps support ING’s sustainable growth ambitions. Our investment in Transaction Services enhances this effort.
ING was selected in 2015 as the Dutch government’s new “house bank” following a European tender conducted by the Dutch Ministry of Finance. Starting 1 May 2016, ING will perform payment transactions for nearly all ministries and agencies. The Dutch State organised an extensive European tender procedure, and set strict criteria with significant attention paid to its new bank’s sustainability performance.
Our approach builds on the strong Environmental and Social Risk (ESR) framework that is applicable to ING’s Wholesale Banking business. In addition to an ESR assessment, our lending clients and transactions are reviewed against externally recognised sustainability criteria, so we can measure and track how much of our portfolio is sustainable.
Lending assets grew in all of our core lending businesses, and thereby contributed to the bank’s growth, particularly in Challengers & Growth Markets and the Americas. Structured Finance (SF) again benefitted from strong volume growth across all segments and geographies. Our SF franchise has a long record of steady organic growth, thanks to our experienced teams and specialised industry knowledge. It is here we will focus our growth going forward.
Read more in the “Market and regulatory context” chapter on the regulatory environment.
Delivering a differentiating customer experience Underpinning improvements in client experience and our product offering is our overarching Target Operating Model (TOM) transformation programme. With this programme, we aim to enhance client experience across products and countries by standardising our products and channels, harmonising our client services and improving our mobile and online offering.
Structured Finance Structured Finance is a traditional lending business built up over more than 20 years and based on specialist industry knowledge. ING is a top-10 player globally. The loan portfolio is well diversified across geographies and sectors, which are split into three segments: the Energy, Transport and Infrastructure Group, International Trade and Export Finance and the Specialised Financing Group.
The Energy, Transport and Infrastructure Group (ETIG) specialises in capital-intensive industry sectors such as offshore services, shipping, aviation, utilities and power, infrastructure, mining, and oil and gas. ETIG showed strong growth in assets and income in 2015 – most notably in transportation, natural resources and infrastructure – while increasing profitability. In recent years of declining commodity prices, ING has aimed to de-risk its portfolio. We have applied a conservative and selective approach to new deals, renewals and refinancing, carefully selecting clients, and focusing on a variety of sub-sectors, geographies and markets that remain attractive.
Loans to renewable energy projects 2 3,187 1,730 Loans to sustainable real estate 3 998 389 Loans to other projects 4 1,274 379 Loans to environmental outperformers 5 17,470 16,142 1 ING Groenbank finances projects within and outside of the Netherlands. In line with Dutch Tax authority guidelines the amount of green loans on the Groenbank balance sheet is over 70 percent. For more details on ING Groenbank, please see the “Retail Banking” chapter.
2 Includes biomass, geothermal, hydro, solar, offshore and onshore wind power generation.
The table demonstrates our inclusive approach to sustainability throughout our entire global lending portfolio. On the one hand, we finance projects in specific sustainable areas, including renewable energy, sustainable real estate, low carbon transport, water and waste management. At the same time, through our client and transaction assessments, we identify those clients with the best environmental record in their sector (outperformers). We focus on those outperformers in all our sectors. In this way, we choose not to exclude particular sectors from financing, outside those activities that we do not finance based on our ESR framework.
The world faces major environmental and social challenges – and business can play an important role in creating a sustainable future. Will we have the commitment to make the change?
General Lending Many of our relationships with corporate clients are anchored through our General Lending capabilities. The challenge in this area is maintaining margins and volumes within our established risk appetite while competition intensifies. This is particularly true in markets where large domestic competitor banks are actively protecting their core franchises. Margins were under continued pressure in 2015 as a result of excess liquidity in loan markets, especially with regard to our corporate clients. Nevertheless, ING holds a position as market leader in the Benelux, number one bookrunner in the syndicated loan market in Central and Eastern Europe and a top-10 position in the overall European syndicated loan market.
In November 2015 Anheuser-Busch InBev (AB InBev) reached an agreement on the terms of a recommended acquisition of SABMiller. AB InBev is the leading global brewer and one of the world’s top five consumer products companies. The proposed transaction will be financed by a record-breaking USD 75 billion syndicated loan. ING acted as a joint bookrunner and mandated lead arranger and provided USD 4 billion of the syndicated loan. The transaction will strengthen AB InBev’s position in key emerging regions with strong growth prospects in Asia, Central and South America, and Africa.
Chain Management • Global Bank of the Year for Financial Supply
Working Capital Solutions (WCS) combines ING’s Supply Chain Finance and Trade Receivables activities – it is a growth area for Wholesale Banking, offering substantial opportunities for our clients to achieve efficiency benefits. We believe the underlying short-term and capital-efficient nature of this asset class makes it an attractive area for us to expand our activities.
ING played a leading role in the CZK 32.2 billion financing for CETIN, the largest Czech telecommunication infrastructure provider. CETIN was spun off from O2 Czech Republic, an integrated telecommunications operator (formerly Telefonica Czech Republic a.s.), in the first ever voluntary structural separation in the world of a telecommunications infrastructure by an incumbent.
Country portfolios In China, turmoil on the stock markets and worldwide concerns about the sustainability of its economic growth did not lead to a sharp downturn, thanks in part to government stimulus. The quality of our portfolio in China is strong. This is because the majority of our exposure is short-term trade and commodity finance and the rest is to major state-owned companies, topend corporates and financial institutions. Our exposure is relatively short-term with 70 percent maturing in less than a year.
Ajman Sewerage (Private) Company Limited (ASPCL) is a wastewater management company in the United Arab Emirates. ING acted as sole adviser and arranger in 2006 on a USD 100 million debt facility to fund the construction of the required infrastructure. Continued population growth has driven the need to expand the capacity of the waste-water treatment plant and sewer network. Following the end of the loan guarantee, ING assumed the role of controlling creditor in 2015 and structured an additional capex loan facility of USD 25 million to fund the required increase in capacity of the waste-water treatment infrastructure.
In the US the economy continued to grow at a decent pace in 2015, while the eurozone recovery remained relatively weak. Lower interest rates in Europe helped shore up credit demand, and lending to businesses gradually picked up. The ECB embarked on quantitative easing early in the year, sending eurozone bond yields to unprecedented lows and putting pressure on the value of the euro against the dollar.
Regulatory changes and new capital rules continue to increase the capital required to support trading businesses and continue to dilute return on capital. As mentioned earlier, FM’s new strategy aims to reposition the business to help ensure we achieve target levels of return.
Effective performance management is key to enabling employees to develop their full potential and to creating the company culture and skills we need to deliver on our strategy. In 2015, 97 percent of our employees engaged in performance management.
To accelerate the development of a culture that is a true business enabler we are rolling out a new performance management approach. This will include informal performance conversations between manager and employee in addition to periodic performance review moments. This approach is based on the principle that continuous informal dialogues increase the effectiveness of the performance management process.
HR Intelligence and Human Capital ROI In order to support business performance and the wellbeing of our employees, we are developing our advanced analytics and HR intelligence capabilities. Advanced analytic techniques are helping us gain more value from our employee and workforce data. Our goal
The Orange Code provides a framework for a common corporate culture uniting all our employees around the world. In a survey in mid-2015, 75 percent of employees said they were aware of the code and 71 percent said it was helpful to reach organisational goals. Local and global programmes to further embed the Orange Code in ING’s work culture are ongoing. From 1 January 2016
Globally, much of this training is offered through our online ING Learning Centre. Here we offer a variety of educational and business reading, inspirational videos and e-learning courses that are available for all. This includes our Promoting Integrity online training for all employees which is designed to strengthen our internal control environment. More than 65 percent of learning is now carried out via online channels such as e-learning. Online learning includes a global e-learning programme that supports our local onboarding programmes in welcoming new employees to our company, and introducing them to our strategy and way of working.
Our ING International Talent Programme (IITP) is designed to ensure we have the right talent in the right place to help meet ING’s future leadership needs. The programme selects and develops ambitious, international top-graduates with high growth potential.
We recognise that being “fit to lead” Is about more than expertise and experience. The programme takes a holistic approach to developing leadership. It targets specific proficiencies, but it also encourages and equips participants to reflect on and develop their mental, spiritual and physical wellbeing.
Collective bargaining and employee consultation We consider human rights as fundamental and universal for our workforce. We uphold the rights proclaimed in the Universal Declaration of Human Rights and aim to respect human rights in all our global operations.
Diversity and inclusion Having a workforce that reflects the diversity of our customer base and a culture and working environment in which a diverse workforce can feel comfortable being themselves are important priorities for ING. There is a demonstrable link between more diverse leadership and better financial performance. More diverse companies are more successful in attracting and retaining talent, relate to customers more effectively, have higher employee engagement and are better at decision-making.
At ING, we aim to accelerate the development of diversity, including in areas such as social origin, gender, age, background, sexual orientation, physical ability and religious beliefs. In particular, we aim to achieve an increase in the number of women in leadership positions.
Data privacy and security Customers expect us to know their needs and preferences through the contacts we have and the data they provide us with. They trust us to store their data with the utmost care and safety. This trust is at the core of our relationship with our customers. We therefore comply not just with legal and regulatory requirements for data privacy but also take customers’ wishes into consideration. We strive to be transparent about what we do with the personal data of customers, suppliers and business partners, and only to process personal data for specific business purposes. Our approach can be summarised as: the right people use the right data for the right purpose. If we would like to use a customer’s data to provide personalised services and offers to them, we will always seek their consent. In such cases, the customer can withdraw their consent at any time.
ING is continuously investing in its security organisation and systems in order to protect the data of customers. Global Data Protection Policies (GDPPs), which qualify as Binding Corporate Rules, have been adopted by all business units. In each business unit, a data protection executive (DPE) is responsible for maintaining GDPP compliance. Local data protection officers (DPOs) provide practical and technical support. We take a holistic approach to counter the complex and constant threat of cybercrime by combining prevention with detection and rapid response. Our CyberCrime Resilience Programme, implemented in 2014, has increased our resilience against e-fraud, advanced persistent threats and distributed denial-of-service (DDoS) attacks. The advanced analytics capabilities that we are developing to better understand and service customers also play a key role in combatting criminal activity. Pattern recognition and advanced algorithms help in predicting and detecting, and therefore preventing, fraudulent activity.
Managing our and our customers’ data Data is essential for enhancing the customer experience and providing accurate internal and external reporting (for example, to regulators and other authorities).
Operational Excellence and Innovation – continued people with a set of common processes, language and tools to encourage fast experimentation. The four phases of PACE – discover, problem fit, solution fit, market fit – take ideas and quickly turn them into new products and services for customers. In each phase we validate with customers to check that the new products and services meet their needs. We have also established dedicated innovation departments in several countries, including Spain and Belgium, and in our Wholesale Bank. And to ensure that innovative ideas and other best practices developed in one part of ING are shared throughout the bank, we have a structured knowledgesharing approach in place called Orange Sharing.
The ING way to innovate We believe that innovation and entrepreneurship are part of ING’s culture. Since the launch of ING’s forerunner in the Netherlands more than 140 years ago, we have regularly pioneered new ways of making banking easier and more accessible. First via post offices, then by phone and later by personal computer, with ING Direct transforming the banking industry by being the first direct bank. We want to ensure that we retain and develop that innovative culture into the future. We are rolling out “PACE: the ING way to innovate”, an innovation methodology based on concepts like design thinking and lean start-up. PACE aims to provide our
Thorough understanding of the relevant risks, our exposure to them and the effectiveness of our controls for mitigating those risks is essential for our success. We have built a strong risk culture, and our clearly defined risk appetite is supported by an effective risk governance framework. This endorses and enforces appropriate behaviours and enables the bank to operate in a safe and sound manner, with integrity and in compliance with applicable laws and regulations.
The risk departments act as the second line of defence. Their role is to ensure that risks are actively and appropriately managed. The Chief Risk Officer (CRO) coordinates risk management centrally to evaluate and manage exposure on a bank-wide basis. The CRO sits
• Oversees, challenges and supports the optimisation of risk/ reward trade-off
After earlier improvement in the performance of our international loan books, 2015 saw the lagging Dutch economy begin to catch up, resulting in a further reduction of our overall NPL and risk cost. The performance of the Dutch mortgage lending book and Business Lending portfolio improved, particularly in terms of lower risk costs and lower non-performing loans. In Ukraine and Russia, ING Bank continues to actively manage exposures, while continuing to support clients with whom ING has longstanding relationships.
ING Bank continued to transform the debt securities portfolio into a liquidity book by investing in high-quality Liquidity Coverage Ratio (LCR)-eligible bonds as part of our strategy to optimise the balance sheet. We also maintained our liquidity position well above regulatory and internal targets. The funding profile improved in 2015, with EUR 25.1 billion growth in net customer deposits and EUR 19.4 billion long-term debt issuance. ING Bank’s loanto -deposit ratio, excluding securities that are recorded at amortised costs, remained stable at 1.04 compared to 2014 as the increase in customer deposits was completely offset by the growth in customer lending.
on the Executive Board and the Management Board Banking, ensuring risk remains a continuing topic for the leadership team. The CRO steers a functional, independent risk organisation that supports commercial departments and acts where necessary to keep the risk profile within the defined risk appetite.
Within ING’s risk appetite framework, we monitor a range of risk metrics to minimise the impact of adverse markets and events on ING’s capital and liquidity position. ING also conducts bank-wide and portfoliospecific stress tests to assess resilience in specific market conditions. Underlying assumptions and relevant metrics are regularly reviewed to ensure they stay relevant in a constantly changing environment.
Against this backdrop, ING’s balance sheet showed its resilience resulting from lending growth and active management of non-performing loans. ING Bank’s nonperforming loan ratio decreased to 2.5% at the end of 2015 from 3.0% at the end of 2014. ING Bank’s provision coverage ratio amounted to 38.5% at the end of 2015, compared to 35.5% at year-end 2014.
Environmental and social risk management ING Bank makes a positive contribution to global economic growth and development by promoting responsible lending and investment practices. Transparency, openness and regaining trust are very material topics, both for ourselves and our stakeholders. We try to meet our stakeholders’ expectations by offering insight into the various sectors we finance along with the environmental and social risk policies we apply in each case. ING’s Environmental and Social Risk (ESR) policy framework underpins the choices we make in a consistent and transparent manner on how, where and with whom to do business.
The Basel Committee on Banking Supervision (BCBS) has released several consultative papers proposing new approaches to capital calculation requirements. As part of these proposals, BCBS suggests methods to calculate riskweighted assets (RWA) using a simplified, less risk-sensitive approach. These proposals may substantially impact RWA for currently reported exposures through less risk sensitive simplified calculation which will be accompanied by a floor in the risk weights. It may also lead to new and possibly material capital requirements, for instance for interest rate risk in the banking book. ING participates in this process by providing to regulators both conceptual feedback on the proposals and data for their quantitative impact studies (QIS). ING Bank is of the opinion that internal models are very valuable since they better reflect the risks in a bank’s business model, its customers and its credit quality than a standardised approach.
To illustrate an example of such improvements we refer to our corporate client Gunvor. Gunvor is one of the world’s largest commodities trading houses which operates in the trade, transport, storage and optimisation of petroleum and other energy products. In 2015, ING engaged with them to discuss their environmental and social performance in their commodity flows and potential areas of improvement. As a result of this engagement, Gunvor extended the scope of its environmental and social risk controls to encompass the complete commodity supply chain. Gunvor also developed specific training to monitor the environmental and social performance of all the relevant companies involved in its commodity flows.
Update of the ESR Framework The framework is reviewed on a regular basis to assure we adequately identify and manage not only existing but also new environmental and social risks. In 2015, important changes were included in the framework: ING announced its commitment to not finance new coalfired power plants and thermal coal mines worldwide. ING will also not finance new clients whose business is more than 50 percent reliant on operating coal-fired power plants or thermal coal mines. Going forward, ING will continue engaging with coal-related clients to discuss their strategies to reduce CO2 emissions.
The snapshot of ING’s ESR Framework is as follows: Client assessment Transaction assessment
• For all corporate clients on parent level • Checks on country, policy standards, reporting, track records stakeholder engagement
Risk and capital management – continued resulting transferability of capital provides room for loan growth and supports our strategy of developing local asset generating capabilities.
Capital Management serves strategic objectives The continued strength of ING’s capital position, the adequacy of our financial position and our risk management effectiveness allow us to empower people and businesses to realise their goals. They make it possible to increase our lending capabilities, pay dividend on common shares to shareholders and invest in new technologies and best practices. In this way, ING delivers shareholder returns while we invest in further innovation of products and services.
Capital developments at ING Group 2015 was an important year for ING Group, as it further strengthened its capitalisation. The further capital strengthening reflects significant progress on ING’s restructuring programme as well as strong profitability. Although the regulatory environment remains uncertain, our strong capital position ensures we can continue to support our customers to realise their financial future.
In March 2015, ING completed the divestment of Voya Financial Inc. through the sale of 45.6 million shares. In February 2015, ING Group’s stake in NN Group was use of endangered species. Other policies, such as those relating to defence and manufacturing, have also been refined to better reflect and manage the ESR challenges of corporate clients operating in these sectors. For more information on the ESR Framework visit the corporate website (ing.com).
Based on the Dow Jones Sustainability Index, ING has an acknowledged leadership role for our sector in the environmental and social risk arena. By participating in the above initiatives, we hope to be able to contribute expert, pragmatic feedback that reflects the views of our employees, clients, shareholders and other stakeholders.
When setting targets, ING Bank also takes other constraints into account, including: • Additional regulatory capital requirements, including the amount of Tier 1 capital, total capital and the Basel I floor.
• Rating agency considerations. Each rating agency provides a different analysis and specific topics may need to be addressed.
A comprehensive chapter on ING’s capital management practices is part of the consolidated annual accounts of this Annual Report.
United States United Kingdom France Germany Switzerland Netherlands Rest of Europe Rest of World 1 These figures are based on year-end 2015 estimates of institutional share ownership provided by IPREO
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, BlackRock Inc., and State Street Corporation as per year-end 2015.
Score: 97 for disclosure (out of 100) and A for performance Position: Included
sustainability research and rating agencies help us to improve our strategy and policies. ING’s 2015 scores and rankings in key sustainability benchmarks show our progress and are as follows: 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
Payment date final dividend 2015 (Euronext Amsterdam) 4 May 2016 2
1 All dates are provisional. 2 Only if any dividend is paid.
R.A.J.G. (Ralph) Hamers (49) CEO and chairman Executive Board ING Group and chairman Management Board Banking Ralph Hamers was appointed a member of the Executive Board of ING Group on 13 May 2013. On 1 October 2013, he was appointed CEO and chairman of this Board and of the Management Board Banking. Ralph Hamers joined ING in 1991. Before his appointment to the Executive Board, he was CEO of ING Belgium and Luxembourg.
J.V. (Koos) Timmermans (55) 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.
Assurance We value the accuracy and reliability of all information and data in this report, both financial and non-financial. Therefore assurance for this integrated report, including the accompanying Non-financial Appendix, is provided by Ernst & Young Accountants LLP (EY).
How we defined content for this report and materiality In drawing up content for this report we have taken into account the topics that can have a material impact on our business as well as risks and opportunities, applicable regulation and trends. We are continually listening to key constituencies, and as material issues change we adapt our reporting to fit developing stakeholder expectations. As part of our materiality analysis, we have consulted via a survey key stakeholder groups - retail and business clients, investors, employees, civil society organisations, NGOs and regulators. Our materiality analysis guides our reporting with the aim of providing a more balanced and complete picture of our performance over the reporting year. The report including materiality disclosure is reviewed by the Executive Board.
Read more in the “What matters most” chapter on the materiality analysis.
Limitations in our scope The Report contains prospective information, such as ambitions, strategy, targets, expectations and projections. Inherent to this information is that actual future results may be different from the prospective information and therefore may be uncertain. We do not provide any assurance on the assumptions and feasibility of this prospective information.
Furthermore the Executive Board is responsible for such internal control as it determines is necessary to enable the preparation of the Report that is free from material misstatement, whether due to fraud or error.
Our responsibility for the review of the Report Our responsibility is to express a conclusion on the Report based on our review. We conducted our review in accordance with Dutch law, including the Dutch Standard 3810N “Assurance engagements relating to sustainability reports”. This Standard is based on the International Standard on Assurance Engagements (ISAE) 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”. This requires that we comply with ethical requirements and that we plan and perform the review to obtain limited assurance about whether the Report is free from material misstatement.
Topics In 2015, the Supervisory Board focused on a range of subjects. Besides the progress of ING’s strategy, the quarterly results and performance management, the Supervisory Board also looked at remuneration. Regarding the last point, I want to say that we hear the criticism regarding remuneration for top executives clearly. It is our role to apply a balanced remuneration policy taking into account the views and interests of all stakeholders of the company. The Supervisory Board therefore collected input on this topic from various stakeholders in the second half of 2015, including ING’s Works Council, the Dutch parliament and unions. See for more information on our policy in the Remuneration chapter.
Corporate governance review In the Annual Report 2014 and also at the AGM in May 2015, ING announced that the Executive Board and Supervisory Board would conduct a review of ING Group’s corporate governance, including the depositary-receipts structure, and put this item on the agenda of the Annual General Meeting in 2016.
On behalf of the Supervisory Board, I want to acknowledge their hard work and commitment. ING’s employees are the driving force behind the bank’s achievements and the pillars for its future. A future in which ING aims to bring benefits to all its stakeholders.
ING is accelerating its innovation efforts. One way we are doing this is by establishing partnerships with financial technology companies. That helps ING develop new banking solutions to achieve its strategic goal to create a differentiating customer experience. Innovation is key to ING’s future, and I am confident about ING’s ability to deliver.
Corporate strategy In January 2015, the Supervisory Board held its meeting on ING’s strategy as well as the Medium-Term Plan (MTP) 2015–2017. The MTP addresses the plans and the financial and non-financial targets for the Group as a whole and for the banking business specifically. The Supervisory Board specifically discussed the growth ambitions for ING Bank in combination with continued efficiency improvement initiatives, taking into account the compressed interest rate environment and margin pressure. Furthermore, ING’s ambition to resume regular dividend payments to shareholders in 2015 was discussed taking into account regulatory developments and ING’s capital position and risk appetite. The Supervisory Board approved the MTP.
Main objectives for the Group were to maintain a strong capital position for both Group and Bank, to complete the Voya Financial divestment and to continue further decreasing its stake in NN Group. During the year, the Supervisory Board was updated on the progress in these areas. ING successfully completed the Voya Financial Inc. divestment in March 2015. With regard to NN Group, the Supervisory Board approved several accelerated book-build offerings throughout the year resulting in a remaining stake of 25.8% at year-end 2015 with IFRS deconsolidation of NN Group being achieved in 2Q 2015.
Financial and risk reporting The fourth quarter and annual financial results for 2014 (and 2015) were discussed in February 2015 (and February 2016 respectively). This included the related
Permanent education The key themes of the annual recurring Supervisory Board Knowledge Day in January 2015 were operations & IT and sustainability. On the agenda were presentations about the COO vision, cloud computing, IT security in general, IT stability in the Netherlands and ING’s sustainability direction. The Supervisory Board was also updated on ING’s annual talent review achievements and developments including a trend analysis summary.
Remuneration was a topic of discussion throughout the year following updated legislation (CRD IV and the ‘Wet Beloningsbeleid Financiele Ondernemingen’, WBFO). The Supervisory Board discussed the implementation of remuneration-related changes for all employees in scope in general and for the Executive and Management Board Banking specifically. As part of this peer benchmarking and stakeholder feedback were taken into account. The Supervisory Board also approved the accompanying update to ING’s Remuneration Framework.
With regard to talent and succession planning in general, the outcome of the Annual Talent Review 2014 was discussed.
press release and reports from the external auditors. The Executive Board’s assessment of the adequacy and effectiveness of the risk management and control systems was also discussed.
ING’s Annual Report, for the first time in integrated form, was reviewed and the annual accounts and the SOX 404 sign-off were approved, including the proposal to pay a final 2014 dividend of EUR 470 million, which was approved by the Annual General Meeting of Shareholders on 11 May 2015. The quarterly results were reviewed and discussed in May, August and November 2015 with the external auditor being able to issue an unqualified review opinion on the financial results. On 5 August 2015, ING Group declared an interim 2015 dividend of EUR 922 million, equal to 40 percent of the underlying net result of ING Group realised in the first half of 2015.
Throughout the year the Supervisory Board was updated on regulatory risk including the associated operational and anticipated financial impact. Since the start of ECB supervision the increase in regulatory reporting has been significant. Also reporting timelines shortened and requested data granularity has increased. ING aims to safeguard that all reporting processes and data quality continue to be up to standards. The aggregate impact of upcoming new regulatory requirements is also expected to be substantial, including in the form of additional capital requirements.
The Risk Committee examined how non-financial risk is measured, monitored and managed through the NonFinancial Risk Dashboard. The Committee was informed on the simplification of the hedging process.
In the first half of 2015 the Nomination Committee discussed the hiring of Aris Bogdaneris who was appointed Head of Challengers & Growth Markets and member of the Management Board Banking as per 1 June 2015 following the departure of Eli Leenaars and Hans van der Noordaa. In the second half of 2015, future succession scenarios in general for the Executive and Management Board composition were discussed. Also the future composition of the Supervisory Board was discussed after the resignation of Carin Gorter in September 2015.
Furthermore the Audit Committee was briefed on the process and status relating to the external auditor transition from EY to KPMG and concurred with ING’s updated policy on external auditors’ independence.
Composition of the Supervisory Board At the Annual General Shareholders’ Meeting on 11 May 2015, Mariana Georghe was appointed a member of the Supervisory Board and Henk Breukink and Joost Kuiper were re-appointed. In early 2015, Joost Kuiper decided to step down as chairman of the Remuneration Committee for health reasons. He was succeeded in this role by Henk Breukink. Isabel Martín Castellá became a member of the Nomination Committee. In September 2015, Carin Gorter resigned from the Supervisory Board in light of her prospective appointment with another financial institution. She was appointed to ING’s Supervisory Board in May 2013 and was a member of the Audit Committee, the Risk Committee and the Corporate Governance Committee.
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. According to the code the board can comprise no more than one “nonindependent ” member. He 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.
Shareholder participation and position of ING Trust Office (Stichting ING Aandelen) Between 2010 and 2015, participation of shareholders excluding the ING Trust Office, and holders of depositary receipts, in decision-making at the annual shareholders’ meeting of ING Group (“General Meeting”) consistently increased from 41.3 percent to 56.8 percent.
This section, including the parts of this Annual Report incorporated by reference, together with the separate publication “ING’s implementation of the Dutch Corporate Governance Code” dated April 2010, (see www.ing.com), together comprise the “corporate governance statement“ as specified in section 2a of the Decree with respect to the contents of the annual report (Besluit tot vaststelling van nadere voorschriften omtrent de inhoud van het jaarverslag)1.
This section sets out the application of the Dutch Corporate Governance Code effective as from 1 January 2009 (“Corporate Governance Code”), at ING Groep N.V. (“ING Group”). It provides information on its share capital, control, Executive Board, Supervisory Board and external auditor.
Corporate Governance – continued on all equity compensation plans applicable to any employee, director or other service provider of a company. The results of such votes are advisory in nature rather than binding. Under Dutch company law and the Corporate Governance Code, binding shareholder approval is only required for equity compensation plans (or changes thereto) for members of the executive board and supervisory board, and not for equity compensation plans for other groups of employees.
• By number: insofar as a sufficient number of unissued ordinary shares is available in the authorised capital, ordinary shares may be issued up to a maximum of 10 percent of the issued share capital, or, in the event of a merger or takeover or to safeguard or conserve the capital position of ING Group, up to a maximum of 20 percent of the issued capital.
ING Group participates in several industry conferences and generally hosts one Investor Relations Day every two to three years. These events are announced in advance on ING Group’s website, and presentation materials are made available in real time on the website. This is in accordance with the applicable regulatory requirements intended to ensure that all shareholders and other market participants have equal and simultaneous access to information that could potentially influence the price of the company’s securities. ING Group’s Investor Relations Days can be accessed by means of live webcasts or telephone conferencing. Investor Relations Days or conferences in which ING Group participates will not take place during the period immediately prior to the publication of quarterly financial information.
General Meetings are convened by public notice via the ING Group website (www.ing.com) at least 42 days before the day of the General Meeting. As of the date of convening a General Meeting, all information relevant for shareholders and holders of depositary receipts is made via the ING Group website and through its head office.
Dialogue with shareholders and holders of depositary receipts Shareholders and holders of depositary receipts were given the opportunity to contact ING about the Annual General Meeting 2015, via the Annual General Meeting dedicated web page on the website of ING Group (www.ing.com).
Frequency, notice and agenda of General Meetings General Meetings are normally held each year in April or May to discuss the course of business in the preceding financial year on the basis of the reports prepared by the Executive Board and the Supervisory Board, and to decide on:
According to its articles of association and the Trust Conditions, ING Trust Office is guided primarily by the interests of the holders of depositary receipts, taking into account the interests of ING Group and its affiliated enterprises.
Voting rights on shares Each share entitles the holder to cast one vote at the General Meeting. The Articles of Association do not restrict the voting rights on any class of shares. ING Group is not aware of any agreement pursuant to which voting rights on any class of its shares are restricted.
Voting on the ordinary shares by holders of depositary receipts as proxy of ING Trust Office Although the depositary receipts for shares do not formally carry any voting rights, holders of depositary receipts, in practice, rank equally with shareholders with regard to voting. ING Trust Office will, subject to certain restrictions, grant a proxy to a holder of depositary receipts allowing such holder, in the name of ING Trust Office, to exercise the voting rights attached to the number of ordinary shares that corresponds to the number of depositary receipts held by such holder of depositary receipts. On the basis of such a proxy, the holder of depositary receipts may vote such shares according to his or her own discretion.
• The declaration of dividends, subject to the power of the Executive Board to allocate part or all of the profits to the reserves – with approval of the Supervisory Board – and the declaration of other distributions, subject to a proposal by the Executive Board which was approved by the Supervisory Board.
• An amendment of the Articles of Association, a legal merger or division of ING Group, and winding-up of ING Group, all subject to a proposal made by the Executive Board upon approval by the Supervisory Board.
Remuneration and share ownership Members of the Executive Board are permitted to hold shares and depositary receipts for shares in the share capital of ING Group for long-term investment purposes. Transactions by members of the Executive Board in these shares and these depositary receipts for shares are subject to the ING regulations for insiders. These regulations are available on the website of ING Group (www.ing.com).
Ancillary positions pursuant to CRD IV: Member and CRO of the Executive Board of ING Groep N.V. Member and CRO of the Management Board of ING Bank N.V.
• Refrain from supporting one interest without regard to the other interests involved.
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 2015. 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.
Ancillary positions pursuant to CRD IV: Vice-chairman of the Supervisory Board of ING Groep N.V., Vice-chairman of the Supervisory Board of ING Bank N.V., non-executive member of the Board of Directors of Airbus Group N.V., (formerly European Aeronautic
The Nomination Committee’s tasks include advising the Supervisory Board on the composition of the Supervisory Board and Executive Board. On 31 December 2015, the members of the Nomination Committee were: Jeroen van der Veer (chairman), Henk Breukink, Isabel Martín Castellá and Joost Kuiper.
Financial reporting A description of the main features of ING Group’s internal control and risk management systems in relation to the financial reporting process is included in the statement with respect to Section 404 of the Sarbanes- Oxley Act on pages 88–89, which is deemed to be incorporated by reference herein.
Legal provisions Pursuant to the terms of the Dutch Financial Supervision Act, a declaration of no objection from the European Central Bank (ECB) must be obtained by anyone wishing to acquire or hold a participating interest of at least 10 percent in ING Group and to exercise control attached to such a participating interest. Similarly, on the basis of indirect change of control statutes in the various jurisdictions where subsidiaries of ING Group are operating, permission from, or notification to, local regulatory authorities may be required for the acquisition of a substantial interest in ING Group.
• developments of corporate governance, more specific the recent developments for financial institutions; • press releases of ING Group; • the proposal of ING Group to appoint KPMG as auditor; • the progress of the restructuring, more specifically the disinvestments of Voya and of NN Group N.V.; • the corporate governance review; • 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 18 November 2015; • 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.
Meetings with ING Group During the 2015 reporting year, the Board had three meetings with the chairmen of the Executive Board and the Supervisory Board of ING Group. In these meetings, among other things, the following topics were discussed: • the results of ING Group based on the published figures of 2014 and the quarterly and half-year figures of 2015; • the development of the surplus/buffer at parent company level due to disinvestments of Voya and NN Group N.V.; • the ratio requirements imposed by the ECB, Basel and the Financial Stability Board (T-LAC); • legal structure of ING and balance sheet optimisation; • regulatory costs, such as the deposit guarantee scheme (“deposito garantie stelsel”), bank taxes, and the National Resolution Fund; • the development of the cost/income ratio and of risk costs; • several topics of the agenda of the AGM 2015; • the progress of the restructuring of ING Group, among other things: (i) the transfer of the tranches in Voya; (ii) the conditions for deconsolidation of NN Group NV and (iii) the condition of a viable NN Bank; • the dividend policy which was announced; • IT strategy and IT security; • risk related costs and exposure; • contingent convertibles; • the corporate governance review; • impact of fintechs on financial industry; • feedback from the depositary receipt holders meeting of 18 November 2015; and • an update on the “Think Forward” strategy of ING Bank.
ING Trust Office was informed that the Executive Board and Supervisory Board reviewed ING Group’s corporate governance, including the depositary receipts structure, in 2015. This was announced in the 2014 Annual Report. Moreover, ING Trust Office was informed that an external law firm and a proxy advisory firm have advised ING in this review. As part of this review, ING Trust Office discussed with ING key elements of the corporate governance.
There were no changes in the composition of the board, nor did any (re-) appointments take place during 2015. A profile and an overview of relevant positions held by the members of the Board can be found on the website of ING Trust Office (www.ingtrustoffice.com). All members of the Board stated that they meet the conditions regarding independence as referred to in the Articles of Association and in the Dutch Corporate Governance Code.
Conformity statement pursuant to section 5:25c paragraph 2(c) of the Dutch Financial Supervision Act (Wet op het financieel toezicht).
• the ING Groep N.V. 2015 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 2015 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.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in the Company’s controls related to the determination of specific accounting policies for material transactions with a high degree of accounting complexity, including divestitures.
This chapter sets out the ING remuneration policy and provides information on the remuneration levels of the Executive Board and the Supervisory Board for 2015.
The primary objective of the remuneration policy is to enable ING to retain and recruit qualified and expert leaders, senior staff and other highly professional employees. The remuneration policy forms an integral part of ING’s strategy and risk profile and maintains a sustainable balance between short-term and long-term value creation, building on ING’s long-term responsibility towards clients, employees, society, providers of capital and other stakeholders.
2015 Performance Indicators Executive Board As indicated in the remuneration policy, the performance of the Executive Board will be assessed based on financial and non-financial indicators. For 2015, performance indicators applied included the following.
• Delivering multiple, innovative products to create a differentiating customer experience
Innovation • Introduced TWYP (The Way You Pay), a pan-European peer-to-peer payment app, jointly developed by three countries.
• Underlying net profit of ING Bank is EUR 4,219 mln, up 23.2% from 2014, driven by higher interest results and lower risk costs, despite higher regulatory cost.
• CET1 ratio of ING Group and ING Bank has increased to 12.7% and 11.6% respectively.
The table below shows the remuneration awarded to the individual members of the Executive Board with respect to the performance years 2015, 2014 and 2013.
Total direct compensation of the individual members of the Executive Board amounts in thousands of euros amount number of shares amount number of shares amount number of shares Ralph Hamers 1
Variable remuneration in cash - - 1 Ralph Hamers was appointed to the Executive Board on 13 May 2013. The amounts for him reflect compensation earned in the capacity as an Executive Board member. Thus the figure for 2013 reflects a partial year as an Executive Board member and CEO.
Benefits The individual members of the Executive Board receive other emoluments apart from the compensation and pension benefit. These other emoluments include f.i. savings allowances for the loss of pension benefits for salary above EUR 100,000, employer contributions to savings schemes, reimbursement of cost related to home/work commuting and cost associated with housing (for expats). The significant increase in 2015 has two main reasons. The first one is the introduction of savings allowances introduced to compensate for the loss of pension accrual for salary above EUR 100,000. This savings allowance is an average flat rate contribution for all employees in the Netherlands, annually determined on the basis of the actual CDC pension premium. The level of the CDC pension premium is highly dependent on the actual interest rate and can, therefor, go up or down in future years. The second one is that 2015 base salaries for the Executive Board, and thus the basis for pension accrual, increased compared to 2014.
The other emoluments amounted in 2015, 2014 and 2013 to the following costs.
Long-term incentives awarded in previous years In 2015 no long-term incentives were awarded to the Executive Board members.
The long-term incentive plan (LTIP) in place at ING until 2010 included 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.
The table below contains information on the outstanding options and the movements during the financial year of options held by the members of the Executive Board as of 31 December 2015, which were all awarded to these board members in roles within ING prior to their appointment to the Executive Board.
LSPP Deferred share units 27 Mar 2013 27 Mar 2015 3,441 3,441 € 13,50 LSPP Deferred share units 28 Mar 2012 28 Mar 2015 3,511 3,511 € 13,46
Current remuneration levels of the ING Executive Board are still below the median of the Euro Stoxx 50 benchmark, and in the case of the CEO position, even significantly below. This remains a concern. In order to ensure continued delivery on customer promises, strategic priorities and key financial and non-financial targets, ING needs to be able to attract the best (international) talent for its Executive Board. It is ING’s aim to further reduce the gap between the total direct compensation of ING’s Executive Board and the median of the Euro Stoxx 50 peer group over time. In determining executive remuneration, the ING Supervisory Board is aware of the public debate surrounding this topic and strives to balance all stakeholder interests.
Current Supervisory Board Remuneration policy The annual remuneration of the Supervisory Board members as adopted by the General Meetings in 2006 and 2008 amounts to: chairman EUR 75,000, vice-chairman EUR 65,000, other members EUR 45,000. In addition to the remuneration, each member receives an expense allowance. For the chairman and vice-chairman the annual amount is EUR 6,810. For the other members the amount is EUR 2,270.
The remuneration for the membership of committees is as follows: chairman of the Audit Committee EUR 8,000, members of the Audit Committee EUR 6,000, chairmen of other Supervisory Board committees EUR 7,500 and members of other Supervisory Board committees EUR 5,000. In addition to the fixed remuneration, committee members receive a fee for each meeting they attend. For the Audit Committee chairman this fee is EUR 2,000 per meeting and for its members EUR 1,500. For the chairmen and members of other committees the attendance fee amounts to EUR 450 per meeting.
Eric Boyer de la Giroday 1 319,848 69,542 389,390 23,181 Shares vested for members of the Supervisory Board in 2015
Eric Boyer de la Giroday 2 Deferred 1 Eric Boyer de la Giroday is a member of the Supervisory Board as of May 2014. 2 Shares granted to Eric Boyer de la Giroday in May 2012 were awarded for his performance in position previous to his appointment to the Supervisory Board.
Proposal adjustment Supervisory Board remuneration policy The current remuneration policy of the Supervisory Board was adopted by the General Meeting in 2008. Since then, as a result of the changed economic conditions and increased regulation, the level of responsibility, the frequency and intensity of Supervisory Board meetings and meetings of Supervisory Board committees and the involvement of Supervisory Board members outside formal meetings have significantly increased.
Supervisory Board members • Further align remuneration with increased responsibilities and time spent
Risk mitigating measures ING applies measures to mitigate risk relating to remuneration. ING’s remuneration policy ensures that incentives provided by the remuneration system take into consideration risk, capital, liquidity and the likelihood and timing of earnings. Measures include an ex-ante and ex-post assessment of variable remuneration prior to award respectively vesting.
Central works council until June 2015 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 after the deconsolidation NN: L.G. (Bert) Woltheus, chairman P.T.L. (Petra) Hartendorp, deputy-chairman J.H. (Hans) de Boer, secretary A. (Alex) Tigchelaar, deputy secretary J.P.M. (Jaap) van Amsterdam J. (Yoap) Brugmann W. (Wim) van den Brink J.R. (Jeroen) Dekker G.F. (Gerard) Dekkers P.A.T. (Peter) Don R.P. (Rob) van Gelderen P.E. (Egon) Gijsbers C.J. (Cor) Groot P. (Piet) Janse J.R.H. (Job) van Luyken M.A. (Margriet) Pel L.F.F. (Leo) Teunissen J. (Koos) Rodenburg J.B. (Johan) Traets G.J. (Gerard) Veldman B.F.M. (Ben) Wesselink F.E. (Ferry) van Wezel
Additional information Risk factors 354 Additional Pillar 3 information 374 Non-financial appendix 414 Glossary 426 General information 437
− designated as at fair value through profit and loss 12,616 13,551
Net result attributable to Equityholders of the parent 4,010 1,251 3,545
Basic earnings per ordinary share from continuing operations 1.16 0.50 0.66
Realised gains/losses transferred to the profit and loss account –92 –139 –79
– deferred acquisition costs and value of business acquired –53 –53 1,282
– customer deposits and other funds on deposit 17,970 19,015 25,585
Net cash flow from/(used in) investing activities 33 4,196 –7,419 9,269
Consolidated statement of changes in equity of ING Group - continued in EUR million Share capital Share premium Reserves1
Remeasurement of the net defined benefit asset/liability 38 –254 –254 –35 –289
Realised gains/losses transferred to the profit and loss account –133 –133 –6 –139
Share of other comprehensive income of associates and joint ventures 43 43 43
Employee stock option and share plans 4 8 87 99 13 112
Consolidated statement of changes in equity of ING Group - continued in EUR million Share capital Share premium Reserves
Employee stock option and share plans 2 4 –84 –78 19 –59
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 41 ‘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; • 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
In January 2016, ING Group sold a further 33 million ordinary shares of NN Group. As part of the transaction, NN Group repurchased 8 million ordinary shares. The transaction reduced the ownership of ING in NN Group from 25.75% (as at 31 December 2015) to 16.22%. As a result of the transaction, together with ING Group no longer having any nominees on NN Group’s Supervisory Board as of 14 December 2015, ING Group no longer has significant influence over NN Group and accounts for its remaining stake in NN Group as an available-for-sale investment. The result from this transaction, amounting to a net profit of EUR 522 million, will be reflected in ING Group’s first quarter 2016 profit and loss account. The result reflects the difference between the EUR 2.2 billion book value of ING’s 25.75% investment (as fixed at deconsolidation at the end of May 2015) and the market value of this stake of EUR 2.7 billion at the closing of the January 2016 transaction. The transaction settled on 8 January 2016. The remaining shares held in NN Group is subject to a lock-up period of 60 days.
Change in accounting approach NN Group Anchor investment transaction During the second half of 2015, the Autoriteit Financiële Markten (‘AFM’; The Netherlands Authority for the Financial Markets) performed a review of the 2014 ING Group Annual Report. This review resulted in a recommendation to change the accounting approach for the provision recognised as a direct reduction of ING Group’s shareholders’ equity in 2014 in relation to the Asian Anchor Investment transaction (‘Anchor investment transaction’).
1 In 2015, until the date of deconsolidation at the end of May 2015, the carrying value of NN Group increased. As a result, the difference between the carrying value of NN Group and the fair value of NN Group’s shares, increased by EUR 81 million to EUR 1,001 million.
Impact on ING Group The 2014 comparative amounts are adjusted by a reversal of the provision previously recognised in 2014 resulting in an increase of ING Group’s equity by EUR 920 million as at 31 December 2014. The 2013 and 2012 amounts are not impacted. This adjustment is in line with the requirements of IAS 8 (‘Accounting Policies, Changes in Accounting Estimates and Errors’).
Voya In March 2015, ING Group sold its remaining interest in Voya, reducing its ownership from 18.9%, at 31 December 2014, to zero. The transaction resulted in a profit of EUR 323 million, which is recognised in the profit and loss account in the line ‘Net result from disposal of discontinued operations’.
e) Upcoming changes in IFRS-EU after 2015 Changes to IFRS effective in 2016 On 1 January 2016, a number of changes to IFRS become effective under IFRS-EU. The implementation of these amendments will have no significant impact on ING Group’s results or financial position.
The governance structure of the IFRS 9 Program has been set-up based on the three phases of IFRS 9: Classification and Measurement, Impairments and Hedge Accounting. Each workstream consists of experts from Finance, Risk, Bank Treasury, Operations and the business lines. The workstreams are supported by the Program Office. The Technical Board supports the Steering Committee by reviewing the interpretations of IFRS 9 as prepared by the workstreams. The Steering Committee is the decision making body. Additionally, an international IFRS 9 network has been created within ING Group to connect all countries with the central project team to ensure consistency, awareness and training.
In most instances, it is expected that the classification and measurement outcomes will be similar to IAS 39, although certain differences will arise. The classification and measurement of financial liabilities remains essentially the same as under IAS 39.
In 2015, ING Group determined a number of key concepts and assumptions essential to the new impairment model, such as the definition of significant deterioration and the approach how to measure ECL. In addition, ING Group started with the financial impact analysis on the level of impairment allowances under the new ECL approach.
In 2015, the Hedge accounting workstream performed a technical assessment of the impact of the new hedge accounting requirements. Based on the outcome of this technical assessment, ING Group has made a preliminary decision to continue applying IAS 39 in its entirety for hedge accounting until the guidance of Macro fair value hedge accounting is finalised as allowed under IFRS 9. ING Group will continue to implement the IFRS 7 hedge accounting disclosure requirements.
IFRS 15 ‘Revenue from Contracts with Customers’ In May 2014, the International Accounting Standards Board (‘IASB’) issued IFRS 15 ‘Revenue from Contracts with Customers’. The standard was originally effective for annual periods beginning on or after 1 January 2017. During 2015, the effective date was amended to 1 January 2018, with early adoption permitted. IFRS 15 is not yet endorsed by the EU. IFRS 15 provides a principles-based approach for revenue recognition, and introduces the concept of recognising revenue as and when the agreed performance obligations are satisfied. The standard should in principle be applied retrospectively, with certain exceptions. ING is currently assessing the impact of this standard.
Other impairments Impairment evaluation is a complex process that inherently involves significant judgements and uncertainties that may have a significant impact on ING Group’s consolidated financial statements. Impairments are especially relevant in two areas: Available-forsale debt and equity securities and Goodwill/Intangible assets.
Impairments on other debt instruments (Loans and held-to-maturity investments) are part of the loan loss provision as described above.
To include credit risk in the fair valuation, ING applies both credit and debit valuation adjustments (‘CVA’, ‘DVA’). Own issued debt and structured notes that are valued at fair value are adjusted for credit risk by means of a DVA. Additionally, derivatives valued at fair value are adjusted for credit risk by a CVA. The CVA is of a bilateral nature as both the credit risk on the counterparty as well as the credit risk on ING are included in the adjustment. All market data that is used in the determination of the CVA is based on market implied data. Additionally, wrong-way risk (when exposure to a counterparty is increasing and the credit quality of that counterparty decreases) and right-way risk (when exposure to a counterparty is increasing 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. To address the risk associated with the illiquid nature of the derivative portfolio, ING applies an additional ‘liquidity valuation adjustment’. The adjustment is based on the market price of funding liquidity and is applied to the uncollateralised derivatives. This additional discounting is taken into account in both the credit and debit valuation adjustments.
g) Principles of valuation and determination of results Consolidation ING Group (‘the Group’) comprises ING Groep N.V. (‘the Company’), ING Bank N.V., NN Group N.V. (until deconsolidation at the end of May 2015) and all other subsidiaries. The consolidated financial statements of ING Group comprise the accounts of ING Groep N.V. and all entities in which it either owns, directly or indirectly, more than half of the voting power or over which it has control of their operating and financial policies through situations including, but not limited to: • Ability to appoint or remove the majority of the board of directors; • Power to govern such policies under statute or agreement; and • Power over more than half of the voting rights through an agreement with other investors.
A list of principal subsidiaries is included in Note 50 ‘Principal subsidiaries’.
Classification of financial instruments Financial assets at fair value through profit and loss Financial assets at fair value through profit and loss include equity securities, debt securities, derivatives, loans and receivables and other, and comprise the following sub-categories: trading assets, non-trading derivatives and financial assets designated at fair value through profit and loss by management.
Certain derivatives embedded in other contracts are measured as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the host contract is not carried at fair value through profit and loss, and if a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. These embedded derivatives are measured at fair value with changes in fair value recognised in the profit and loss account. An assessment is carried out when the Group first becomes party to the contract. A reassessment is carried out only when there is a change in the terms of the contract that significantly modifies the expected cash flows.
Repurchase transactions and reverse repurchase transactions Securities sold subject to repurchase agreements (‘repos’) are retained in the consolidated financial statements. The counterparty liability is included in Amounts due to banks, Other borrowed funds, Customer deposits and other funds on deposit or Trading, as appropriate.
Impairment of other financial assets At each balance sheet date, the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the specific case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. ‘Significant’ and ‘prolonged’ are interpreted on a case-by-case basis for specific equity securities; generally 25% and 6 months are used as triggers. If any objective evidence exists for available-for-sale debt and equity investments, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in net result – is removed from equity and recognised in the profit and loss account. Impairment losses recognised on equity instruments can never be reversed. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the profit and loss account, the impairment loss is reversed through the profit and loss account.
Investments in associates and joint ventures Associates are all entities over which the Group has significant influence but not control. Significant influence generally results from a shareholding of between 20% and 50% of the voting rights, but also is the ability to participate in the financial and operating policies through situations including, but not limited to one or more of the following: • Representation on the board of directors; • Participation in the policymaking process; and • Interchange of managerial personnel.
Market conditions in recent years have led to a reduced level of real estate transactions. Transaction values were impacted by low volumes of actual transactions. As a result comparable market transactions have been used less in valuing ING’s real estate investments by independent qualified valuers. More emphasis has been placed on discounted cash flow analysis and capitalisation of income method.
The valuation of real estate investments takes (expected) vacancies into account. Occupancy rates differ significantly from investment to investment.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs, taking into account the initial accounting period below. Changes in the fair value of the contingent consideration classified as equity, are not recognised.
Adjustments to the fair value as at the date of acquisition of acquired assets and liabilities, that are identified within one year after acquisition are recognised as an adjustment to goodwill; any subsequent adjustment is recognised as income or expense. On disposal of group companies, the difference between the sale proceeds and carrying value (including goodwill) and the unrealised results (including the currency translation reserve in equity) is included in the profit and loss account.
Financial liabilities Financial liabilities at amortised cost Financial liabilities at amortised cost include the following sub-categories: preference shares, other borrowed funds, debt securities in issue, subordinated loans, amounts due to banks and customer deposits and other funds on deposit.
Cash advances, overdrafts and other balances 531 614 425 495 956 1,109
Designated as at fair value through profit and loss 3,234 2,756
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, IFRSEU does not allow netting of these positions in the balance sheet. Reference is made to Note 19 ‘Financial liabilities at fair value through profit and loss’ for information on trading liabilities.
− equity securities - shares in third party managed structured entities 169 210
In 2015, EUR 3.5 billion of mainly Government bonds previously classified as Investments Available-for-sale are classified as Investments Held-to-maturity. These Government bonds are now expected to be held until their redemption dates. The remainder of the decrease in 2015 relates mainly to lower positions in Government bonds held in Germany, Australia and Belgium.
Designated as at fair value through profit and loss 1,080 1,124
ING Group’s total exposure to debt securities included in available-for-sale investments and assets at amortised cost of EUR 101,874 million (2014: EUR 108,085 million) is specified as follows by type of exposure: Available-for-sale investments Held-to-maturity investments Loans and advances to customers Amounts due from banks Total
Sub-sovereign, Supranationals and Agencies 20,337 22,893 1,619 297 257 22,253 23,150
As of 2015, the asset class Sub-sovereign Supranationals and Agencies (‘SSA’) is disclosed separately in order to align with ING’s Investment Portfolio Management approach. SSA comprise amongst others, multilateral development banks, regional governments, local authorities and US agencies. Under certain conditions, SSA bonds may qualify as ‘Level 1 High Quality Liquid Assets’ for LCR and were previously largely disclosed as financial institutions or government bonds. The comparative amounts were adjusted accordingly.
Debt securities by type and balance sheet lines - Available-for-sale investments and Assets at amortised cost
Disposals and redemptions –216 –656 –48,331 –63,883 –1,219 –1,173 –49,766 –65,712
Unrealised fair value gains/losses in shareholders’ equity (before tax) –1,224 –69
Recognised impairment (before tax) in the year prior to reclassification nil nil
Effect on result (before tax) for the period/year (mainly interest income) 19 19 20 22 28 34 47 9
Loan loss provisions –2,900 –3,058 –2,872 –2,931 –5,772 –5,989 1 In 2015, Loans and advances to customers by type – International, as at 31 December 2014, are adjusted. In 2015, it became apparent that a portion of loans previously reported as Personal lending and Corporate loans of EUR 7.4 billion and EUR 4.2 billion respectively should have been reported as Loans secured by mortgages. Loans secured by mortgages, as at 31 December 2014, is EUR 11.6 billion higher from EUR 287.8 billion to EUR 299.4 billion.
− more than 1 year but less than 5 years 6,004 6,147
The allowance for uncollectable finance lease receivables includes in the loan loss provisions an amount of EUR 271 million as at 31 December 2015 (2014: EUR 269 million).
Accumulated impairments of EUR 24 million (2014: EUR 24 million) have been recognised. The values presented in the tables above could differ from the values presented in the individual annual accounts of the associates and joint ventures, due to the fact that the individual values have been brought in line with ING Group’s accounting principles. Where the listed fair value is lower than the balance sheet value, an impairment review and an evaluation of the going concern basis has been performed.
Changes in the composition of the group and other changes 18 –1,564
• Impairments on Investments in associates and joint ventures of nil.
Disposals In 2015, Disposals of EUR 125 million is mainly attributable to sale of Ivy Retail SRL and Ontwikkelingscombinatie Overhoeks C.V. as referred to above.
Exchange rate differences In 2015, Exchange rate differences includes EUR 11 million relating to TMB (2014: EUR 76 million). In 2014, Exchange rate differences also included EUR 47 million related to ING Vysya and EUR 31 million related to SulAmérica S.A.
Changes in the composition of the group and other changes In 2014, Changes in the composition of the group and other changes included EUR –1,602 million related to the classification of NN Group as held for sale as well as the recognition as associate and transfer of ING Vysya to held for sale. Reference is made to Note 54 ‘Other events’.
Changes in the composition of the group and other changes –1,119
The total amount of rental income recognised in the profit and loss account for the year ended 31 December 2015 is EUR 6 million (2014: EUR 9 million). The total amount of contingent rent recognised in the profit and loss account for the year ended 31 December 2015 is nil (2014: nil).
Changes in the composition of the group and other changes –128
Accumulated depreciation as at 31 December –828 –786 –1,774 –1,635 –2,602 –2,421
Net carrying value as at 31 December 263 265 708 733 971 998
Value of business acquired Goodwill Software Other Total 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
Accumulated impairments as at 31 December –11 –3 –2 –2 –13 –5
Goodwill is allocated to goodwill reporting units as follows: Retail Central Europe1 427 480 1 In 2015, Goodwill allocation to reporting units Retail Central Europe and Wholesale Banking, as at 31 December 2014, are adjusted as a result of changes in reportable segments. Goodwill allocated to Retail Central Europe, as at 31 December 2014, is decreased by EUR 158 million from EUR 638 million to EUR 480 million, with the corresponding increase in Wholesale Banking.
No goodwill impairment was recognised in 2015. Changes in the goodwill per reporting unit in 2015 are mainly due to changes in currency exchange rates.
Included in Shareholders’ equity is cumulative other comprehensive income of nil (2014: EUR 5,987 million related to NN Group) related to Assets and liabilities held for sale.
In 2015, 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 the line ‘Net result from discontinued operations’.
In light of the further restructuring and deconsolidation of the NN Group insurance business, key accounting policies, specific insurance related disclosures, fair value measurement disclosures and loan reclassifications are presented below for comparative periods only: Key accounting policies Insurance, investment and reinsurance contracts Provisions for liabilities under insurance contracts are established in accordance with IFRS 4 ‘Insurance Contracts’. Under IFRS 4, an insurer may continue its existing pre-IFRS-EU 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-EU. ING Group operates in many different countries and the accounting principles for insurance contracts follow local practice in these countries. ING’s businesses in the Netherlands apply accounting standards generally accepted in the Netherlands (Dutch GAAP) for its provisions for liabilities under insurance contracts; similarly, ING’s businesses in the United States apply accounting standards generally accepted in the United States (US GAAP).
Life insurance provisions excluding provisions for risk of policyholders 73,525 114 73,639
Provision for life insurance for risk of policyholders 39,671 46 39,717
Deferred acquisition costs For flexible life insurance contracts the growth rate assumption used to calculate the amortisation of the deferred acquisition costs for 2014 was 6.4% gross and 4.8% net of investment management fees.
• Earnings multiples: Earnings multiples were derived from comparable listed companies or relevant market transaction multiples for companies in the same industry and, where possible, with a similar business model and profile in terms of size, products, services and customers, growth rates and geographic focus. Adjustments were made for differences in the relative performance in the group of comparable companies.
The fair values of the non-financial assets carried at fair value were determined as follows: Real estate investments 1,104 1,104
Methods applied in determining fair values of non-financial assets - Held for sale - NN Group
Recognised fair value gains (losses) in shareholders’ equity (before tax) between the beginning of the year in which the reclassification took place and the reclassification date 173
Recognised impairment (before tax) in the year prior to reclassification nil
Unrealised fair value gains/losses recognised in shareholders’ equity (before tax) –213 –111 –186 –307 –491 –734
Effect on result (before tax) for the year (interest income and sales results)) –2 –10 –47 90 89 n.a
In 2015, the decrease in Property development and obtained from foreclosures relates mainly to the sale of developed property.
Shareholders’ equity (parent) 47,832 51,344 45,776 Non-voting equity securities 1,500 1 Other reserves, as at 31 December 2014, is adjusted as a result of the change in the accounting approach for the NN Group Anchor investment transaction
In 2015, ING Group changed its accounting approach in relation to the NN Group Anchor investment transaction. Shareholders’ equity (parent), as at 31 December 2014, was adjusted by EUR 920 million from EUR 50,424 million to EUR 51,344 million in the line item Other reserves. Reference is made to Note 1 ‘Accounting policies’ - Change in accounting approach NN Group Anchor investment transaction, the section Other reserves in this note, Note 20 ‘Other liabilities’ and Note 54 ‘Other events’.
In 2015, ING Groep N.V. issued USD 2,250 million Perpetual Additional Tier 1 Contingent Convertible Capital Securities, which can in accordance with their terms and conditions, convert by operation of law into ordinary shares if the conditions to such conversion are fulfilled. As a result of this conversion, the issued share capital can increase by no more than 250 million ordinary shares. Reference is made to Note 14 ‘Subordinated loans’.
Impact of partial divestment of NN Group –3 –855 –649 –1,507
Reference is made to Note 54 ‘Other events’, for further information on NN Group divestment transactions.
Changes in composition of the group and other changes 2 –497 –3 –498
Impact of IPO NN Group relates to the IPO of NN Group as explained in Note 54 ‘Other events’.
Transfer to insurance liabilities/DAC comprises the change in insurance liabilities related to NN Group and Voya.
Impact of deconsolidation of NN Group relates to the release of currency translation reserves upon deconsolidation of NN Group at the end of May 2015.
Reference is made to Note 38 ‘Pension and other post-employment benefits’.
Transfer to share of associates and joint ventures reserve –118 118
Changes in composition of the group and other changes 303 –76 227
Non-voting equity securities (core Tier 1 securities) In 2014, ING Group made the final repayment on the core Tier 1 securities of EUR 1.025 billion to the Dutch State. Including the final payment, the total amount paid to the Dutch State was EUR 13.5 billion, which contained EUR 10 billion in principal and EUR 3.5 billion in interest and premiums and resulted in an annualised return of 12.7% for the Dutch State. For information on the non-voting equity securities and the repayments made, reference is made to Note 53 ‘Transactions with the Dutch State and the European Commission Restructuring Plan’.
Legally distributable reserves, determined in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code, from ING Group’s subsidiaries, associates and joint ventures are as follows: 2015 ING Bank NN Group Other Total
Notes to the Consolidated annual accounts of ING Group - continued 2014 ING Bank NN Group Other Total 2013 ING Bank NN Group Other Total
Furthermore, ING Groep N.V. is subject to legal restrictions with respect to repayment of capital to holders of ordinary shares. Capital may be repaid to the holders of ordinary shares pursuant to an amendment of ING Groep N.V.’s Articles of Association whereby the ordinary shares are written down.
No specific dividend payment restrictions with respect to the cumulative preference shares exist.
ING Bank Lent on to NN Group1 2015 2014 1 NN Group is no longer consolidated by ING Group, with effect end of May 2015. 2 These USD loans to NN Group were converted into EUR loans from 30 September 2013.
Notes to the Consolidated annual accounts of ING Group - continued 1 NN Group N.V. is no longer consolidated by ING Group, with effect end of May 2015.
More than 1 year but less than 2 years 7,807 9,912
More than 2 years but less than 3 years 11,192 7,674
More than 3 years but less than 4 years 6,068 7,872
More than 1 year but less than 2 years 6,056 7,168
More than 3 years but less than 4 years 2,827 380
More than 4 years but less than 5 years 476 1,793
Disclosures in respect of deferred tax liabilities are provided in Note 39 ‘Taxation’ and Net defined benefit liabilities are provided in Note 38 ‘Pension and other post-employment benefits’.
Changes in the composition of the group and other changes –2 –109
In general, Other provisions are of a short-term nature. The amounts included in other provisions are based on best estimates with regard to amounts and timing of cash flows required to settle the obligation.
In 2015, included in Other provisions - Litigation, is a provision related to floating interest rate derivatives that were sold in the Netherlands. Reference is made to Note 29 ‘Other operating expenses’ and Note 48 ‘Legal proceedings’.
Interest income on non-trading derivatives (no hedge accounting) 788 1,520 1,175
In 2014, Result on disposal of group companies included EUR 202 million profit on the deconsolidation of ING Vysya. Reference is made to Note 54 ‘Other events’.
Other includes commission fees of EUR 171 million (2014: EUR 163 million; 2013: EUR 215 million) in respect of bank guarantees and commission fees of EUR 30 million (2014: EUR 23 million; 2013: EUR 27 million) in respect of underwriting syndication loans.
Change in fair value of assets and liabilities (hedged items) –1,229 536 –963
Valuation results on assets and liabilities designated as at fair value through profit and loss (excluding trading) 372 –583 –53
Included in the Valuation results on non-trading derivatives are the fair value movements on derivatives used to economically hedge exposures, but for which no hedge accounting is applied. The fair value movements on the derivatives are influenced by changes in the market conditions, such as stock prices, interest rates and currency exchange rates.
ING Group’s trading books are managed based on internal limits and comprise a mix of products with results which could be offset. The results are presented in various lines within the profit and loss account. Reference is made to Note 21 ‘Interest result banking operations’ and Note 25 ‘Valuation results on non-trading derivatives’.
In 2015, Net trading income - Derivatives trading results includes EUR 98 million CVA/DVA adjustments on trading derivatives, compared with EUR –205 million CVA/DVA adjustment in 2014 (2013: EUR 243 million).
In 2015, 0 share awards (2014: nil; 2013: nil) were granted to the members of the Executive Board of ING Groep N.V., 106,013 share awards (2014: 206,650 including NN Group; 2013: 553,600 including NN Group) were granted to the Management Boards of ING Bank. To senior management and other employees 6,088,240 share awards (2014: 6,814,308 including NN Group; 2013: 10,403,613 including NN Group) were granted. In 2014, all outstanding ING Groep N.V. share awards held by the Management Board, senior management and other employees of NN Group N.V. were converted into awards on NN Group N.V. shares. The conversion was performed at an exchange factor such that the fair value of the outstanding awards was unchanged. The outstanding option awards on ING Groep N.V. shares which are fully vested, remained unchanged. As of 2014, new awards to the Management Board, senior management and other employees of NN Group are all based on NN Group N.V. shares. In 2013, members of the Management Board, senior management and other employees of Voya received Voya shares instead of the share awards of ING Groep N.V. they received previously.
The option rights are valid for a period of five or ten years. Option rights that are not exercised within this period lapse. Option rights granted will remain valid until the expiry date, even if the option scheme is discontinued. The option rights are subject to certain conditions, including a pre-determined continuous period of service. The exercise prices of the options are the same as the quoted prices of ING Groep N.V. shares at the date on which the options are granted.
As at 31 December 2015, total unrecognised compensation costs related to stock options amounted to nil (2014: nil; 2013: nil). Cash received from stock option exercises for the year ended 31 December 2015 is EUR 16 million (2014: EUR 24 million; 2013: EUR 22 million).
As of 2015, the line ‘Intangible amortisation and other impairments’ is included in ‘Other operating expenses’ and no longer as a separate line item in the Consolidated profit and loss account. The comparative amounts were adjusted accordingly.
Software and other intangible assets 15 1 7 15 1 7
In 2015, EUR 17 million (2014: EUR 43 million) impairments are recognised on Property and equipment in segments Retail Netherlands and Retail Other and amounted to EUR 15 million and EUR 2 million respectively. The impairments are attributable to unfavourable market conditions.
In 2015, reversal of impairment on property in own use amounts to EUR –14 million (2014: EUR –5 million) and is recognised in Retail Netherlands.
Total net result from discontinued operations –122 –1,296 680 1 The tax effect on the result on disposal of discontinued operations in 2015 is nil (2014: EUR 114 million; 2013: nil).
In May 2015, ING Group sold a further 45 million ordinary shares of NN Group. The transaction reduced the ownership of ING Group in NN Group to 42.43%, resulting in ING Group losing control over NN Group. The profit and loss of ING Group includes, in the line ‘Net result from discontinued operations’, the net result of NN Group until deconsolidation at the end of May 2015. Included in Net result from discontinued operations, is a dividend of EUR 59 million received from NN Group.
The exchange of the second tranche of EUR 337.5 million mandatorily exchangeable subordinated notes from the Anchor investors into NN Group ordinary shares in June 2015 comprised a non-cash transaction.
IPO NN Group’; and • EUR 1,940 million related to the decrease in ING’s interest in the associate Voya in September 2014 and November 2014 was included in ‘Net cash flow from investing activities – Disposals and redemptions: associates and joint ventures’.
Weighted average number of ordinary shares outstanding during the period (in millions)
Effect of dilutive instruments: Stock option and share plans 5.5 6.3 8.5
Attribution to non-voting equity securities included premiums of EUR 750 million and EUR 375 million in 2014 and 2013 respectively, paid in relation to the repayment of non-voting equity securities of EUR 1,500 million in 2014 and EUR 750 million in 2013.
Until the repayment of the final tranche in November 2014, 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 the purpose of determining earnings per share under IFRS-EU and did not represent a payment (neither actual nor proposed) to the holders of the non-voting equity securities.
Total net result from discontinued operations –456 –1,406 495 3,864.8 3,849.7 3,825.0
Cash and cash equivalents classified as Assets held for sale 6,239 2,275
Included in Cash and cash equivalents, are minimum mandatory reserve deposits to be held with various central banks. Reference is made to Note 44 ‘Assets not freely disposable’ for restrictions on Cash and balances with central banks.
Segment reporting 36 Segments a. General ING Group’s segments are based on the internal reporting structures.
The geographical segments for the Banking results are presented on page 195.
Other Corporate Line Banking and the run-off portfolio of Real Estate 1 As of January 2016, ING’s Commercial Banking activities are renamed to Wholesale Banking.
Special items include items of income or expense that are significant and arise from events or transactions that are clearly distinct from the ordinary operating activities. Disclosures on comparative periods also reflect the impact of current period’s divestments. Legacy Insurance consists of the intercompany eliminations between ING Bank and NN Group until deconsolidation at the end of May 2015, the results from Insurance Other and the results from discontinued operations. Insurance Other reflects (former) insurance related activities that are not part of the discontinued operations.
In 2014, ING Group’s underlying result was adjusted in order to better reflect the performance of the Total banking business. Therefore, the remaining insurance activities (included in ‘Insurance Other’) as well as the intercompany eliminations between ING Bank and NN Group is no longer included as part of ING Group’s underlying result.
Intercompany eliminations between ING Bank and NN Group –28 –1 –20
IFRS-EU (continuing operations) 16,845 10,673 4,466 Total net result from discontinued operations –456
– Net interest result - banking operations 12,606 –230 12,376 12,376
Underlying result before taxation 4,912 –189 4,724 4,724 Taxation 1,271 –50 1,221 1,221
Net result IFRS-EU (continuing operations) 2,744 –138 2,606 52 2,657 Total net result from discontinued operations NN Group 65 65
Underlying result before taxation 4,365 –42 4,323 4,323 Taxation 1,088 –10 1,078 1,078
Net result IFRS-EU attributable to equity holder of the parent 3,063 –32 3,031 515 3,545 1 Comprised for the most part the funding charges of ING Groep N.V. (Holding). 2 Insurance Other comprised mainly the net result from ING’s associate SulAmérica S.A., partly offset by certain expenses that are not allocated to the business units.
IFRS-EU (continuing operations) 15,290 11,123 3,050 Total net result from discontinued operations 495
Underlying result before taxation 1,495 845 1,012 577 2,560 –530 5,959 Taxation 391 255 328 142 676 –125 1,668
IFRS-EU balance sheets by segment are not reported internally to, and not managed by, the chief operating decision maker.
Russia ING Bank (Eurasia) Z.A.O. Wholesale banking 288 185 2,520 131 32
Ukraine PJSC ING Bank Ukraine Wholesale banking 120 46 616 27 5
Austria Branch of ING DiBa A.G. Retail banking 169 93 321 51 9
Bulgaria Branch of ING Bank N.V. Wholesale banking 76 10 267 –2
Ireland Branch of ING Bank N.V. Wholesale banking 39 64 1,662 36 5
Portugal Branch of ING Bank N.V. Wholesale banking 2 3 616 3 1
Philippines Branch of ING Bank N.V. Wholesale banking 249 22 436 5 3
Other Mauritius ING Mauritius Investment management 380 1,186 380 1 Public subsidies, as defined in article 89 of the CRD IV, amounts to EUR 3 million (2014: EUR 2 million received in France). 2 Included in Total assets – Netherlands, is EUR 2,153 million related to the Investment in associate held for sale, NN Group.
The table above does not include the results from discontinued operations comprising Total income of EUR 6,815 million, Results before tax of EUR 936 million and Taxation of EUR 143 million.
Changes in the fair value of plan assets for the period were as follows: Remeasurements: Return on plan assets excluding amounts included in interest income 333 1,201
No plan assets are expected to be returned to ING Group during 2016.
Actuarial gains and losses arising from changes in financial assumptions 86 –1,682
Changes in the composition of the group and other changes 185 142
The change in the remeasurement of the net defined benefit asset/liability in 2015 is mainly as a result of deconsolidation of NN Group and an increase in discount rates. The weighted average discount rate as at 31 December 2015 was 3.0% (31 December 2014: 2.5%). The change in this rate impacts both the Remeasurement of plan assets and Actuarial gains and losses arising from changes in financial assumptions.
The amount of the remeasurement of the net defined benefit asset/liability in 2014 was mainly a result of the change in the high quality corporate bond rate.
Expected rates of salary increases (excluding promotion increases) – increase/decrease of 0.25% 25 29 –23 –27
Most group companies sponsor defined contribution pension plans. The assets of all ING Group’s defined contribution plans are held in independently administered funds. Contributions are generally determined as a percentage of remuneration. For the defined contribution scheme in the Netherlands, the premium paid is also dependant on the interest rate developments and DNB’s methodology for determining the ultimate forward rate. These plans do not give rise to balance sheet provisions, other than relating to short-term timing differences included in other assets/liabilities.
Presented in the balance sheet as: – deferred tax liabilities –860 –643
Financial assets and liabilities at fair value through profit and loss 812 315 –12 –3 1,112
Unused tax losses carried forward recognised as a deferred tax asset 591 1,329
For the year 2015 the tax charge in the Netherlands increased with EUR 550 million (2014: decreased with EUR 218 million) to EUR 365 million (2014: negative EUR 185 million) caused by higher results (2014: lower results).
Impact on deferred tax from change in tax rates 12 –2
Adjustment to prior periods in 2013 related to a true-up of tax positions.
Customer deposits and other funds on deposit 501,369 484,918 500,777 483,871
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 increasing 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.
Loans and receivables Reference is made to Loans and advances to customers below.
Financial liabilities at fair value through profit and loss The fair values of securities in the trading portfolio and other liabilities at fair value through profit and loss are based on quoted market prices, where available. For those securities not actively traded, fair values are estimated based on internal discounted cash flow valuation techniques using interest rates and credit spreads that apply to similar instruments. Reference is made to Financial assets at fair value through profit and loss above.
Notes to the Consolidated annual accounts of ING Group - continued a.3) Fair value hierarchy ING Group has categorised its financial instruments that are either measured in the balance sheet at fair value or of which the fair value is disclosed, into a three level hierarchy based on the priority of the inputs to the valuation. The fair value hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to valuation techniques supported by unobservable inputs. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide reliable pricing information on an ongoing basis. The fair value hierarchy consists of three levels, depending upon whether fair values were determined based on (unadjusted) quoted prices in an active market (Level 1), valuation techniques with observable inputs (Level 2) or valuation techniques that incorporate inputs which are unobservable and which have a more than insignificant impact on the fair value of the instrument (Level 3). Financial assets in Level 3 include for example illiquid debt securities, complex OTC and credit derivatives, certain complex loans (for which current market information about similar assets to use as observable, corroborated data for all significant inputs into a valuation model is not available) and asset backed securities for which there is no active market and a wide dispersion in quoted prices.
Notes to the Consolidated annual accounts of ING Group - continued assets
Amounts recognised in the profit and loss account during the year 146 –163 –55 30 –42
Changes in the composition of the group and other changes –15 –15
Included in ‘Revaluation recognised in equity during the year’, is an amount of EUR 154 million related to available-for-sale equity securities held in VISA Europe Limited. References is made to Note 5 ‘Investments’, Note 13 ‘Equity and Note 54 ‘Other events’.
Amounts recognised in the profit and loss account during the year –264 131 –67 –39 –239
Notes to the Consolidated annual accounts of ING Group - continued liabilities
Financial liabilities designated as at fair value through profit and loss Total
Level 3 Financial assets and liabilities Financial assets measured at fair value in the balance sheet as at 31 December 2015 of EUR 225 billion includes an amount of EUR 2.3 billion (1.0%) which is classified as Level 3 (31 December 2014: EUR 1.8 billion, being 0.8%). Changes in Level 3 from 31 December 2014 to 31 December 2015 are disclosed above in the table ‘Changes in Level 3 Financial assets’.
Financial liabilities measured at fair value in the balance sheet as at 31 December 2015 of EUR 106 billion includes an amount of EUR 1.4 billion (1.3%) which is classified as Level 3 (31 December 2014: EUR 1.3 billion, being 1.1%). Changes in Level 3 from 31 December 2014 to 31 December 2015 are disclosed above in the table ‘Changes in Level 3 Financial liabilities’.
Amounts recognised in profit and loss account during the year (Level 3)
– Credit 42 50 Present value techniques Credit spread (bps) 3 16,704
– Equity 289 222 Option pricing model Equity volatility (%) 0% 136%
Loans and advances 55 12 Price based Price (%) 0% 100%
Volatility Volatility is a measure for variation of the price of a financial instrument or other valuation input over time. Volatility is one of the key inputs in option pricing models. Typically, the higher the volatility, the higher value of the option. Volatility varies by the underlying reference (equity, commodity, foreign currency and interest rates), by strike and maturity of the option. The minimum level of volatility is 0% and there is no theoretical maximum.
Sensitivity analysis of unobservable inputs (Level 3) Where the fair value of a financial instrument is determined using inputs which are unobservable and which have a more than insignificant impact on the fair value of the instrument the actual value of those inputs at the balance date may be drawn from a range of reasonably possible alternatives. In line with market practice the upper and lower bounds of the range of alternative input values reflect a 90% level of valuation certainty. The actual levels chosen for the unobservable inputs in preparing the financial statements are consistent with the valuation methodology used for fair valued financial instruments.
For more detail on the valuation of fair valued instruments, refer to the section ‘Risk Management – Market risk’, paragraph Fair values of financial assets and liabilities in this document.
Other financial instruments The fair values of the financial instruments carried at amortised cost in the balance sheet, but for which fair values are disclosed are determined as follows: Financial assets
Customer deposits and other funds on deposit 405,789 39,633 55,947 501,369
Changes in the composition of the group and other changes –1,119 –128 –1,247
The accounting treatment of hedge transactions varies according to the nature of the instrument hedged and whether the hedge qualifies under the IFRS-EU hedge accounting rules. Derivatives that qualify for hedge accounting under IFRS-EU are classified and accounted for in accordance with the nature of the instrument hedged and the type of IFRS-EU hedge model that is applicable. The three models applicable under IFRS-EU are: fair value hedge accounting, cash flow hedge accounting and net investment hedge accounting. These are described under the relevant headings below. The company’s detailed accounting policies for these three hedge models are set out in Note 1 ‘Accounting policies’ in the section ‘Principles of valuation and determination of results’.
For the year ended 31 December 2015, ING Group recognised EUR 1,243 million (2014: EUR –486 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 –1,229 million (2014: EUR 536 million) fair value changes recognised on hedged items. This resulted in EUR 14 million (2014: EUR 50 million) net accounting ineffectiveness recognised in the profit and loss account. As at 31 December 2015, the fair values of outstanding derivatives designated under fair value hedge accounting was EUR –1,401 million (2014: EUR –1,987 million), presented in the balance sheet as EUR 1,010 million (2014: EUR 1,223 million) positive fair values under assets and EUR 2,411 million (2014: EUR 3,210 million) negative fair values under liabilities.
For the year ended 31 December 2015, ING Group recognised EUR –65 million (2014: EUR 2,001 million) after tax in equity as effective fair value changes on derivatives under cash flow hedge accounting. The balance of the cash flow hedge reserve in equity as at 31 December 2015 was EUR 859 million (2014: EUR 5,469 million) gross and EUR 666 million (2014: EUR 3,877 million) after deferred tax. This cash flow hedge reserve will fluctuate with the fair value changes of the underlying derivatives and will be reflected in the profit and loss account under Interest income/expense over the remaining term of the underlying hedged items. The cash flow hedge reserve relates to a large number of derivatives and hedged items with varying maturities, up to 29 years, with the largest concentrations in the range of 4 to 5 years. Accounting ineffectiveness on derivatives designated under cash flow hedge accounting resulted in a gain of EUR 31 million (2014: EUR 35 million gain) which was recognised in the profit and loss account.
Loans and advances to customers 56,318 14,457 37,665 153,002 275,901 537,343
Remaining assets (for which maturities are not applicable)3 3,066 3,066 1 Includes assets on demand. 2 Assets held for sale consist of the assets of the disposal groups classified as held for sale as disclosed in Note 11 ‘Assets and liabilities held for sale’. For these assets and liabilities, the underlying contractual maturities are no longer relevant for ING. For businesses for which a binding sale agreement exists, all related assets and liabilities held for sale are classified in accordance with the agreed or expected closing date. For other businesses, for which no sale agreement exists, assets and liabilities held for sale are included in ‘Maturity not applicable’.
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.
– designated as at fair value through profit and loss 655 580 736 449 336 2,756
Remaining assets (for which maturities are not applicable)3 3,133 3,133 1 Includes assets on demand. 2 Assets held for sale consist of the assets of the disposal groups classified as held for sale as disclosed in Note 11 ‘Assets and liabilities held for sale’. For these assets and liabilities, the underlying contractual maturities are no longer relevant for ING. For businesses for which a binding sale agreement exists, all related assets and liabilities held for sale are classified in accordance with the agreed or expected closing date. For other businesses, for which no sale agreement exists, assets and liabilities held for sale are included in ‘Maturity not applicable’.
The table does not include assets relating to securities lending as well as sale and repurchase transactions. Reference is made to Note 45 ‘Transfer of financial assets’.
45 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 51 ‘Structured entities’.
Financial liabilities at fair value through profit and loss 4,384 3,966
Financial assets at fair value through profit and loss 2,202 22 6,465 3,684
Financial liabilities at fair value through profit and loss 2,202 22 6,414 6,422
Transfer of financial assets that qualified for derecognition 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 equated 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.
In 2013, ING transferred financial assets (mortgages loans) for an amount of approximately EUR 2 billion to a newly established special purpose entity (SPE). The transaction resulted in full derecognition of the financial assets from ING’s balance sheet. The derecognition did not have a significant impact on net result. Following this transfer ING continues to have two types of ongoing involvement in the transferred assets: as counterparty to the SPE of a non-standard interest rate swap and as servicer of the transferred assets. ING has an option to unwind the transaction by redeeming all notes at their principal outstanding amount, in the unlikely event of changes in accounting and/or regulatory requirements that significantly impact the transaction. The fair value of the swap as at 31 December 2015 amounted to EUR 1.3 million (2014: EUR 33.7 million); fair value changes on this swap recognised in the profit and loss account in 2015 were EUR –32.4 million (2014: EUR 28.6 million). Fee income recognised in the profit and loss account in 2015 amounted to nil (2014: EUR 0.5 million).
46 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.
Impact of enforceable master netting arrangements or similar arrangements1 Derivatives –7,104 3,791 3,313 1 The line ‘Impact of enforceable master netting agreements or similar arrangements’ contains derivative positions under the same master netting arrangements being presented in different balance sheet line items.
Amounts due from banks Reverse repurchase, securities borrowing and similar agreements 3,061 3,061 313 2,733 15 3,065 –3 3,062 313 2,733 16 Financial assets at fair value through profit and loss
Repurchase, securities lending and similar agreements 53,508 –22,569 30,939 242 18,436 12,261
Impact of enforceable master netting arrangements or similar arrangements1 Derivatives –13,231 7,457 5,774 1 The line ‘Impact of enforceable master netting agreements or similar arrangements’ contains derivative positions under the same master netting arrangements being presented in different balance sheet line items.
Impact of enforceable master netting arrangements or similar arrangements1 Derivatives –13,146 6,335 6,811 1 The line ‘Impact of enforceable master netting agreements or similar arrangements’ contains derivative positions under the same master netting arrangements being presented in different balance sheet line items.
Notes to the Consolidated annual accounts of ING Group - continued 47 Contingent liabilities and commitments In the normal course of business, ING Group is party to activities where risks are not reflected in whole or in part in the consolidated financial statements. In response to the needs of its customers, the Group offers financial products related to loans. These products include traditional off-balance sheet credit-related financial instruments.
A number of retired employees of ING Belgium have initiated legal proceedings against ASCEL (a non-profit organisation established by ING Belgium that provided, amongst others, medical insurance coverage to current and retired employees till the beginning of 2015) and ING Belgium following the decision to externalise this medical insurance coverage which resulted in an increase of premium. Following a summary proceedings in which the initial claim of the retired employees was rejected, proceedings at the Court of first instance has been initiated aiming to either uphold the former insurance coverage or reimburse the increase of premium. At this moment it is not practicable to provide an estimate of the (potential) financial impact of such proceedings.
Other For details on the transactions in 2015 with regard to ING’s interest in ING Vysya, reference is made to Note 11 ‘Assets and liabilities held for sale’, Note 7 ‘Investments in associates and joint ventures’, Note 52 ‘Related parties’ and Note 54 ‘Other events’.
Acquisitions effective in 2014 There were no significant acquisitions in 2014.
NN Group Following the IPO of NN Group in July 2014, ING Group’s stake reduced to 68.14% . As from 30 September 2014, NN Group was presented as Assets and liabilities held for sale and discontinued operations. Reference is made to Note 54 ‘Other events’.
Reference is made to Note 54 ‘Other events’ for the earlier and subsequent transactions related to NN Group and Voya. 2 Cash outflow/inflow on group companies in the cash flow statement includes, in addition to the cash amounts in this table, also cash outflows/inflows on individually insignificant disposals. 3 IFRS-EU requires the derecognition of the subsidiary and the recognition of the respective retained investments in NN Group of 42.43% and Voya of 43.2% at the fair value on the date of disposal. 4 The gain/loss on disposal comprises the sales proceeds, the net assets disposed, the expenses directly related to the disposal and the realisation of unrealised reserves. 5 The portion of the loss attributable to measuring the retained investment in NN Group and Voya at its fair value amounted to EUR –5,412 million and EUR –1,467 million respectively.
Asia - ING’s investment management business in South Korea In July 2013, ING reached an agreement to sell its investment management business in South Korea to Macquarie Group, an Australiabased, global provider of financial services. The transaction did not have a significant impact on ING Group results. The transaction closed on 2 December 2013.
The structured entities over which ING can exercise control are consolidated. ING may provide support to these consolidated structured entities as and when appropriate. However, this is fully reflected in the consolidated financial statements of ING Group as all assets and liabilities of these entities are included and off-balance sheet commitments are disclosed.
ING’s activities involving structured entities are explained below in the following categories: 1 Consolidated ING originated Liquidity management securitisation programmes (‘Lions’); 2 Consolidated ING originated Covered bond programme (‘CBC’); 3 Consolidated ING sponsored Securitisation programme (‘Mont Blanc’); 4 Unconsolidated Securitisation programme; 5 Other structured entities.
Notes to the Consolidated annual accounts of ING Group - continued 1. Consolidated ING originated Liquidity management securitisation programmes (Lions) ING Group enters into liquidity management securitisation programmes in order to obtain funding and improve liquidity. Within the programme ING Group sells ING originated assets to a structured entity. The underlying exposures include residential mortgages in the Netherlands, Germany, Belgium, Spain, Italy and Australia.
2. Consolidated ING originated Covered bond programme (‘CBC’) ING Group has entered into a covered bond programme. Under the covered bond programme ING issues bonds. The payment of interest and principal is guaranteed by an ING administered structured entity, Covered Bond Company B.V. (‘CBC’). In order for CBC to fulfil its guarantee, ING legally transfers mainly Dutch mortgage loans originated by ING to CBC. Furthermore ING offers CBC protection against deterioration of the mortgage loans. CBC is consolidated by ING Group.
1 Transactions with NN Group until deconsolidation at the end of May 2015.
In April 2015, the merger between ING Vysya and Kotak was completed and the legal entity ING Vysya Bank ceased to exist. As a result of this transaction, ING holds a stake of 6.5% in the combined company, which operates under the Kotak brand. ING Vysya is no longer a related party of ING Group. Reference is made Note 5 ‘Investments’, Note 7 ‘Investments in associates and joint ventures’, Note 11 ‘Assets and liabilities held for sale’ and Note 54 ‘Other events’.
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 form part of the annual accounts. For post-employment benefit plans, reference is made to Note 38 ‘Pension and other postemployment benefits’.
Following the IPO of NN Group N.V. in July 2014, three Members of the Executive Board of ING Groep N.V. became members of the Supervisory Board of NN Group N.V. and were no longer members of the Management Board of NN Group N.V. In 2015, following the divestment transactions in shares of NN Group, ING’s nomination rights for the Supervisory Board of NN Group N.V. were terminated. As of 6 October 2015, Ralph Hamers and as of 14 December 2015, Wilfred Nagel and Patrick Flynn stepped down from the Supervisory Board of NN Group N.V. Reference is made to Note 54 ‘Other events’.
Relationship agreement and other agreements NN Group N.V. In 2014, in connection with the initial public offering of NN Group N.V., ING Groep N.V. and NN Group N.V. entered into a Relationship Agreement. The Relationship Agreement contains certain arrangements regarding the continuing relationship between ING Groep N.V. and NN Group N.V. In addition, ING Groep N.V. entered into several other agreements with NN Group N.V. such as a transitional intellectual property license agreement, a joinder agreement, an equity administration agreement and an indemnification and allocation agreement.
The Transitional intellectual property license agreement has been terminated as of 31 October 2015, provided the extension granted to three Voya entities that are in the process of discontinuity and liquidation, the right to retain the ‘ING’ name in their respective names, for a maximum period of five years until 31 October 2020.
53 Transactions with the Dutch State and the European Commission Restructuring Plan Following a number of transactions in 2008 and 2009, the Dutch State was a related party of ING Group. During 2014 these transactions were completed. 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.
Illiquid Assets Back-up Facility ING Group and the Dutch State reached an agreement on an Illiquid Assets Back-up Facility (‘IABF’) on 26 January 2009. The transaction closed on 31 March 2009. The IABF covered the Alt-A portfolios of both ING Direct USA and Voya (formerly ING Insurance US), with a par value of approximately EUR 30 billion. Under the IABF, ING transferred 80% of the economic ownership of its Alt-A portfolio to the Dutch State. As a result, an undivided 80% interest in the risk and rewards on the portfolio was transferred to the Dutch State. ING retained 100% of the legal ownership of its Alt-A portfolio. The transaction price was 90% of the par value with respect to the 80% proportion of the portfolio of which the Dutch State had become the economic owner. The transaction price remained payable by the Dutch State to ING and was redeemed over the remaining life. Furthermore, under the IABF ING paid a guarantee fee to the Dutch State and received a funding fee and a management fee. As a result of the transaction ING derecognised 80% of the Alt-A portfolio from its balance sheet and recognised a receivable from the Dutch State. The transferred Alt-A portfolio was previously included in Available-for-sale debt securities. The Dutch State also acquired certain consent rights with respect to the sale or transfer of the 20% proportion of the Alt-A portfolio that was retained by ING.
Further coupons were to be paid on 12 May of each year (the coupon date) in cash if dividend on ordinary shares was paid in cash or in scrip securities in the event of a scrip dividend on ordinary shares. Coupons were only due and payable, on a non-cumulative basis and if a dividend was paid on ordinary shares over the financial year preceding the coupon date, either on an interim or a final dividend basis, provided that ING Groep N.V.’s capital adequacy position was and remained satisfactory both before and immediately after payment in the opinion of the Dutch Central Bank (‘DNB’).
• Restriction to be a price leader in any EU country for certain retail and SME banking products and restriction to acquire financial institutions or other businesses insofar this would delay the repayment of the non-voting equity securities.
• Execution of the Restructuring Plan before the end of 2013; Amendments to the Restructuring Plan in 2012 ING announced in November 2012 that, together with the Dutch State, it had submitted significant amendments to the 2009 Restructuring Plan to the EC. The EC approved these amendments by Decision of 16 November 2012.
A divestment of more than 50% of ING’s interest as mentioned in this paragraph and furthermore below also meant that ING Group (a) no longer had a majority of representatives on the Boards of these operations and (b) had deconsolidated these operations from ING Group’s financial statements in line with IFRS-EU accounting rules.
Amendments to the Restructuring Plan in 2013 In November 2013, ING announced further amendments to the Restructuring Plan. ING announced that it would 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 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.
In May 2015, ING Group divested NN Group for more than 50% and deconsolidated NN Group in line with IFRS-EU. In September 2015, ING Group brought down its stake in NN Group to 25.8%; ING Group needs to divest 100% of NN Group by year-end 2016. With the deconsolidation of NN Group, the restrictions from the EC decision of November 2012 on acquisitions and on price leadership no longer applied. The deconsolidation on NN Group also ensured that ING Group completed two other commitments: the required 45% decrease of its balance sheet and the elimination of its double leverage.
Total gross proceeds from the NN Group IPO, including the exchange of the first tranche of subordinated notes into NN Group shares and the over-allotment option, amounted to EUR 2.2 billion.
With deconsolidation of NN Group, ING Group fulfils its commitment to the EC pertaining to the divestment of NN Group, per the EC decision of 16 November 2012. The restrictions from this decision regarding acquisition and price leadership will no longer apply to ING Group.
Reference is made to Note 11 ‘Assets and liabilities held for sale’, Note 13 ‘Equity’ and Note 30 ‘Discontinued operations’.
February 2016 – Final tranche exchange of subordinated notes: Anchor investors On 2 February 2016, ING settled the exchange of the third and final tranche of EUR 337.5 million mandatory exchangeable subordinated notes which were issued in 2014 as part of the anchor investment in NN Group. EUR 208 million of the notes were exchanged into 6.9 million NN Group ordinary shares with the three anchor investors. EUR 129.5 million of notes were settled in cash with RRJ Capital. This transaction reduced ING’s remaining stake in NN Group from 16.22% to 14.09%. The transaction did not have a material impact on the shareholder’s equity or the profit and loss account of ING Group.
National Resolution Fund The Bank recovery and Resolution Directive (‘BRRD’) 2014/59/EU regarding ex-ante contributions to resolution financing arrangements were enacted into Dutch, German and Belgian law during 2015. The directive has not yet been enacted into Polish law.
and loss (-)4 1 Deconsolidation of Voya; remaining investment in Voya accounted for as an Investment in associate held for sale at fair value of EUR 2,914 million. 2 Loss of significant influence over Voya; remaining investment accounted for as an available-for-sale equity investment held for sale. 3 Divestment transactions prior to deconsolidation did not impact the profit and loss account of ING Group, but had a negative impact on shareholder’s equity
4 The amounts reflect the difference between the market value and the IFRS-EU book value of ING Group’s interest sold at the respective transaction dates. Included in the amounts is the release of corresponding revaluation reserves, where applicable. The amounts are recognised in the profit and loss account in the line ‘Net result from disposal of discontinued operations’.
On 7 April 2015, the merger between ING Vysya and Kotak was completed and the legal entity ING Vysya Bank ceased to exist. ING was the largest shareholder in ING Vysya, with 42.7% interest. ING Vysya was merged into Kotak. Shareholders of ING Vysya received 0.725 shares in Kotak for each ING Vysya share. As a result, ING holds a stake of 6.5% in the combined company, which operates 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 transaction resulted in a gain of EUR 367 million in 2015 and is recognised in ‘Share of result from associates and joint ventures’. The transaction did not materially impact the shareholder’s equity of ING Group. As at 31 December 2015, ING Group accounts for the investment in Kotak as an Available-for-sale equity investment. Reference is made to Note 5 ‘Investments’, Note 7 ‘Investments in associates and joint ventures’ and Note 11 ‘Assets and liabilities held for sale’.
The main financial risks ING Group is exposed to are credit risk (including transfer risk), market risk (including interest rate, equity, real estate, credit spread, and foreign exchange risks), liquidity & funding risk and business risk. Furthermore, ING Group is also 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. The Risk and Capital Management section on page 50 – 55 of this Annual Report is an integral part of the audited consolidated annual accounts.
ING Bank risk management Introduction 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 key risks that arise from ING Bank’s business model. 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’, independent risk management as the ‘second line of defence’ and the internal audit function as 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. ING Bank’s risk management disclosures provide qualitative and quantitative disclosures about credit, market, liquidity and funding, business and non-financial risks.
The risk management section is in line with the accounting standards relating to the nature and the extent of the risks as required by IFRS7 ‘Financial Instruments: Disclosures’ as adopted by the European Union and covered by the opinion of the External Auditors as being part of the notes to the consolidated financial statements. Pillar III information is from a regulatory perspective largely based on internal modelled risk metrics under the Basel rules and not addressed for verification to the External Auditors.
Risk governance Governance model ING Bank’s risk management framework is based on a ‘three lines of defence’ governance model, whereby each line has a specific role and defined responsibilities in such a way that the execution of tasks is separated from the control of the same tasks. At the same time they have to work closely together to identify, assess and mitigate risks. This governance framework ensures that risk is managed in line with the risk appetite as approved by the Management Board Bank (MBB) and the Supervisory Board (SB), and is cascaded throughout ING Bank.
• The Risk Committee, which assists the SB on matters related to risk governance, risk policies and risk appetite setting. • The MBB is responsible for managing risks associated with all activities of ING Bank. The MBB’s responsibilities include ensuring that internal risk management and control systems are effective and that ING Bank complies with relevant legislation and regulations. On a regular basis, the MBB reports on these issues and discusses the internal risk management and control systems with the SB. On a quarterly basis, the MBB reports on the Bank’s risk profile versus its risk appetite to the Risk Committee, explaining changes in the risk profile.
Executive level The ING Bank Finance and Risk Committee (BF&RC) is a platform for the CRO and the Chief Financial Officer (CFO), along with their respective direct reports, to coordinate issues that relate to both the finance and risk domains. On reporting level, BF&RC has the responsibility to co-ordinate, on a high level, the finance and risk decisions that have an impact on internal and/or external reporting.
• Risk & Capital Integration: a staff department that reports functionally to the CRO and is responsible for overarching risk topics as risk appetite, disclosures, recovery and resolution planning and stress testing as well as capital planning.
Risk model governance and validation All risk models are built according to the internal risk modelling methodology standards and model life cycle, in line with regulatory requirements. After thorough review and documentation of the model by model development and MV departments, specific model risk committees for each risk type approve the models. After approval by the dedicated risk committee, and where necessary the regulator, a risk model is implemented and entitled for usage. In addition, MV validates each model on a regular basis. The validation results and its capital impact are reported on a quarterly basis to senior management and to the supervisor.
An independent Model Validation department is one of the cornerstones of ING Bank’s risk model governance. It consists of the process of determining that a model is appropriate for its intended use. It is an on-going process whereby the reliability of the model is verified at different stages during its lifecycle: at conception, before approval, periodically after implementation, and when significant changes to the model are made. The validation process contains a mix of developmental evidence, process verification and outcome analysis.
The MV department undertakes backtesting of all existing risk models. In addition to (i) evaluating the underlying model parameters, (ii) ensuring continued applicability of the models for the relevant portfolios, and (iii) discussing the model performance with front office and risk users of the models, MV also (iv) tests the observed performance of a model (and its components) with the predicted level. A model where the observed results deviate from the predicted results is a candidate for either re-calibration or re-development.
1 EC market risk: Mainly held for the price risk embedded in equity investments; 2 EC market risk: Mainly held for the interest rate risk embedded in the long-term investment of ING’s capital (investment of own funds). In this overview the replication of capital is presented in line with the regulatory prudential approach and therefore capital itself is classified as an overnight interest rate position.
Monitoring and reporting With the monitoring of the risk control measures, ING Bank continuously checks if they are executed, complied with, have the expected mitigating effects and follow the development of the risks and their risk levels. Adequate risk reporting provides senior and local management with the information they need to manage risk.
Process The ING Bank risk appetite framework (RAF) consists of specific risk appetite statements. The RAF is approved by SB on an annual basis, or more frequently if necessary based on their quarterly review in MBB and SB. The bank risk appetite process is focused on setting the appetite at the consolidated Bank level and across the different risk categories. It is therefore essentially a top-down process, which bases itself on the ambition of the Bank in terms of its risk profile and is a function of the capital and liquidity levels and ambitions, the regulatory environment and the economic context. The process is set up according to the following steps: Step 1. Identify & assess ING Bank’s key risks Setting the Risk Appetite Framework starts with a multi-dimensional step to identify & assess the risks ING Bank is facing when executing its strategy. This step includes the following actions that are performed on an annual basis: • detect unidentified risks that are not yet controlled within ING Bank’s risk management function & assess their potential impact; • benchmark current risk framework versus regulatory developments; • re-assess known risks to confirm risk level or detect potential changes; and • reflect on the current set of Risk Appetite Statements.
Step 3. Cascade into statements per risk type and per business The Bank Risk Appetite is translated per risk type, which is further cascaded down into the organisation to the lowest level .The risk appetite statements are then translated into dedicated underlying risk limits which are used for day-to-day monitoring and management of ING Bank’s risks.
Step 4. Monitor and manage underlying risk limits In order to verify that it remains within the risk appetite framework as it is executing its budget, ING Bank reports its risk positions visà -vis its limits on a regular basis towards senior management committees. The Risk and Capital Management Report reflecting the exposure of ING Bank against the risk appetite targets is submitted quarterly to the MBB and to the (Risk Committee of the) SB.
Step 3. Data processing & proposal mitigating actions When the scenario parameters have been finalised, the impact of the scenario on the solvency and liquidity position is determined. Based on the scenario values for the relevant macro-economic and market variables, the impact on amongst others P&L, revaluation reserves, RWA and liquidity buffers are calculated. These outcomes are subsequently used to calculate the evolution of relevant solvency and liquidity ratios, such as the CET1 ratio, the leverage ratio and the regulatory liquidity buffer.
The main changes in and differences between ING Bank’s economic capital and regulatory capital are: • As of 2015, the final EBA guidelines on common procedures and methodologies for the SREP are taken into account. As a result, the capital adequacy assessment in this section disregards any inter-risk diversification in the EC calculation, although ING Bank is of the opinion that applying diversification across different risk types reflects economic reality. In case diversification was taken into account, the total EC would decrease with EUR 5.7 billion to EUR 30.3 billion. Note that for RC diversification was never taken into account; • Apart from the below described risk specific differences, the EC numbers are based on a 99.95% confidence level, while the confidence level is 99.9% for RC. The EC figures include business risk, while there is no business risk defined for RC; • The credit risk EC methodology includes internally calibrated asset correlations and excludes conservative floors otherwise present in the credit risk RC calculations. Furthermore, credit risk EC includes transfer risk while RC does not. Economic capital for credit risk decreased in 2015, mainly due to double counted CVA capital in December 2014, besides a decrease of CVA exposure and ONCOA. More information on the Credit Risk EC can be found in the ‘Credit Risk Capital and Measurement’ section; • The market risk EC is higher than the RC primarily due to the inclusion of the interest rate risk in the banking books in EC. In RC, only market risk in trading books is in scope. Furthermore, for Equity Investments the EC figures are reported under market risk, while the RC figures are reported under credit risk. The reported EC numbers increased mainly due to an appreciation of the Bank of Beijing position, resulting in higher FX translation risk due to an increase in the CNY mismatch and increase in equity price risk. More information on the Market Risk EC, please refer to the ’Economic capital for market risk’ section; and
Regulatory environment After the turmoil in the financial markets and the subsequent need for governments to provide aid to financial institutions, financial institutions have been under more scrutiny from the public, supervisors and regulators. This has resulted in more stringent regulations intended to avoid future crises in the financial system and taxpayers’ aid in the future.
CRR/CRD IV and upcoming regulations To accomplish this, a new Basel accord (Basel III) was adopted in 2010 and consequently translated into regulation by the EU in the Capital Requirement Regulation (CRR) and a Capital Requirement Directive IV (CRD IV). The CRR is binding for all EU member states and became effective per 1 January 2014, while CRD IV has been implemented in local legislation – in the Netherlands in the ‘Wet Financieel Toezicht’ (WFT). The CRR/CRD IV requirements are further detailed out by European Banking Authority (EBA) in the form of Implementing Technical Standards (ITS), Regulatory Technical Standards (RTS), Implementing Acts and Delegated Acts (among others the Leverage Ratio and the Liquidity Coverage Ratio). Although not all definitions and parameters of the CRR/CRD IV have been finalised, the key principles have been included in both ING’s risk appetite framework and daily risk management.
Risk developments in 2015 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 topics have emerged either as part of the annual Risk Assessment that is performed as part of the Stress Testing Framework and the Risk Appetite Framework. The sequence in which the top risks are presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
Business lending Benelux ING Bank’s Business Lending portfolio, defined as lending to corporates in the business line Retail Banking, is concentrated within the Benelux. Due to its footprint, ING is an important lender to SME in the Benelux and exposed to risk in that sector. Following the gradual improvement of the economic environment, the risk costs decreased materially compared to last year. The Netherlands showed a decrease in the non-performing loan amounts, but still highly impacted by the sectors transportation & logistics - especially coastal and deep sea freight transport -, services and Food, beverage & personal care. The non-performing loan amounts in Belgium and Luxembourg increased over 2015. This increase is partly due to a deterioration of the credit quality and partly due to amended forbearance policies.
ING Bank’s credit policy is to maintain an internationally diversified loan and bond portfolio, while avoiding large risk concentrations. The emphasis is on managing business developments within the business lines by means of the top-down risk appetite framework, which sets concentration limits for countries, individual counterparties, counterparty groups and investment activities. The aim is to expand relationship-banking activities, while maintaining stringent internal risk/reward guidelines and controls which is also linked to the Medium Term Plan (MTP) process.
The CR role encompasses the following activities: • Measurement, monitoring and management of the credit risks in the Bank’s portfolio; • Challenging and approving new transactions or any changes to previously approved terms and conditions applicable to clients; • Management of the levels of provisioning and risk costs, and advise on impairments; and • Providing consistent policies and systems and tools to manage the credit lifecycle of all credit risk taking activities.
The following committees are in place to discuss and approve transactions and policies from a CR point of view. The Global Credit Committee for Transaction Approval (GCC(TA)) is mandated to discuss and approve transactions entailing taking of credit risks. Next to that is the Global Credit Committee Policy or ’GCC(P)’ which is authorised to discuss and approve policies, methodologies and procedures related to Credit, Country and Reputation Risks for ING Bank. The Credit Risk Committee (CRC) is authorised to discuss and approve policies, methodologies and procedures related to Credit Risk (with the exception of issues which are mandated to GCC(P)) within ING Bank.
• Settlement risk: is the risk that a counterparty will fail to deliver on financial markets (PS or MM) transaction/contract at Settlement and ING Bank could lose up to 100% of the value expected to be delivered. Settlement Risk arises when there is an exchange of value (funds or instruments) for the same value date or different value dates and receipt is not verified or expected until after ING has given irrevocable instructions to pay or has paid or delivered its side of the trade. The risk is that ING Bank delivers but does not receive delivery from ING Bank’s counterparty. ING manages Settlement Risk in the same way as other risks including a per borrower risk limit structure. However, because of the short term nature and per definition double count of Settlement Risk, ING Bank does not hold provisions or capital for specific Settlement Risk. Although a relatively low risk, ING increasingly uses DVP (Delivery versus Payment) and FITO (First In Then Out) payment techniques to reduce Settlement Risk.
Credit Risk Appetite and Concentration Risk Framework The Credit Risk Appetite and Concentration Risk Framework enables ING to prevent undesired high levels of credit risk and credit concentrations within various levels of the ING portfolio. Concentration Risk is measured based on the Credit Risk Exposure Amount. 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 is in turn broken down from the consolidated ING Bank NV level to a local branch/unit level.
Credit risk appetite statements are defined top-down across the credit risk categories (pre-settlement, money market, lending, investment), and connected to ING Bank high-level risk appetite across all risk types (credit, market, business and non-financial risk). They consist of a set of high-level credit risk metrics: expected loss, economic capital, risk-weighted assets and exposure at default. For each credit risk metric a boundary is set that is cascaded down and monitored on a monthly basis. The adherence to the boundaries and the pro-active approach to manage the portfolio within the risk appetite boundaries are part of the key performance indicators of the business line managers and as such have a direct impact on their remuneration.
Scenarios and stress tests Stress testing is a valuable risk management tool. Stress testing evaluates the bank’s financial stability under severe but plausible stress scenarios and assists in decision-making that assures the bank to remain a financially-healthy on-going concern after a severe event occurs. In addition to the bank-wide stress test framework as described in the risk profile section of ING Bank, CR performs stress tests on a monthly basis in order to continually assess the portfolio risks and concentrations. These monthly stress tests are consistent with the stress scenario as established in the ING Bank wide credit risk appetite framework. The monthly stress tests are reviewed in the Risk and Capital Integration team and potential management actions are proposed if necessary.
Next to the periodical pre-determined stress test related to CRWA-at-Risk, CR performs ad-hoc stress tests based on severe but plausible scenarios. These stress tests can be for internal purposes or at the request of the regulators and are input for future Credit Risk Appetite setting. Stress testing is used as an additional safety net within CR. Through stress tests the impact of severe but plausible downturn scenarios are determined, which might not be captured in the regular rating models (Probability of Default, Loss Given Default and Exposure at Default). Therefore, next to the Pillar I and Pillar II capital calculations, based on the results of various stress test, ING Bank ensures that adequate levels of capital (and liquidity) are available to sustain such severe but plausible scenarios.
The Retail risk portfolio program is defined as a set of policies and processes, which are laid down to manage a retail risk portfolio within a predefined risk appetite statement. A retail risk portfolio is defined as a group of sufficiently homogeneous credit assets, where: • A consistent set of credit policies and processes for approving a high volume of counterparties and transactions could be applied; • Exposures could be pooled and managed through a set of standard policies and procedures over its entire life cycle.
RWA comparison Comparison of RWA and risk weights across institutions is inherently challenging. Differences in RWA among banks have been classified by the Bank for International Settlements (BIS) in 3 categories: 1. Risk based drivers that stem from the differences in underlying risk at the exposure/ portfolio level and in business models/
For exposures from 1 year and longer: PD values represent the PD for 12 months. Shorter than 1 year: 1 year PD values are used. Next to the PD, there is the maturity adjustment: always set to 1 year (for tenors shorter than 1 year) unless, the product is placed on a list of self-liquidation and or trade related products that is CRC approved (in line with the CRR). These should be seen as ‘not part of the institution’s ongoing financing of the obligor’ (CRR article 162).
Since 2014 CVA Capital Charge is added to Regulatory Capital for credit risk.
Standardised Approach (SA) Unlike the AIRB approach, the standardised approach applies a fixed risk weight to each asset as dictated by the Financial Supervisory Authorities, and is based on the exposure class to which the exposure is assigned. As such, the Standardised Approach is the least sophisticated of the Regulatory Capital methodologies and is not as sensitive as the risk-based approach. Where external rating agency ratings are available, they may be used as a substitute to using the fixed risk weightings assigned by the Financial Supervisory Authorities. Because the underlying obligors are relatively small, the underlying obligors tend not to have external ratings.
Maturity (M): The fourth element is the time to the maturity of the underlying financial obligation. Regulations (CRR/CRDIV) floor the maturity element at one year and cap it at five years, despite the fact that many obligations extend their facilities for longer than five years.
Credit risk models Within ING Bank internal Basel compliant models are used to determine the PD, EAD and LGD for regulatory and economic capital. Bank wide, ING Bank has implemented around 80 models, including various sub models that may be applicable for a specific portfolio.
Pre-Settlement measurement models. For regulatory capital the Pre-Settlement (PS) exposure is calculated using a Marked to Market (MtM) plus regulatory-based add-on. For internal capital purposes ING Bank uses two methodologies to calculate its PS exposures. Ideally, all parts of ING Bank would apply identical methodologies at all times. However, it is recognised that the ability to implement risk measurement methodologies is highly dependent on systems capabilities, and in certain cases the benefits of implementing a methodology may not be justified by the costs. Therefore more than one methodology is presently in use at ING Bank.
In addition to the two approaches, ING recognises that certain trading products that are outside of this scope may be deemed insufficiently accurate. For example, highly structured or exotic derivative transactions may differ significantly from the generic transactions used to calculate the add-ons. For the assessment of risk exposures of such complex products a bespoke calculation is made.
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 Small Medium Enterprise (SME) companies in Central Europe, the Netherlands, Belgium, Luxembourg, as well as residential mortgage and consumer loan models in the various retail markets.
The figures above display that compared to 2014 the proportion of residential mortgages in the bank’s portfolio has reduced. This decrease was driven by the continued transfer of mortgages from WestlandUtrecht (WU) Bank to NN Bank and the run-off of the WU mortgage book. Excluding these transfers, residential mortgage witnessed a growth in DiBa Germany, Belgium and a slight growth in Australia after the sale of mortgages under Mortgage Management Funding.
• Loss – Distressed Restructuring: ING Bank restructures the loan agreement so as to recover the exposure after allowing some discount. The relationship with the borrower continues after the restructuring. ING Bank suffers some loss in the process.
Securitisations ING Bank primarily plays three roles in its exposure to securitisations programs which are: ING Bank as Investor Retail Challengers & Growth Markets has been the primary investor in securitisation transactions within ING Bank. Its core strategy was gathering customer deposits and providing lending products to its retail customers. The savings product is typically the first product to be launched in a country followed by mortgages and other retail products (current accounts, unsecured loans, credit cards etc.). The difference between retail liabilities and own originated retail assets is invested in high quality bonds and when appropriate in certain internal assets originated by other ING Bank entities. The ING Bank strategy has evolved to create more universal banks from the retail operations. In addition, the regulatory requirements for liquidity have become clarified over the last couple of years which decreases the attractiveness of securitisations as a form of liquid buffer. Therefore, ING Bank has greatly reduced its securitisation portfolio over the last years.
Most notable was the increase witnessed in the share of 1 (AAA) rated Lending assets which was driven by an increase in regulatory reserve deposits at the Dutch and Belgian central banks. The Money Market category also displayed a positive risk rating migration due to a higher proportion of short term assets placed at central monetary authorities. The majority of the bank portfolio still reports in the BBB and BB rating buckets.
Country risk Growth in the portfolio was mainly observed in Wholesale Banking, where Netherlands and Rest of Europe showed the largest increase in absolute figures. On the other hand there was a decrease in Retail Banking Benelux, mainly seen in the Netherlands, due to lower proportion of Dutch mortgages in the overall portfolio.
Growth Markets Corporate Line Total ING Bank 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 1 Geographic areas are based on the primary country of risk and not based on country of residence for private individuals. 2 The top 5 exposures within Rest of Europe are to United Kingdom, Spain, France, Poland and Italy.
The improvement in past due obligations was mainly seen in Netherlands Retail (also by far the largest share of the portfolio), where the improved economy and revival of the housing market were the big drivers. At the same time, local risk management actions targeted at lowering arrears and enhancing early warning methodology clearly helped to improve the overall portfolio quality.
Wholesale Banking: for business loans (governments, institutions, corporates); ING Bank has adopted a policy to classify the obligor as a non-performing loan as quickly as possible upon the occurrence of a payment default or even before. These are the default triggers: • Bankruptcy or financial reorganisation: The Borrower has sought or has been placed (or is likely to seek or be placed) in bankruptcy or similar protection, where this would avoid or delay repayment of the financial asset; • The Borrower has failed in the payment of principal or interest/fees and such payment failure has remained unresolved for the following period: • Corporates: more than 90 days; and • Financial Institutions and Governments: from day 1, however, a research period of 14 calendar days will be observed in order for ING Bank to establish whether the payment default was due to non-operational reasons (i.e. the deteriorated credit quality of the financial institution) or due to operational reasons. The latter does not trigger default.; • ING Bank thinks the Borrower is unlikely to pay: The Borrower has evidenced significant financial difficulty, to the extent that it will have a negative impact on the future cash flows of the Financial Asset. The following events could be seen as examples of financial difficulty indicators, but not as default triggers per se: • a material breach of contract; • the disappearance of an active market for a certain financial asset; and • the downgrading of a Borrower’s external rating.; and
Credit restructuring Global Credit Restructuring (GCR) is the dedicated and independent corporate department that deals with non-performing loans and loans that hold a reasonable probability that ING will end up with a loss, if no specific action is taken. GCR deals with accounts or portfolios requiring an active approach, which may include renegotiation of terms & conditions and business or financial restructuring. The loans are managed by GCR or by the Regional Restructuring Units in the various regions and business units.
• Recovery: A client is classified as Recovery when ING decides that the client’s financial situation cannot be restored and wants to end the (credit) relationship. In principle, the exit has to be at lowest risk cost possible. ING will prefer an amicable exit, but will enforce and liquidate collateral or claim on the guarantees, when needed.
Additionally, ING uses three distinct reporting signs in identifying exposures for clients facing financial difficulties with the notion of: Forbearance: For clients facing financial difficulties, ING might enter into a forbearance agreement with these clients in order to ease the contractual debt service obligation. All ING Business Units/Lines are required to review the clients with Early Warning Signals, Watch List, Restructuring and Recovery classification, to which extent Forbearance is applicable; Default: For clients with non-performing loan(s) in accordance with the definition of the regulator (Basel/CRR/CRDIV); and Impairment: For clients with impaired loan(s) in accordance with the definition of accounting (IFRS/IAS).
Non-performing loans The ING Bank loan portfolio is under constant review. Generally, all loans with past due financial obligations of more than 90 days are automatically reclassified as non-performing. For the commercial lending portfolios, there generally are reasons for declaring a loan non-performing prior to being 90 days past due. These include, but are not limited to, ING Bank’s assessment of the customer’s perceived inability to meet its financial obligations, or the customer filing for bankruptcy or bankruptcy protection. In some cases, a material breach of financial covenants will also trigger a reclassification of a loan to the non-performing category. ING Bank identifies non-performing loans as those loans for which it is probable, based on current information and events that the principal and interest amounts contractually due will not be collected in accordance with the contractual terms of the loan agreements.
All ISFA, INSFA and IBNR provisions are reported and calculated by using a common tool across ING Bank. In case there is objective evidence that one of the default triggers is applicable, ISFA or INSFA provisions are calculated. An analysis takes place on a quarterly basis in order to determine the appropriate level of LLP and Risk Costs. The ING Bank Provisioning Committee (IPC) discusses and approves the LLP for ING Bank, on the basis of proposals originating from ING Business Units.
At the end of 2015, ING Bank held specific (ISFA) and collective provisions (INSFA) of EUR 3,331 million and EUR 1,686 million, respectively (2014: EUR 3,519 million and EUR 1,696 million respectively), representing the difference between the amortised cost of the portfolio and the estimated recoverable amount discounted at the effective rate of interest. In addition, there is EUR 769 million (2014: EUR 780 million) in provisions (IBNR) against the performing portfolio.
Exchange rate or other movements 122 –34 –26 76 –25 –1 71 41 1 At the end of 2015, the stock of provisions included provisions for amounts due from banks: EUR 14 million (2014: EUR 6 million).
Risk costs at Wholesale Banking increased in Q1 but have since then shown a declining trend due to lower risk costs in Structured Finance and Real Estate Finance compared to 2014. Risk costs declined in Retail Netherlands as well supported by the recovery of the Dutch economy and increase in house prices. Retail Belgium also witnessed a decline in risk costs, especially in business lending. Challengers and Growth markets have witnessed stable risk costs over the quarters.
In 2015 a minor adjustment was made to the forbearance policy. Previously the default triggers 'more than 30 days past due and reforborne ', were implemented conservatively for all forborne assets, while currently the policy states, in accordance with EBA, that it is only applicable for forborne assets which were non-performing forborne in the past.
To identify the notion of forbearance, ING typically assesses clients with Early Warning Signals, Watch List, Restructuring and Recovery status. ING Bank reviews the performance of clients which were granted forbearance measures on at least a quarterly basis.
Clients which are granted forbearance measures can have any risk rating (performing or non-performing), depending on their risk profile: • Performing - If the contract is considered as performing prior to any forbearance measure, and also after granting the forbearance measure, the forbearance status for this client needs to be reported for a minimum of two years; and • Non-performing - If the contract is considered as non-performing prior to any forbearance measure, the client will retain its nonperforming status for a period of minimum one year.
• From non-performing to performing - The non-performing client, after forbearance measures have been granted, may be upgraded to a performing rating, only when 1) one year has passed since the forbearance measures were granted, 2) the granting of forbearance does not lead to the recognition of impairment or default, and 3) there is not any past-due amount or no concerns regarding the full repayment of the exposure according to the post-forbearance conditions. The total minimum reporting period of forbearance for any ‘cured’ non-performing client will take three years: one year as non-performing and subsequently the ‘regular’ two years as performing.
Please note that the structure of the forborne assets tables is changed compared to previous years. Currently, the business portfolio is present in both Business Lines, while previously the entire business portfolio was reported in Wholesale Banking.
The total ING Bank forborne assets increased by EUR 0.7 billion (+7%) to EUR 10.6 billion at 31 December 2015. This increase was mainly driven by Retail Banking as the total Wholesale Banking forborne assets remained relatively stable.
Wholesale Banking As per December 2015, Wholesale Banking forborne assets amounted to a total of EUR 3.7 billion, which represents 1.4% of the total Wholesale Banking portfolio.
The increase in the non-performing forborne assets in Natural Resources was mostly attributable to Mining activities in the Ukraine which is caused by the negative political and economic situation in the region. The increase in Natural Resources was offset by outflow from the non-performing forborne assets, mainly seen in the United Kingdom, of which the largest contributor was a bankrupt client. Another bankruptcy in the Netherlands resulted in a decrease in forborne assets in Builders & Contractors.
Retail Banking As per December 2015, Retail Banking forborne assets amounted to a total of EUR 7.0 billion, which represents 1.6% of the total Retail Banking portfolio.
Next to the Netherlands, also Retail Banking in Germany, Australia and Belgium were impacted by the update on the forbearance policy, resulting in a partial shift of forborne assets from the non-performing to performing portfolio. The forborne assets in Turkey increased in the business as well as in the consumer portfolio and was mainly driven by new inflow.
Credit risk mitigation ING Bank’s lending and investment businesses are subject to credit risk. As such, the creditworthiness of our customers and investments is continually monitored for their ability to meet their financial obligations to ING Bank. In addition to determining the credit quality and creditworthiness of the customer, ING Bank uses various credit risk mitigation techniques and instruments to mitigate the credit risk associated with an exposure and to reduce the losses incurred subsequent to an event of default on an obligation a customer may have towards ING Bank. The most common terminology used in ING Bank for credit risk protection is ‘a cover’. While a cover can be an important mitigant of credit risk and an alternative source of repayment, generally it is ING Bank’s practice to lend on the basis of the customer’s creditworthiness rather than exclusively relying on the value of the cover. Within ING Bank, there are two distinct forms of covers: assets and third party obligations.
Assets The asset that has been pledged to ING Bank as collateral or security gives ING Bank the right to liquidate it in cases where the customer is unable to fulfil its financial obligation. As such, the proceeds can be applied towards full or partial compensation of the customer's outstanding exposure. An asset can be tangible (such as cash, securities, receivables, inventory, plant & machinery and mortgages on real estate properties) or intangible (such as patents, trademarks, contract rights and licenses).
The cover values are presented for the total portfolio of ING Bank. Covers of both AIRB and SA portfolios are presented in detail reflecting the complete ING Bank’s portfolio. Next to that, detailed information is provided on the cover coverage for the performing and non-performing portfolio. The non-performing loan definition is explained in detail in the section ‘Credit Restructuring’. To increase the understanding of the reader on the nature of the collateralised loans, insight is given in the industry and geography breakdown of the ING Bank portfolio as well. Another improvement is that in addition to the lending risk category, the cover valuation tables now also give insight in the risk categories of Investment, Money Market and Pre-settlement. For comparability reasons with previous tables, outstandings are used to show ING Bank’s portfolio.
Over the year, the collateralisation level of the total ING Bank portfolio improved. Excluding the pre-settlement portfolio for which covers are netted to derive the outstandings at risk, 47.4% of the total ING Bank’s outstandings (from 45.7% as of 2014) are fully collateralised in 2015.
Dutch mortgages valuation When a mortgage loan is granted, the policy dictates maximum loan to market value (LTMV) for an existing property and for construction property financing of 104%. The cover values are captured in the local systems which are subsequently fed into a central data system (Vortex). All valuations are performed by certified valuators that are registered at one of the ING Bank-accepted organisations. In addition, the valuator must be a member of the NVM (Nederlandse Vereniging van Makelaars – Dutch Association of Real Estate Agents), VBO (Vereniging Bemiddeling Onroerend Goed – Association of Real Estate Brokers), VastgoedPRO (Association of Real Estate Professionals) or NVR (Nederlandse Vereniging van Rentmeesters).
Cover values including guarantees received - Total ING Bank – 20141,2
For the Residential Mortgages portfolio, the guarantees relate to mortgages covered by governmental insurers under the Nationale Hypotheek Garantie (NHG) in the Netherlands. The NHG guarantees the repayment of a loan in case of a forced property sale.
Total Business Lending 295,987 119,583 16,736 81,729 90,158 130,344 36.76% 4.75% 4.65% 7.67% 10.41% 35.75% of which Total Non1 Including loans to ING Group. 2 Excluding intercompany positions. 3 ‘Others’ comprises industries with outstandings below EUR 10 billion.
Cover values including guarantees received - Business Lending portfolio – 20151,2
Similar to the Retail Lending portfolio, the risk profile of the Business Lending portfolio continued to improve in 2015, which is displayed by lower NPLs as well as increased cover values. The percentage of non-covered loans also showed an increase driven by increased outstandings towards Central Banks for which no collateral is received.
The risk profile also improved due to an increase in outstandings for sectors such as Transportation & Logistics and Utilities which, traditionally, have higher coverage. This improvement was however partially negated by growth seen in outstandings to traditionally low collateralized sectors like Commercial Banks and General Industries. The coverage of the non-performing part improved and an overall decrease was seen in the non-performing outstandings.
Cover values including guarantees received - Business Lending portfolio – 20141,2
Total Business Lending 295,987 119,583 16,736 81,729 90,158 130,344 36.76% 4.75% 4.65% 7.67% 10.41% 35.75% of which Non-performing 9,841 5,171 287 2,993 3,521 4,180 24.24% 2.87% 8.07% 15.80% 16.24% 32.79%
Total Business Lending 262,415 112,817 17,680 83,916 56,835 110,661 33.7% 4.5% 5.5% 9.0% 11.6% 35.8% of which Non-performing 10,584 6,067 446 3,120 3,216 3,852 25.2% 3.3% 8.2% 13.9% 15.5% 33.9%
The two tables above provide the collateralisation of the ING Bank’s Business Lending portfolio with a breakdown per geographical region or main market, which are defined based on the residence of the borrowers. The total increase in the business lending portfolio is in line with the increase in covers. The increase in collateralisation is observed in most regions and main countries. The largest increases in Rest of Europe were seen in Turkey, Luxembourg, France, Switzerland and Poland, where the increase in covers exceeded the increase in exposure. Although the exposure in Africa and Germany decreased the cover value showed an improvement.