ING at a glance 3 CEO statement 6 The world around us 9 Our strategy and how we create value 16 Improving the customer experience 23 Our business 28 Our people 38 Risk and capital management 42 Composition of the Executive Board and Management Board Banking 51 ING Shares 52 About this report 55 Independent auditor’s assurance report 57
Independent auditor’s report 309 Articles of Association - Appropriation of results 315 Risk Factors 316 Non-financial appendix 337 Non-GAAP measures 354 General information 355
ING has a presence in over 40 countries. Though our local businesses vary in terms of their market positions, all are guided by our purpose of empowerment and strategy to provide customers with a differentiating customer experience.
Net result per share (in euros) 1.26 1.20 1.04 Shareholders' equity per share (end of period in euros) 12.97 12.84 12.36 Dividend per share (in euros) 0.67 0.66 0.65 Price/earnings ratio 12.1 11.1 12.0 Price/book ratio (end of period) 1.18 1.04 1.01 1 Subject to reasonable assurance by KPMG. Throughout the report indicated with a . See ‘Independent auditor’s assurance report’, page 57. 2 200,000 additional primary customers due to restatement in 3Q2017 in Poland; historical numbers have been restated. 3 A description of ING’s Climate Finance and Social Impact Finance, see www.ing.com/17ar01. 4 Scope is not comparable to availability reported for 2016 and 2015.
Our customer centric focus helped us achieve a first-place ranking in seven countries, compared with two or more selected local peers. NPS surveys were held in 13 countries with retail banking activities.
Sustainable Assets under Management (SAuM) Sustainable Assets under Management increased to EUR 4.8 billion, up by EUR 1.1 billion of new business. This underlines our clients’ appetite for products and services that apply sustainability criteria.
Customer numbers are rising. In 2017, the overall number of retail customers increased to 37.4 million, up more than four million since the launch of the Think Forward strategy in 2014. The number of primary
Supporting a sustainable world Banks have a major role to play in supporting the sustainable development and responsible behaviour and policies. This is something we’re committed to at ING, and something I personally feel very strongly about. In 2017, ING financed sustainable projects in areas including renewable energy, water management and public service infrastructure.
ING continued to be recognised in 2017 for our commitment to sustainability. We were again included in the Dow Jones Sustainability Index’s (DJSI) World Index and Europe Index for banks, scoring 89 out of 100, compared to an industry average of 58. And the non-profit global environmental disclosure platform CDP again named ING a global leader in the corporate response to climate change.
Banking products have become commoditised; and I firmly believe the customer experience will be the key future differentiator. The standard is now being set by digital disruptors. Among them fintechs, who are applying a superior digital experience with low-cost online delivery to compete for key areas of banks’ value chains. The biggest digital disruptors are now serious contenders, like Google and Apple in the area of payments, and China’s Alibaba and Tencent (owner of WeChat) that both now have banking licenses.
I believe digital ‘ecosystems’ are where customers will spend their time in the future. At ING, we aim to be part of these ecosystems and also to be a go-to platform for all our customers’ financial needs, open to third-party providers of financial and other relevant offerings.
To achieve that, we’re accelerating the Think Forward strategy and transforming our organisation. Our ambition is to build a scalable digital banking platform across borders that provides customers with the same clear and easy experience wherever they interact with us; one that can integrate into other digital platforms to serve customers where they need us. We’re developing the data skills so we really know our customers and can provide the personal and relevant service they expect. This will be the basis of a strong brand that earns customer loyalty and sets us apart from competitors.
Secondly, Basel ‘IV’ rules were agreed that introduce common capital floors for various types of lending. The idea behind these floors is to promote a level playing field. However, because they fail to take default experience and differences in legal systems into account, they achieve the opposite of a level playing field and will increase the cost of borrowing, for instance in areas like mortgages. This will ultimately impact the important role banks play in facilitating economic growth.
Another issue is bank taxes. Introduced following the financial crisis to compensate for the perceived advantage banks gained by receiving state support, these taxes have now been abolished in a number of eurozone countries. We regret that the Netherlands has not yet followed suit. This puts Dutch banks at a competitive disadvantage compared to many of their European peers.
In a world in flux, finding the way forward can at times be challenging, but I’m confident that at ING we have the vision, entrepreneurship, drive and financial strength to turn today’s achievements into success in the future. I’d like to express my appreciation to our customers and shareholders for their continued confidence in ING. And I wish to sincerely thank our employees for all their hard and excellent work in 2017. They inspire me every day.
The range and complexity of non-prudential regulation (regarding other things than financial strength) continues to increase. Regulation is becoming more stringent in areas like customer due diligence, and transaction monitoring to detect and report money laundering (AML), terrorist financing and fraud. Individual country laws and specific regulations often prevent cross-border information sharing, between public and private authorities and between private parties. This restricts the effectiveness of bank systems and is most evident when large financial institutions operate a global compliance model.
In the United States, growth has remained strong. This is now the second-longest economic expansion since the end of World War II. At the same time inflation has stayed low, allowing the Federal Reserve to follow a very gradual path of interest rate increases.
Read more in ‘Our strategy and how we create value’ chapter.
ING’s regulatory costs increased to EUR 901 million from the already elevated level of EUR 845 million in 2016. This was due to ING’s contribution to local deposit guarantee schemes, the European resolution fund and bank taxes.
2017 marked the kick-off of Brexit negotiations. ING is monitoring these closely to make Britain’s exit from the EU as smooth as possible for our business and customers.
See the ‘Non-financial appendix’ for a detailed process description of the 2017 materiality assessment.
Customer centricity Innovative business developments Customer privacy and data ethics Enhancing customer financial capabilities Stability of IT systems and platforms Usability and accessibility of our products and services
• Scalable cross-border banking platform to make online interaction personal, instant, seamless and relevant.
Our approach can be summarised as: the right people using the right data for the right purpose.
Balancing our responsibilities: Innovative business developments vs. data ethics section in the ‘The world around us’ chapter.
Differentiating experience section and Financial empowerment section in the ‘Our business (Retail Banking)’ chapter.
Economic contribution Opportunities: • Leveraging a stable funding base and balance sheet quality.
ING Group recorded robust commercial growth and strong financial results in 2017, with a full-year 2017 net profit of EUR 4,905 million, an increase of 5.5 percent year-on-year.
Fair pricing of products and services is important for our competitiveness in the marketplace.
ING has started a bank-wide financial and economic crime (FEC) enhancement programme that aims to address shortcomings identified in Know Your Customer (KYC) processes.
Environmental and Social Risk management section in the ‘Risk and capital management’ chapter.
> www.ing.com/17ar03 * The financial topics are covered by KPMG’s audit of the consolidated annual accounts. See page 309 for the ‘Independent auditor’s report’.
Human capital Opportunities: Diversity within companies attracts talent, helps to understand customers better, increases engagement and supports sound business decisions. It is also linked to better financial performance.
The NPL ratio, non-performing loans (NPLs) expressed as a percentage of lending credit outstandings, decreased to 1.9% at the end of 2017 from 2.1% at the end of 2016. ING’s loan-to-deposit ratio, excluding securities that are recorded at amortised costs, remained unchanged at 1.05. Risk costs decreased to EUR 676 million from EUR 974 million in 2016.
If we receive a specific request for information, customer interest comes first. We strive to be as transparent as possible in line with local and international rules and regulations. Unless restricted by such rules and regulations, we aim for optimal transparency, asking for customer consent when required. We feel that this balances different stakeholder interests as much as possible.
While the legal boundaries currently differ per country, social and cultural context also play an important role in determining the personal boundaries for our customers. Regulations such as the General Data Protection Regulation (GDPR) in the EU are welcome to harmonise and clarify under which circumstances companies should collect, use and process data.
We’re transparent about the way we handle our customers’ data and seek their consent where it is necessary. But is this enough? We understand the sensitivities around data collection and privacy and the need to comply with legal and regulatory requirements. For ING, the concept of data ethics often precedes or goes beyond rules and regulations.
To achieve this we are introducing a data ethics framework across the bank. This includes specifying values and principles for customers and employees to make sure dilemmas are treated consistently throughout ING; establishing values and principles in all areas involving data analytics; establishing data ethical committees across businesses and countries; engaging with stakeholders; increasing awareness among employees; and periodically assessing our performance.
Data offers countless opportunities, but we must be very careful about how we use it.
Within Europe, we still see differences in member states’ regulatory requirements on anti-money laundering, banking secrecy, e-signatures, language requirements, etc.
Read more on some of the dilemmas ING faces and how we approach them in the ‘Issues table’ (Non-financial appendix).
Cooperation vs. competition Change is happening at a faster pace than ever. Today’s emerging trend can become the norm in two years and be obsolete a year later.
New companies with innovative business models can upend decades of common business practice. Conventional wisdom on what comprises an industry or sector is being questioned.
We at ING believe that all future plans should be driven by our customers’ expectations and needs in terms of use, information and accessibility. This includes partnering with other banks, fintechs and parties outside the world of finance. But there is a line to be drawn between where we cooperate and where we compete.
The world is changing quickly, and so too are customer expectations. At ING we’re working to speed up the pace of innovation for the customer. Multidisciplinary teams, like the Dutch team above, pool their skills to speed up time to market for new products and services. Teams use customer feedback to create a continuous cycle of improvement.
Material topics: customer privacy and data ethics, managing risks (financial risks and non-financial risks).
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. To be successful, banks need to expand the concept of what a bank is and what it means to customers. Our payments value chain is already under threat from many bank and non-bank players. We are responding by creating an open digital platform. It will include relevant offers from third parties and provide a complete financial overview for customers in one place, including of their holdings at other institutions so they are empowered to make better financial decisions. We also aim to find ways to be relevant to customers earlier in their purchasing decision-process, such as not only offering a mortgage, but also connecting customers via our platform to real estate listings and other things they need when buying a new house, like insurance, legal advice and even a removal company. ING is developing and looking into initiatives in numerous beyond banking value spaces, including the circular economy, the ‘silver’ economy (ageing population), housing and mobility.
2. Develop data analytics The relationship between banks and their customers is increasingly a digital one. Digitalisation challenges banks to maintain intimacy with a customer whom they rarely meet face-to-face. But the digital interface also provides a wealth of data on customers’ preferences and needs that gives banks important insights they can use to provide the kind of experience customers now expect from businesses they interact with online. Analytic skills are essential for serving customers in a digital world and also for preventing fraud, improving operational processes, reducing risks and generating services that go beyond traditional banking. At ING, we recognise that excelling at data management is a core competency if we are to realise our ambition to create a personal digital experience for customers. We are on course to implement one global approach to data management to ensure we maximise the potential of this key resource. An international Advanced Analytics team based in Frankfurt and Amsterdam acts as a centre of excellence, and local advanced analytics teams operate in country and business units. Our chief data management officer oversees the implementation of global data management together with local data officers.
2. Operational excellence Operational excellence requires continuous focus. We need to ensure that ING’s operations provide a seamless and flawless customer experience. Our operational excellence vision concentrates on the Customer Promise. To meet changing customer expectations arising from increasing digitalisation, we aim to converge to a single platform for financial services that will deliver a uniform customer experience across borders. This will be based on simplified and standardised products and systems supported by modular architecture, integrated and scalable IT systems, and shared services. While pursuing this ambition we are also investing 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.
Material topics: stability of IT systems and platforms, usability and accessibility of our products and services.
We are also committed to accelerating the development of diversity and strengthening an inclusive culture in ING where everyone can be themselves. We believe that there is a clear link between diversity and better financial performance. Differences in gender, age, background, sexual orientation, physical ability and religious beliefs enable us to solve problems and respond to challenges
A self-reliant society • Financially empowered people who contribute to a healthy economy. • A diversity programme that empowers colleagues from all backgrounds. • Empowered corporate clients with strong social and human rights policies and practices, meaning better business for society.
• Customers in 7 out of 13 countries rank ING #1 in terms of NPS a
• Welcome, to digitalise ING in Germany and create a go-to financial platform offering its own and thirdparty services.
• WTOM, further digitalising and standardising Wholesale Banking products, processes and customer propositions across all continents.
Another feature of platforms is that they are generally ‘open’ – using APIs (application program interfaces) to allow third parties to provide complementary goods and services, thereby strengthening the network effects and making them more appealing to users, which in turn attracts more merchants.
We set up ethical committees in the ING countries in 2017 and a framework for dealing with dilemmas related to how we use data. This could in future lead to an ethical proposition that empowers customers to manage their own data and gives ING a competitive advantage.
Innovation ING’s approach to innovation is built around making banking more personal, instant, relevant and seamless for customers; stimulating a culture that is open to new ideas; and connecting and cooperating with others to innovate faster.
Our priority is to empower customers and provide a superior experience on open platforms connected to others offering services beyond banking. Think of how Uber links to Google maps and how paying for the service at the end of the journey is seamless – an experience that is the same in all parts of the world. Innovations like this are disrupting traditional business models and reinventing them for a new generation of users.
To stay relevant banks have to innovate. Competition is already fierce and is set to increase in 2018 when the new European payments directive (PSD2) opens banking up to anyone offering a financial service. Potentially this could be a game-changer, especially if the likes of Google, Facebook, Apple or Amazon decide to enter this space.
Robotics and automisation help to eliminate waste, reduce variability and digitalise customer journeys. We team up with fintechs, for example to digitalise on-boarding and certify e-signatures. In 2017, we extended the scope and coverage of the global process management programme launched in 2016. It helps countries identify and share best local practices and implement improvements. So far it has been applied in Poland, France, Turkey and Germany, leading to improved processes in consumer lending, SME lending and mortgages. We also introduced a global modelling tool to improve customer journeys from the customer perspective.
ING also has incubators where we link start-ups with internal teams to develop ideas into viable products and services. These incubators are in Belgium (Fintech Village), the ING Innovation Studio at our Customer Experience Centre (ICEC) in Amsterdam, the Innovation Centre in Poland, as well as in Turkey and Germany. Products that emerged from these collaborations include Payconiq and Yolt.
ING’s annual Innovation Bootcamps encourage employees to come up with new ways to improve the customer experience and compete for seed funding. Almost 800 ideas from 22 countries were submitted for the fourth edition in 2017. The winners were Banking of Things, Covered and FlexiLiving. These three ideas will now be further developed to test their viability.
Ideas originating from ING’s Legal team were recognised at the 2017 FT European Innovative Lawyer Awards. The initiatives aim to improve the Legal function, for example by using artificial intelligence and electronic signatures.
Payconiq, a mobile payments app originating from ING’s Innovation Lab and used in partnership with other banks, is now accepted by over 35,000 merchants in Belgium. It is fast gaining traction in the market. In August 2017, we announced it will expand into Luxembourg and launch in the Netherlands with several partner banks.
Connect and cooperate ING works with fintechs to harness the potential of technologies such as blockchain, data analysis and artificial intelligence. We collaborate with specialists on solutions that will really make banking easier. For example, we partnered with online wealth manager Scalable Capital to offer customers in Germany digital investment management services, also known as roboadvice.
More information about our Wholesale Banking services is available at www.ingwb.com.
ING is working hard to avoid being forced to implement negative rates on retail deposits. For some time, we have charged a negative interest rate to financial institutions and corporate clients with high cash balances in their euro current accounts. If the low interest environment continues we may need to consider further action and expand the scope of Wholesale Banking clients that will be charged.
On the Retail side, other solutions would need to be found, such as higher margins on lending or implementing other fees, which could reduce market transparency. From our point of view, none of these are desirable because they have the potential to conflict with customers’ expectations about fair pricing.
It is also vital that we know our customers from a regulatory and risk perspective. But gathering the information we need can be inconvenient for them, which is counter-productive to a positive customer experience. This is especially challenging when we have to approach the same customer several times because regulations demand that certain data is screened off internally by Chinese walls. However, ING takes its regulatory responsibility seriously and does not want to compromise on compliance. Instead, we have to ensure the process is as unobtrusive and easy as possible. We also take every precaution to protect customer data and privacy.
Of course, customer experience doesn’t only have to be digital. In Belgium, we opened the first ING branch that feels like home, modelled on the concept unveiled in 2016 in the Netherlands. Here customers can get personal banking advice, have a coffee, use it as a workplace or hold their own business or community meetings. ING plans another 15 of these branches by 2020. An optimised branch network supports our digital-first ambitions. When designing Belgium’s branch network coverage our priority was to stay close to our customers and improve our service to make it extremely personal and very easy. At the same time, we had to consider a number of factors, not least the integration of Record Bank. In places where both banks had branches in close proximity, we chose to keep only one. The 15 planned ‘Client Houses’ will provide customers with personal banking advice in an enjoyable environment.
Take tools like our Orange Assistant in Turkey, a mobile app that gives users more control over their money by notifying them when a payment – or even a birthday – is due. It can automatically transfer money, for example to a florist to buy a gift. Users set their own customised notifications and ‘smart actions’. The idea originated at an earlier edition of ING’s Innovation Bootcamp. To date, 18,000 users have created nearly two million separate notifications, for example when money enters or leaves their account, and when their credit card statement is ready.
The ING Dreamstarter programme in Australia empowers social entrepreneurs through scholarships, crowdfunding and grants for businesses that create a positive change in their communities. In 2017, it had
And small and medium-sized businesses in France and Italy can now get approval for a loan of up to EUR 100,000 in just 10 minutes. The new instant online lending platform for SMEs was developed with five fintech partners, each covering part of the loan process. These include Kabbage, with whom we developed a similar offering in Spain in 2015. The new service, launched in October, is part of our strategy to increase lending to this customer segment.
In March, we debuted contactless mobile payments in Poland. Customers here can now use their Android smartphone to pay for goods or services via the Moje ING mobile app. The ‘MasterCard on your phone’ service was developed in less than a year by teams from Poland, the Netherlands and Spain with generic components that can be used by other ING countries. Customers in Poland can also use their mobile phones to buy and sell currencies. They can access the ING Kantor electronic platform via an FX module on the Moje ING mobile app (or the ING Business app for corporates). It makes currency transactions easy and convenient with 24/7 availability.
The higher pre-tax result was driven by lower risk costs, reflecting positive economic conditions in most markets. Underlying income increased slightly as higher net interest income and strong fee income (supported by continued volume growth and a bigger retail customer base), was largely offset by a decline in investment and other income due to lower one-offs and volatile items (2016 included a EUR 200 million gain on the sale of Visa shares and higher revenues from Bank Treasury). Customer lending increased by EUR 9.4 billion to EUR 398.9 billion compared with a year ago. Adjusted for currency impacts and excluding Bank Treasury and the WestlandUtrecht Bank (WUB) run-off portfolio, net growth in Retail’s core lending book was EUR 14.2 billion. Net customer deposits (also excluding Bank Treasury and currency impacts) grew by EUR 17.9 billion in 2017.
Underlying operating expenses increased 2.1 percent compared with 2016. Excluding regulatory costs, expenses were up 1.8 percent, mainly related to strategic projects and selective business growth in the Retail Challengers & Growth Markets, and higher expenses in Retail Belgium after the one-off expense adjustment in 2016. These increases were largely offset by lower expenses in Retail Netherlands supported by the benefits 1,701 supporters and contributed more than AUD 330,000 to 11 Dreamstarter businesses, of which over 60 percent was crowd-funded. This brings its total funding since it started in 2014 to more than AUD 1.5 million for 70 businesses. In 2017, Dreamstarter Gifts that Give was initiated to encourage Australians to buy socially responsible gifts and support Dreamstarter businesses, which delivered product sales of over AUD 30,000 in six weeks.
To help people who are financially excluded, ING’s activities include offering microfinance to SME clients in Turkey, education and research. In addition, ING subsidiary Groenbank invested EUR 6 million in cooperative society Oikocredit to extend financial inclusion in Africa.
Challengers & Growth Markets Retail Germany Retail Germany includes Interhyp and ING in Austria. The underlying result before tax decreased 17.6 percent to EUR 869 million, compared with EUR 1,055 million in 2016. The decrease was primarily caused by higher expenses; income was slightly lower, whereas risk costs resulted in a net release.
Underlying income decreased slightly to EUR 1,891 million in 2017 from EUR 1,923 million in 2016, when it was supported by a gain on the sale of Visa shares. Net interest income rose 0.9 percent following continued business growth, partly offset by lower interest margins on most products. The net production in customer lending (excluding Bank Treasury and movement in the mortgage hedge) was EUR 2.7 billion, of which EUR 1.7 billion was in mortgages and EUR 1.0 billion in consumer lending. Net inflow in customer deposits (excluding Bank Treasury) was EUR 3.8 billion in 2017. Commission income rose 17.5 percent to EUR 215 million, with investment products as one of the key drivers. Investment and other income was EUR 79 million lower, mainly due to negative hedge results and the EUR 44 million gain on the sale of Visa shares in 2016.
Operating expenses increased 16.5 percent to EUR 1,032 million, from EUR 886 million in 2016. In addition to EUR 30 million higher regulatory costs, this increase was mainly due to a higher headcount to support business growth, higher costs related to the acquisition of primary customers and investments in strategic projects (including the Welcome transformation programme).
Total underlying income increased by EUR 169 million, or 5.9 percent, to EUR 3,028 million. Excluding the gain on Visa shares in 2016, underlying income grew by 10.1 percent. This increase was driven by strong commercial results across most countries. Net interest income rose 15.7 percent to EUR 2,437 million due to continued volume growth and higher margins on
Our business – continued lending, partly offset by lower margins on savings and current accounts. The net production (excluding currency effects and Bank Treasury) in customer lending was EUR 9.3 billion, of which EUR 5.1 billion was in mortgages and EUR 4.2 billion in other lending (mainly consumer loans). The net production in customer deposits was EUR 8.1 billion. Commission income rose 20.0 percent on the back of continued client and volume growth in most countries. Investment and other income was significantly lower, as the previous year included a EUR 109 million gain on Visa shares, but also a EUR 32 million gain from the reduction of ING’s stake in Kotak Mahindra Bank.
Through the Wholesale Banking Target Operating Model (Wholesale TOM) we have made progress towards a digital, streamlined and simplified organisation. But with so many newcomers entering this space and disrupting our core business, we realised we need to do more. In 2017, we redefined our short-term priorities and further united our business across regions and countries to collaborate more effectively, innovate faster and bring clients uniform services and relevant, proven solutions through their preferred channel, while moving to open banking platforms.
InsideBusiness We extended the InsideBusiness platform to Russia, Ukraine and Poland. It is now used by around 12,500 business clients in 20 European countries, compared to fewer than 500 in 2016. Clients can access their Wholesale products and services via a single log-in, making banking clear and easy and simplifying and streamlining the IT landscape. New services added to InsideBusiness in 2017 include fingerprint login for the iOS and Android app and digital signatures for service request documents. It also offers electronic mark-tomarket reports for 4,000 Financial Markets clients; gives clients the ability to draw down on loans and to manage proof of payments and incoming direct debits, as well as make digital Trade Finance transactions in Belgium and the Netherlands.
Our business – continued to agricultural commodities, with a US-China soybean trade demonstrating its potential in a sector with complex and rigorous documentation chain flows.
In November, ING announced a breakthrough to protect the privacy of users in the blockchain. The new code, known as a ‘zero-knowledge range proof’ adds a layer of cryptography that is 10 times more efficient than existing technologies. In the spirit of cooperation, ING has made it available as an open-source solution, allowing other developers to contribute to it.
EUR bln % of Total 2017 Industry ESG leaders 5.5 3.4%
2 If criteria are strengthened, the new criteria are applied from the moment they are implemented. Outcomes of transactions finalised prior to such changes remain ‘as is’ at the time they were completed.
In Austria, ING teamed up with Kommunalkredit, a specialist bank for infrastructure financing, on a EUR 300 million social covered bond to support projects such as schools, universities, hospitals and social housing. It’s the first of its kind in Austria and the second social covered bond in the market.
Challenges and opportunities In addition to investing billions of euros in wind farms, solar energy and geothermal power production to support the energy transition, ING will not only stop providing lending services to new coal-fired power plants or coal mines but will also accelerate the reduction of financing to thermal-coal power generation with the ambition of bringing this close to zero by 2025. We reduced our lending outstanding for thermal coal power generation by 18 percent at the end of 2017 compared to a year ago and have the ambition to continue this reduction trend.
However, society still relies on fossil fuels because there is not yet enough renewable energy being generated, nor is there an efficient and affordable way of storing it. This is both a challenge and an opportunity, for example for companies developing battery technology. ING engages in strategic dialogue with clients to influence change. We talk about the challenges they face and help them identify opportunities.
Awards In 2017, ING was named best Benelux brokerage house at the Extel awards for the European equities investment industry. A market survey by FI Metrix (‘2017 International Commodity Traders Study’) showed ING has become a dominant provider in commodity finance, based on its image (55 percent of respondents rated it the most positive brand image in the market compared to 24 percent in 2013), institutional performance, relationship penetration, product market share and delivery. Overall, league table positions in EMEA and Western Europe continued their upward trend in 2017, supported by continued strong performance in Industry Lending.
International network One of ING’s strengths is our international Wholesale Banking network, which spans over 40 countries in Europe, Asia and the Americas. In 2017, we broadened our relationship with clients in Asia and expanded our Americas footprint with an office in Bogota, Colombia.
This is in line with our decision announced in November 2017 to put more emphasis on the regions while shifting our focus to a stronger sector organisation from the current largely product-based orientation. In the past years, ING has grown into a sector specialist in lending areas such as Metals and Mining, Trade and Commodity Finance and Technology, Media and Telecom. Our new structure will help us deliver a consistent client approach across the Americas, Asia and Europe and become even more relevant to our clients as we support them in their business needs. These organisational changes will be implemented in January 2018.
Underlying income of Wholesale Banking increased 5.6 percent to EUR 5,922 million, compared with 2016, driven by volume growth in lending and the aforementioned gain on the sale of an equity stake. Wholesale Banking’s net core lending book (adjusted for currency impacts and excluding Bank Treasury and the Lease run-off portfolio) grew by EUR 12.7 billion in 2017. The net inflow in customer deposits (excluding currency impacts and Bank Treasury) was EUR 1.1 billion. The interest result rose 3.9 percent on 2016, whereas commission income increased by 10.5 percent. Investment and other income was EUR 64 million higher, driven by the gain on the sale of an equity stake.
• Our behaviours. The commitments we make to each other and the standards by which we measure each other’s performance: • You take it on and make it happen. • You help others to be successful. • You are a step ahead.
The Orange Code is supported by a compliments tool, kudos, that allows employees to give each other compliments based on Orange Code behaviours. Since its launch in July 2016, over 200,000 compliments have been given by 30,000+ users of the tool. Kudos was also named Innovation of the Year at the Digital Communication Awards 2017.
Employees are introduced to the Orange Code early with new joiners invited to complete a global online e-learning introduction module that explains more about ING’s culture, how we work and what we expect from employees. This is further emphasised and reinforced by the compulsory e-learning for all employees as part of the global Promoting Integrity Programme.
In this chapter, we outline our people strategy with employee stories depicting the changing face of ING.
This year, the number of female managers and female managers of managers remained fairly stable. Of our managers, 39 percent are women (38 percent in 2016) while for managers of managers, 29 percent are female – the same as in 2016.
Banking is changing. Customers are changing. And so is ING and its people. ING’s response to change starts with the acceleration of the Think Forward strategy. From a people perspective, we are stepping up our leadership capabilities and strengthening professional skills while building engagement and capabilities across the organisation.
In October, ING was recognised externally for its LGBT workplace inclusion at the Workplace Pride Awards, achieving a top-tier score.
ING allocates a budget for employees for training, professional development and personal development. We spent EUR 76 million on training and development in 2017. And a wide range of global and local training programmes are made available to strengthen employee capabilities and help them become the best they can be.
• The Organisational Health Index (OHI) assesses ING’s ability to adapt and renew itself to be successful in the long run. The last OHI took place at the end of 2017.
People planning for the future Like all companies, ING needs to plan its future resource needs carefully to stay a step ahead. This means that occasionally we restructure activities in line with business requirements, in some instances leading to job losses, job changes or job location changes. In October 2016, we announced plans to start a path of convergence towards one digital banking platform, which would impact around 7,000 employees, mostly in Belgium and the Netherlands. These transformation programmes are ongoing.
Name: Alejandro Enrique Romero Jiménez Country: Spain Joined ING: 2006 Role: IT specialist, currently leading the infrastructure chapter for Model Bank.
We create the underlying infrastructure for the Model Bank transformation programme. We make sure that from a technical and operational standpoint everything goes smoothly when the newly-installed solutions are integrated with existing ones.
Name: Marieke Blom Country: The Netherlands Joined ING: 2013 Role: Chief economist for ING in the Netherlands. Manages a team of 18 economists and analysts.
I joined ING fresh out of high school after a friend who worked there recommended it to me. She loved the job and the company.
Initially, I worked in the contact centre, but moved to ING’s new Customer Lounge when it opened in August. Here I assist clients with their new or existing Orange Everyday savings, mortgage and business accounts.
I joined ING for many reasons. Most important was the reputation and quality of the International Talent Programme (ITP). It is known as one of the best traineeships in Belgium. I also wanted a role in one of the biggest transformations in the banking industry. ING is a pioneer.
I get the most satisfaction from positive feedback from customers. Although I don’t have any direct contact with customers anymore, I’m still working in their interests to improve the way we serve them.
Name: Mouad El Ghazi Country: Germany Joined ING: 2017 Role: Head of customer intelligence.
In Germany, ING was ranked by Great Place to Work as the third best employer in the category 2,001 to 5,000 employees and ING-owned mortgage broker Interhyp was also listed in the category 501 to 2,000 employees.
Tax risks are managed in a prudent manner. Tax policies, procedures and a tax control framework have been implemented to support management in mitigating potential tax risks. Internal monitoring, control and reporting of tax-related risks takes place on a permanent basis with regular reporting to various stakeholders. Tax risk management is subject to Corporate Audit testing and evaluation. In the Netherlands, ING has opted for cooperative tax compliance (‘horizontaal toezicht’), which implies overall transparency and disclosure of relevant tax risks to the Dutch tax authorities.
While continuing our efforts to comply with applicable laws and regulations, it remains a significant operational challenge for banks to meet all these requirements within the strict timelines. ING faces the risk of failures in compliance, especially in areas where the applicable regulations are unclear, subject to multiple interpretations or under development, are in conflict with each other, or where regulators revise their guidance or courts overturn previous rulings. Implementing the processes and procedures necessary for effective compliance has significant implications for IT systems and data, as people who have the necessary knowledge and skills are scarce.
Besides these financial risks, across our business, ING is subject to non-financial risks associated with IT and cybersecurity, operations and compliance to rules, regulations, laws as well as the ethical norms that are generally considered to apply to our people and activities by society at large. Non-financial risks can also arise throughout the relationship with our clients should issues emerge that are irreconcilable with our Environmental and Social Risk framework.
Where an ING employee suspects any irregularity or misconduct within ING that leads to or could lead to a violation of ING’s Orange Code, ING Policies and/or any law, regulation or code, our Whistleblower Policy provides for anonymous reporting, via internal or external channels, alongside normal reporting channels. In 2017, ING recorded 100 alleged irregularities in accordance with its Whistleblower Policy, including 19 reports of suspected breachs of Orange Code or unethical behaviour.
Enhancing a proactive risk management function Our business and operating environment is changing with trends such as changing customer behaviour, increasing regulatory requirements, emerging competitors and new technologies.
ING announced in 2017 the launch of ING Ventures, a EUR 300 million fund aimed at investing in fintech companies and accelerate the pace of innovation. ING considers partnering with and investing in fintechs as a key element of its innovation strategy. ING Ventures will build on the success that the current approach has already brought over the past three years, which has led to over 100 strategic fintech partnerships and investments globally.
With regard to climate change, the Task Force on Climate-related Financial Disclosures (TCFD) published a report in June 2017 with recommendations on climate related disclosures. The TCFD provides guidance to support large organisations in developing climate-related financial disclosures consistent with its recommendations and recommended disclosures. For risk management, one of the thematic areas, the recommendation is to describe the processes so readers of climate-related financial disclosures can evaluate an organisation’s overall risk profile and risk management activities.
For an overview of ING’s climate-related disclosures see the ‘Non-financial appendix’.
The fourth anti-money laundering directive, as issued by the European Union, has been incorporated into the update of the ING Financial Economic Crime Policy and Minimum Standards. The fourth directive builds on its predecessor by establishing an Ultimate Beneficial Owner (UBO) register at national level (with the potential to share the information within the European Economic Area) and provides for a stronger approach towards the application of due diligence on ING’s customers. The implementation deadline for the Directive was 26 June
In 2017, ING’s balance sheet demonstrated its resilience. Our loan book continued to grow and our capital and liquidity buffers improved. We experienced healthy lending growth and declining risk costs resulting from an improving macro-economic environment and active management of our non-performing loans (NPLs). The NPLs expressed as a percentage of lending credit outstandings further improved. The NPL ratio decreased to 1.9 percent at the end of 2017 from 2.1 percent at the end of the previous year. This decrease was caused by a EUR 1.1 billion reduction in NPLs, mainly in business lending in the Netherlands, residential mortgages in the Netherlands and General Lending & Transaction Services, combined with an increase in total credit outstandings. Risk costs decreased to EUR 676 million from EUR 974 million in 2016, driven by a benign credit environment in most markets where ING is active.
Risk and capital management – continued 2017. The implementation of the directive into Dutch law was expected in July 2017, but has been delayed, probably until early 2018. ING started to implement several KYC enhancements in 2017.
After we learned that the indigenous Standing Rock Sioux community disagreed with the processes followed in the granting of licenses/permits we requested - together with other lenders - that a separate independent human rights expert review the permitting process, with a specific focus on the impacts on indigenous peoples. We discussed with Standing Rock Sioux the possibility to continue monitoring developments closely and continue trying to positively influence the development of the project or to distance ING from the project. After these discussions ING decided to pursue the transfer of the loan, which was fully supported by the Standing Rock Sioux.
Dakota Access Pipeline – what happens when concerns are raised after ESR due diligence has taken place?
• We will phase out our lending to individual coal-fired power plants by the end of 2025.
points. The impact on CET1 capital is mainly caused by the change in the classification and measurement of a part of the liquidity portfolio.
Regulatory developments An agreement was reached on Basel ‘IV’ in December 2017. While some elements still require more clarity, we believe the fully loaded Basel ‘IV’ impact may lie in the range of a 15–18 percent increase in risk-weighted assets (RWA) by 2027. This does not take into account possible management actions. TRIM (targeted review of internal models) may result in earlier impact on RWA via Pillar 2. The implied impact on capital ratios does not take into account any potential changes to the systemic risk buffer or Pillar 2 requirements. Note this also assumes the current asset mix to be the same in 2027, as well as modeled RWA based on the current economic environment. With a long implementation phase and the transposition into EU regulation still pending, some question marks remain on how this will shape up. ING is confident that it will meet the final requirements and as before we will continue executing our strategy for our clients and delivering growth at good returns.
Capital developments at ING Group The capital position further strengthened in 2017 reflecting strong profitability based on core lending growth and complemented with further optimisation of the capital structure. At both consolidated and entity level, ING has sufficient buffers to withstand certain adverse scenarios without breaching currently applicable and possible future requirements. ING is confident this position will allow us to continue to successfully execute our Think Forward strategy and support business growth, at the same time that we pay a progressive dividend to shareholders and provide a healthy return to bondholders.
Bank Recovery and Resolution Directive Since its adoption by the European Parliament in 2014, the Bank Recovery and Resolution Directive (BRRD) has become effective in all EU countries after transposition into national law, including in the Netherlands. The BRRD aims to safeguard financial stability and minimise the use of public funds in case banks face financial distress or fail. To comply with the new rules, banks across the EU need to have recovery plans in place and to cooperate with resolution authorities to determine and make feasible the preferred resolution strategy.
G-SIBs will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, the TLAC term sheet requires ING to meet a minimum TLAC requirement including buffer requirements of at least 21.5% of the resolution group’s risk-weighted assets (TLAC RWA Minimum) as from 1 January 2019 and at least 23.5% as from 1 January 2022. Also, minimum TLAC must also be at least 6% of the Basel III leverage ratio denominator (TLAC Leverage Ratio Exposure (LRE) Minimum) as from 1 January 2019, and at least 6.75% as from 1 January 2022. No buffer requirements will come on top of the leverage requirement.
A consistent approach to capital management ING Group’s overall approach to capital management is intended to ensure that capital is adequate to cover the (economic) risks at all levels and to ensure compliance with regulations. ING Group challenges these levels constantly to ensure its optimal use. The continued strength of ING’s capital position, the adequacy of our financial position and our risk management effectiveness are essential to achieving our purpose to empower people and businesses to realise their goals, as well as to increase ING’s lending capabilities, pay dividend on common shares to shareholders and invest in new technologies and best practices. In this way, ING aims to deliver shareholder returns while it also invests in further innovation of products and services.
ING (Euronext) Euro Stoxx Banks Euro Stoxx 50Stoxx Europe 600 Banks
1 Some benchmarks we reported on in previous years are not included as they are not relevant any more given our new status as a standalone bank. 2 Ranked 7th and first in our market capitalisation peer group out of 341 listed banks in November 2017. 3 Starting 2016, CDP no longer separates disclosure and performance scores. A represents highest possible score across disclosure, awareness, management, leadership evaluation.
(Euronext Amsterdam) 13 August² Record date for interim dividend 2018 entitlement
To receive press releases and other ING news, you can subscribe to the email service at www.ing.com. You can also access the latest financial information and press releases on our website at www.ing.com/ir
Report content 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.
As a financial institution, we recognise that we have a direct economic, social and environmental impact, but also a significant indirect impact, through credit, loans and investments. ING’s Sustainability Reporting Protocol describes our impact across our material topics and stakeholder groups. Additionally, we report our impact in the value chain on pages 21 and 22.
Our stakeholders need both financial and non-financial information to assess our ability to create value in the short, medium and long term. We believe that integrated reporting is the broad-based framework our stakeholders need to make decisions that are long term, inclusive and purposeful.
Future-oriented statements In this integrated annual report we also look forward and share our vision, ambitions, strategy, opinion and plans for the future. These forward-looking statements can be recognised by terms such as: • aims • expect • anticipate • intend • plan • believe • seek • see • will • would • target • forecast • of the opinion • or similar terms.
Scope of the group review and audit ING Groep N.V. is the parent company of a group of entities. The Non-financial Information and the Four Specific Topics incorporate the consolidated information of this group of entities.
Our procedures consisted of both procedures at ING group level and at country level. Our selection of countries in scope of our procedures is primarily based on the country’s individual contribution to the consolidated information.
We have read the other parts of the Report of the Executive Board. Based on our knowledge, and understanding obtained through our assurance procedures on the Non-financial Information we have considered whether other non-financial information included in other parts of the Report of the Executive Board contains material misstatements.
The Supervisory Board is responsible for overseeing ING Group’s reporting process.
We have exercised professional judgement and have maintained professional scepticism throughout the review, in accordance with the Dutch Standard 3000A, ethical requirements and independence requirements.
Feeling of Financial Empowerment • Test the design and implementation and operating effectiveness of IT relevant controls for the indicator on
From the matters communicated with the Supervisory Board we determine the key assurance matters: those matters that were of most significance in the review of the Non-financial Information and the audit of the Four Specific Items. We describe these matters in our assurance report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not mentioning it is in the public interest.
It’s our job to balance the interests of all stakeholders, and to make sure we have an open dialogue. For that we need to have a good understanding of what stakeholders think and how their thinking can change. In 2017, we had contacts with a range of stakeholders in order to have a good understanding of the impact that Executive Board and Management Board Banking actions and proposals have on them. In September 2017, I joined one of ING’s road shows to the UK to meet with
ING has made progress in accelerating its transformation programmes in order to deliver an even more uniform and superior experience across borders and serve customers better. We can all be proud of what’s been achieved so far. In this report you can find many examples of how the bank is creating and co-creating better customer experiences, for example in partnership with fintechs; and also how ING is contributing to a more sustainable world through its financing of sustainable projects and continued involvement in the circular economy. ING is aware of the important role banks can play in creating a better world and is taking concrete steps to realise that. For instance, ING recently announced its ambition to reduce its exposure to coal power generation to close to zero by 2025.
Building the bank of the future is a major undertaking and there is still much more to be done. Competition is fierce, including from new entrants to the market. There’s no time to lose. ING is in a relatively good position, as illustrated by the Best Bank in the World award that it received from Global Finance magazine in 2017. But there’s a need to go faster. We believe ING has a good strategy in place. The challenge now is to execute that with speed.
The Supervisory Board and its committees focused in 2017 on supporting and challenging ING’s management to promote the success of the Think Forward strategy and of ING’s transformation. In a time of rapid technological, market and regulatory change, the SB also shared its experience and skills to contribute to ING’s financial and organisational health for the benefit of all stakeholders, and it further enhanced its own knowledge to be able to play its important role in the future.
Apart from having closely monitored the financial results in 2017, the Supervisory Board’s main focus points were the acceleration of the bank’s Think Forward strategy, including building a globally scalable digital platform, partnering with fintechs, sustainability, capital requirements, Know-Your-Customer enhancement programme, IT and cybersecurity, and developments in regulation and banking supervision. Furthermore, the Supervisory Board discussed on a regular basis the status of the criminal investigation by Dutch authorities regarding various requirements related to client onboarding, money laundering and corrupt practices. It also discussed the related information requests received by ING Group from US authorities.
SB RiCo AC NCGcom4 RemCo Van der Veer (chairman) 9/9 5/5 - 5/5 6/6 Lamberti (vice-chairman) 9/9 4/5 4/5 - -
4 NomCo and CoGo became a joint committee (NGCcom) after the 8 May 2017 AGM. The figures represent the aggregate of NomCo, CoGo and
Also, the (results of the) continuous dialogue between ING and external supervisors was a standard agenda item throughout the year.
In September 2017, the Supervisory Board together with the management board, visited the offices in Amsterdam and Brussels for three days, allowing it to get a better understanding of the Benelux business activities and how these relate and contribute to ING’s strategy. There was special focus on Orange Bridge, ING’s transformation programme for ING in the Netherlands and ING in Belgium. Other sessions included an economic overview of the Benelux area, an introduction to ING’s Fintech Village in Brussels and deep dives on various themes related to ING’s operations in the Benelux.
The (draft) agenda for the 2018 Annual General Meeting was discussed and approved, including the publication of the booklet on the 2017 application of the Dutch Banking Code and the new Dutch Corporate Governance Code.
Audit Committee meetings The Audit Committee met five times in 2017. On average, 96 percent of the members were present at the scheduled meetings.
Specific attention was paid to a variety of other, related topics, such as IFRS 9 and legal proceedings, remediating open control deficiencies in the areas of for example user access and change management, loan loss provisioning and suspense accounts, as well as nonfinancial risk relevant for the financial reporting, and the capital adequacy and liquidity adequacy statements on ING’s capital and liquidity position. In addition the updated internal audit charter, the annual assessment of the internal audit function, the financial control enhancement plan, the quarterly whistleblower report and the auditor reports were areas of attention.
Furthermore, in 2017 the Risk Committee discussed the updates of the bank-wide Know Your Customer enhancement programme, IT risk within risk appetite, and the status of the criminal investigation by Dutch authorities, as well as the related information request from US authorities, regarding various requirements related to client on-boarding, money laundering and corrupt practices. The latter continues to be an important topic for ING. While transforming its organisation, ING needs to ensure that critical nonfinancial risk areas stay top of mind. It needs to continue to build a strong foundation with structural solutions so it lives up to the trust our clients and society at large put in ING.
Furthermore, the Committee discussed the application of a variable remuneration cap of 200 percent (instead of 100 percent) for select (no more than one percent of) ING global staff, as approved in the 2017 Annual General Meeting. Furthermore, the deferral period of the variable remuneration in the remuneration policy for members of the Executive Board needed to be amended from three years to five years in accordance with EBA guidelines, which was also brought to the attention of stakeholders during the 2017 Annual General Meeting. The ING Bank remuneration regulations framework was updated as part of an annual review. This included the alignment of responsibilities of the Risk Committee and the Remuneration Committee in light of regulatory changes. In light of the renewal of the CLA and the employee changes in the Netherlands, the social plan was also discussed. Furthermore, the disclosure of the CEO pay ratio was discussed and approved for inclusion in this Annual Report, following the requirements of the new Dutch Corporate Governance Code.
Composition of the Executive and the Management Board Banking At the Annual General Meeting on 8 May 2017, two changes to the Executive Board were proposed and approved. Koos Timmermans was appointed as Executive Board member to succeed Patrick Flynn as CFO as per 8 May 2017, immediately following the Annual General Meeting. Steven van Rijswijk was appointed as Executive Board member as per 8 May 2017, immediately following the Annual General Meeting. He succeeded Wilfred Nagel as CRO as per 1 August 2017. Furthermore, Ralph Hamers was reappointed as CEO for four additional years. On 8 May 2017 Roland Boekhout was appointed as member of the Management Board Banking, to succeed Koos Timmermans as head of Market Leaders, immediately following the Annual General Meeting.
This chapter reports on the application of the Dutch Corporate Governance Code effective as from 1 January 2017, by ING Groep N.V. (‘ING Group’), including information on ING’s share capital, control, Executive Board, Supervisory Board and external auditor.
• The shareholder approval requirements for equity compensation plans under Dutch law and the Corporate Governance Code differ from those applicable to US companies that are subject to NYSE’s listing rules. These require a shareholder vote 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.
Capital Capital structure The authorised capital of ING Group consists of ordinary shares and cumulative preference shares. Currently, only ordinary shares are issued, while a call option to acquire cumulative preference shares has been granted to the ING Continuity Foundation (‘Stichting Continuïteit ING’). The acquisition of cumulative preference shares pursuant to the call option is subject to the restriction that, immediately after the issuance of cumulative preference shares, the total amount of cumulative preference shares outstanding may not exceed onethird of the total issued share capital of ING Group (see page 84). The purpose of this call option is to protect the independence, the continuity and the identity of ING Group against influences that are contrary to the interests of ING Group, its enterprise and the enterprises of its subsidiaries and all stakeholders (including, but not limited to, hostile takeovers). However, the ordinary shares are not used for protective purposes.
ING Group’s authorised capital is the maximum amount of capital allowed to be issued under the terms of the Articles of Association. New shares in excess of this amount can only be issued if the Articles of Association are amended. For reasons of flexibility and to meet the requirement as set forth in the Bank Resolution and Recovery Directive (‘BRRD’) that the amount of authorised share capital should at all times be sufficient to permit the issuance of as many ordinary shares as required for a potential future bail-in, ING Group seeks to continue the authorised capital in the Articles of Association at the highest level permitted by law, which is five times the actually issued share capital.
The set-up and content of the currently applicable share issue authorisation have been discussed with many investors, proxy advisors and other stakeholders and ING has taken into account their feedback. It enables the Executive Board to issue ordinary shares (including the granting of rights to subscribe for ordinary shares, such as warrants or in connection with convertible debt instruments) for a period of 18 months, ending on 8 November 2018: 1 Up to 40 percent of the issued share capital in connection with a rights issue, being a share offering to all shareholders in proportion to their existing holdings of ordinary shares as nearly as may be practical. However, the Executive Board and Supervisory Board may exclude certain shareholders from such a share offering for practical or legal reasons such as record dates, fractional entitlements, treasury shares, applicable legal restrictions on share offerings or in the context of a syndicated rights issue; plus 2 Up to 10 percent of the issued share capital, with or without pre-emptive rights of existing shareholders.
In line with market practice, ING Group currently intends to include the following categories of shareholders in such a rights issue: 1 Qualified investors as well as retail investors in the
Transfer of shares and transfer restrictions Shares not included in the Securities Giro Transfer system (‘Wet Giraal Effectenverkeer’ system) are transferred by means of a deed of transfer between the transferor and the transferee. To become effective, ING Group has to acknowledge the transfer, unless ING Group itself is a party to the transfer. The Articles of Association do not restrict the transfer of ordinary shares whereas the transfer of cumulative preference shares is subject to prior approval of the Executive Board. ING Group is not aware of the existence of any agreement pursuant to which the transfer of ordinary shares or depositary receipts for such shares is restricted.
Details of investors, if any, who have reported their interest in ING Group pursuant to the Dutch Financial Supervision Act (or the predecessor of this legislation), are shown on page 52.
ING Group is not aware of any investors (or potential shareholders) with an interest of three percent or more in ING Group other than those shown on page 52 as per year-end 2017.
ING Group may decide not to accommodate or accept any requests or invitations to enter into a dialogue with potential investors, or to accommodate or accept such request or invitation under specific conditions. ING does not initiate bilateral contacts or contacts with the press during the period immediately prior to publication of regular quarterly results.
Record date Pursuant to Dutch law, the record date for attending a general meeting and voting on the proposals at that general meeting is the 28th day before the day of the general meeting. Only those who hold shares at the record date are entitled to attend the general meeting and to exercise other rights related to the general meeting in question on the basis of their holding at the record date, notwithstanding any subsequent sale or purchase of shares. The record date is published in the notice for the general meeting. If the shortened convocation of 10 days is applicable (see above, paragraph: ‘Frequency, notice and agenda of General Meetings’), the record date is two days after the convocation date.
Attending General Meetings Holders of ordinary shares may attend a General Meeting in person, or may grant a proxy in writing to a third party to attend the meeting and to vote on their behalf. Prior to a General Meeting, ING will make proxy forms available on its website. For logistical reasons, attending the General Meeting, either in person or by proxy, is subject to the requirement that ING Group is notified in advance. Instructions to that effect are included in the notice for the General Meeting.
Proxy voting forms for shareholders are made available on the website of ING Group (www.ing.com). By returning the form, shareholders will give a proxy to an independent proxy holder (a public notary registered in the Netherlands) who will vote according to the instructions expressly given on the proxy form. The submission of these forms is subject to additional conditions specified on such forms.
• The appointment of the external auditor. • 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 with approval by the Supervisory Board.
Reporting Resolutions adopted at a General Meeting are generally published on the website of ING Group (www.ing.com), within one week following the meeting. In accordance with the Corporate Governance Code, the draft minutes of the General Meeting are made available to shareholders on the website of ING Group (www.ing.com) no later than three months after the meeting. Shareholders may react to the draft minutes in the following three months, after which the final minutes are adopted by the chairman of the meeting in question and by a shareholder appointed by that meeting. The final minutes are made available on the website of ING Group (www.ing.com). By exception to the provisions of the Corporate Governance Code, shareholders will not have the opportunity to react to the minutes of a General Meeting if a notarial report of the meeting is made, as this would be in conflict with laws applicable to such notarial report.
Function of the Executive Board The Executive Board is charged with the management of ING Group. This includes responsibility for setting and achieving ING Group’s strategy, objectives and policies, as well as the ensuing delivery of results. It also includes the day-to-day management of ING Group. The Executive Board is accountable for the performance of these duties to the Supervisory Board and the General Meeting. The responsibility for the management of ING Group is vested in the Executive Board collectively. The organisation, powers and modus operandi of the Executive Board are detailed in the Executive Board Charter as approved by the Supervisory Board.
ING Group indemnifies the members of the Executive Board against direct financial losses in connection with claims from third parties, as far as permitted by law, on the conditions laid down in the Articles of Association and their commission contract. ING Group has taken out liability insurance for the members of the Executive Board.
Remuneration and share ownership Members of the Executive Board are permitted to hold shares in the share capital of ING Group for long-term investment purposes. Transactions by members of the Executive Board in these shares are subject to the ING regulations for insiders. These regulations are available on the website of ING Group (www.ing.com).
Transactions involving actual or potential conflicts of interest In accordance with the Corporate Governance Code, transactions with members of the Executive Board in which there are significant conflicts of interest will be disclosed in the Annual Report.
For an overview of loans granted to members of the Executive Board, see page 95 of the ‘Remuneration report’.
Ralph Hamers has been a member of the Executive Board of ING Group since 13 May 2013 and was appointed CEO and chairman of the Executive Board and the Managing Board Banking on 1 October 2013. He is responsible for the proper functioning of the Exective Board and the Management Board Banking and its committees, formulating and implementing ING’s strategy, acting as main contact for the Supervisory Board. He is also responsible for the following departments: Innovation, Legal, Corporate Strategy, Corporate HR, Corporate Communications and Corporate Audit Services. He joined ING in 1991 and has held various positions including global head Wholesale Banking Network from 2007 to 2010, head of Network Management for Retail Banking Direct & International from 2010 to 2011, and CEO of ING Belgium and Luxembourg from 2011 to 2013. He holds a Master of Science degree in Business Econometrics/Operations Research from Tilburg University, the Netherlands.
J.V. (Koos) Timmermans), Chief Financial Officer (‘CFO’) (Born 1960, Dutch nationality, male; appointed in 2017, term expires in 2021)
Relevant positions pursuant to CRD IV: Member and CFO of the Executive Board of ING Groep N.V., member, CFO and vice-chairman of the Management Board of ING Bank N.V., member of the Management Board of ING Support Holding B.V. and member of the Supervisory Board of Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (‘FMO’, Entrepreneurial Development Bank).
S.J.A. (Steven) van Rijswijk, Chief Risk Officer (‘CRO’) (Born 1970, Dutch nationality, male; appointed in 2017, term expires in 2021)
Profile of members of the Supervisory Board The Supervisory Board has drawn up a profile to be used as a basis for its composition. It is available on the website of ING Group (www.ing.com).
Under special circumstances the Supervisory Board may, with explanation, deviate from this general rule, for instance to maintain a balanced composition of the Supervisory Board and/or to preserve valuable expertise and experience. The schedule for resignation by rotation is available on the website of ING Group (www.ing.com).
Ancillary positions/conflicting interests Members of the Supervisory Board may hold other positions, including directorships, either paid or unpaid. CRD IV restricts the total number of supervisory board positions or non-executive directorships with commercial organisations that may be held by a Supervisory Board member to four, or to two, if the Supervisory Board member also has an executive board position. The European Central Bank may, under special circumstances, permit a Supervisory Board member to fulfil an additional supervisory board position or non-executive directorship. Positions with, inter alia, subsidiaries or qualified holdings are not taken into account in the application of these restrictions. Such positions may not conflict with the interests of ING Group. It is the responsibility of the individual member of the Supervisory Board and the Supervisory Board to ensure that the directorship duties are performed properly and are not affected by any other positions that the individual may hold outside ING Group.
For an overview of loans granted to members of the Supervisory Board, see the ‘Remuneration report’ chapter (page 98).
Committees of the Supervisory Board On 31 December 2017, the Supervisory Board had four committees: the the Risk Committee, the Audit Committee, the Nomination and Corporate Governance Committee and the Remuneration Committee. An organisational chart of the four committees of the Supervisory Board can be found above.
The Audit Committee assists and advises the Supervisory Board in monitoring the integrity of the financial statements of ING Group, and ING Bank N.V., in monitoring the compliance with legal and regulatory requirements and in monitoring the independence and performance of ING Group’s internal and external auditors. On 31 December 2017, the members of the Audit Committee were: Hermann-Josef Lamberti (chairman), Eric Boyer de la Giroday, Robert Reibestein and Hans Wijers. Following the unforeseen departure in September 2015 of Carin Gorter, the Supervisory Board has determined that no member of the Audit Committee is an “audit committee financial expert” as defined by the SEC. The Supervisory Board subsequently sought to identify further members of the Audit Committee who would also qualify as an “audit committee financial expert” as defined by the SEC. This resulted in the proposed appointment of Margarete Haase; the Supervisory Board has determined that she is an “audit committee financial expert” as defined by the SEC. Margarete Haase was appointed as a member of the Supervisory Board at the General Meeting in May 2017.
Information on members of the Supervisory Board J. (Jeroen) Van der Veer (Chairman) (Born 1947, Dutch nationality, male; appointed in 2009, term expires in 2018) Former position: Chief Executive Officer of Royal Dutch Shell plc.
H.J.M. (Hermann-Josef) Lamberti (Vice-Chairman) (Born 1956, German nationality, male; appointed in 2013, term expires in 2021) Former position: Chief Operating Officer of Deutsche Bank AG.
Relevant positions pursuant to CRD IV: Vice-chairman of the Supervisory Board of ING Groep N.V./ING Bank N.V., non-executive member of the Board of Directors of Airbus Group N.V., chairman of the Supervisory Board of Addiko Bank and director of Frankfurt Technology Management GmbH.
Relevant positions pursuant to CRD IV: Member of the Supervisory Board of ING Groep N.V./ING Bank N.V. per 1 September 2017.
Other relevant ancillary positions: Professor of governance, institutions and internationalisation of Erasmus University Rotterdam (the Netherlands), external senior adviser to EY, Chairman of the Advisory Board of the International Advisory Board (IAB) Rotterdam, member of the Supervisory Board of Goldschmeding Foundation, chairman of the Board of Maatschappelijke Alliantie (the Netherlands) and chairman of the Advisory Board of Noaber Foundation.
Other relevant ancillary position: Non-executive director of the board of directors of the Instituts Internationaux de Physique et de Chimie fondés par Ernest Solvay, asbl.
Relevant positions pursuant to CRD IV: Member of the Supervisory Board of ING Groep N.V./ING Bank N.V., non-executive director of Brink Groep B.V. and executive director of Executive Development Dialogue B.V.
M. (Mariana) Gheorghe (Born 1956, Romanian nationality, female, appointed in 2015, term expires in 2019) Former position: international banker with the European Bank for Reconstruction.
Other relevant ancillary positions: Chairwoman of the Employers Association of Kölnmetall and member of the German Corporate Governance Commission.
R.W.P. (Robert) Reibestein (Born 1956, Dutch nationality, male; appointed in 2012 as an observer, full member as of 2013, term expires in 2021) Former position: senior partner of McKinsey & Company.
Change of control clauses in material agreements ING Group is not a party to any material agreement that becomes effective or is required to be amended or terminated, in case of a change of control of ING Group following a public bid as defined in section 5:70 of the Dutch Financial Supervision Act. ING Group subsidiaries may have customary change of control arrangements included in agreements related to various business activities, such as joint-venture agreements, letters of credit and other credit facilities, ISDA-agreements, hybrid capital and debt instruments, insurance and reinsurance agreements and futures and option trading agreements. Following a change of control of ING Group (as a result of a public bid or otherwise) such agreements may be amended or terminated, leading, for example, to an obligatory transfer of the interest in the joint venture, early repayment of amounts due, loss of credit facilities or reinsurance cover, and liquidation of outstanding futures and option trading positions.
The Risk and Capital Management section as part of the Report of the Executive Board and the Risk Management paragraph as part of the consolidated annual accounts elaborate on ING’s identified financial and non-financial risks (such as credit risk, market risk, operational risk, compliance risk, funding & liquidity risk and business risk) and how these risks are managed. These sections provide insight into the potential impact on the results of ING Groep N.V. that come forth from these identified risks. The design and functioning of the internal risk management and control systems is based on the Risk Appetite Framework and the Non-Financial Risk Framework. Both frameworks, explained in details in the Risk Management paragraph as part of the consolidated Annual Accounts, combine various financial and non-financial risk disciplines into a single converged approach and provide the businesses with a clear and fair view on their risks and the way these are managed. This view allows the Executive Board and senior management to form an opinion on the adequacy of internal risk management and control systems regarding the risks they face while pursuing the Executive Board’s strategy. In addition, ING has a process in place regarding internal control over financial reporting for which the CEO and CFO of ING Groep N.V. issue a statement regarding ING’s financial reporting risks, i.e. Section 404 of the Sarbanes-Oxley Act in this Annual report.
As required by section 5:25c paragraph 2(c) of the Dutch Financial Supervision Act, each of the signatories hereby confirms that to the best of his or her knowledge: • the ING Groep N.V. 2017 Annual Accounts give a true and fair view of the assets, liabilities, financial position and profit or loss of ING Groep N.V. and the enterprises included in the consolidation taken as a whole; and
SOX 404 activities are organised along the lines of the governance structure, and involve the participation of senior management across ING. Following the SOX 404 process, ING is in the position to publish an unqualified statement that the Company’s internal control over financial reporting was effective as of 31 December 2017. The SOX 404 statement by the Executive Board is included on this page, followed by the report of the external auditor as issued on Form 20-F.
Report of the Executive Board on Internal Control Over Financial Reporting The Executive Board is responsible for establishing and maintaining adequate internal control over financial reporting. ING’s internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
To: the shareholders and the Supervisory Board of ING Groep N.V. Opinion on Internal Control Over Financial Reporting We have audited ING Groep N.V. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of the Executive Board on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Remuneration policy ING We have a global remuneration policy in place applicable to all staff across our more than 40 countries.
ING aims to provide total direct compensation levels for expected business and individual performance which, on average, are at the median of the markets in which we operate, benchmarked against relevant peer groups.
The pre-award risk assessment process aims to consider the full range of any current and potential future risks. As part of this process, ING takes into account the company performance at bank, business line and individual levels, as well as a solvency test.
Sustainable ING supports sustainable recruitment, engagement and retention of all staff.
The post-award risk assessment process analyses whether the outcomes of the initial pre-award risk assessment process were correct. This can, and in certain situations must, result in a downward adjustment of variable remuneration by applying a holdback (i.e. forfeiture of up to 100% of the awarded and unvested variable remuneration) and/or claw back (surrender of up to 100% of the paid or vested variable remuneration).
• No single rating system: every single ING employee and manager receives an evaluation (excellent, well done, improvement required) on each of the three performance dimensions: Job expectations, Orange Code and Stretch Ambitions.
Performance is assessed against financial and nonfinancial indicators. Non-financial indicators aim to further improve ING’s responsible and sustainable business practices and include one or more of the following: • Customer satisfaction • Risk management • Stakeholder engagement • Orange Code behaviours • Workforce diversity • Environmental and social criteria • Sustainable business practices.
Risk mitigation measures may lead to an adjustment of the performance outcome and affect compensation.
Variable remuneration Compliant with legal requirements, variable remuneration for the members of the Executive Board is limited to a maximum of 20% of base salary at the time of award. It is based for at least 50% on non-financial performance and is fully paid out in shares.
Both the upfront and deferred part of variable remuneration are fully awarded in shares. To all share awards granted to Executive Board members in their capacity as board member a minimum retention period of five years from the date of conditional grant of the shares and one year from the vesting date applies. However, they are allowed to sell part of their shares on the date of vesting to pay tax on the vested share award. Fully awarding variable remuneration in shares, in combination with an extensive deferral and retention period, enables us to link remuneration with ING’s long-term value creation.
Tenure All current members of the Executive Board have a commission contract for an indefinite period of time including an appointment or reappointment period of four years as approved at the AGM. In the case of an involuntary exit, Executive Board members are eligible for an exit arrangement. These arrangements are subject to specific requirements (e.g. limited to a maximum of one year of base salary, no reward for failure).
• Proceeding on digital transformation programmes to improve customer experience and realise further efficiency gains
In line with the revised Dutch Corporate Governance Code, the internal ratio of the Executive Board members’ remuneration and that of a representative reference group was determined. For this ratio, ING deems most relevant the total direct compensation of the CEO compared to the average total direct compensation of all approximately 54,000 ING employees worldwide. For the CEO a ratio of 1:33 applies. For the sake of transparency we also calculated the ratio of the total direct compensation of the other Executive Board members compared to the average total direct compensation of all ING employees. On that basis for the other EB members (CFO/CRO) a ratio of 1:23 applies.1
• Accelerated the Think Forward Strategy by growing customer bases in Wholesale and Retail Banking and major investments made to create a differentiating customer experience.
• Comprises of the four major digital transformation programmes: • Orange Bridge: Redeployment process applied to around 5,000 staff; cross-border agile way of working implemented; merger of ING Belgium and Record Bank well on track. • Welcome: Fully digital current account opening launched; back office and call centre automation increased.
• Model Bank: new multi-country customer interaction platform currently being reviewed. • Wholesale Banking TOM: Consolidation of FM trading activities on track; continued roll-outs for a common global IT lending platform.
• All executives and around 1,500 managers participated in the phased roll-out of the Think Forward Leadership programme that amplifies the behaviours and skills leaders and managers need to reach our goals and unite ING.
• A new tool in Wholesale Banking called Katana that helps bond traders make faster and sharper pricing decisions using data visualisation and predictive analytics.
• Re-entering the UK retail banking market with the introduction of Yolt, a free mobile app to help people keeping track of their finances.
• Grew core lending by EUR 26.9 billion (+4.8%); increased customer deposits by EUR 19.0 billion (+3.6%). • Realised underlying return on equity for ING Group of 10.2%, up from 10.1% in 2016. • Improved CET1 ratio of ING Group to 14.7%. • Underlying operating expenses (excluding regulatory costs) moved from EUR 8.6 billion in 2016 to EUR 8.9 billion in 2017. Cost/Income ratio changed from 54.2% in 2016 to 55.5% in 2017.
Benefits The individual members of the Executive Board receive other emoluments, including savings allowances for the loss of pension benefits for salary above EUR 103,317 for 2017, employer contributions to savings schemes, reimbursement of costs related to home/work commuting, costs associated with the company car and costs associated with housing and schooling (for expats).
Shares Granting date Vesting date Nr. of shares granted4 Nr. of shares vested Vesting price
(ii) the Supervisory Board may decide that until the end of the tenure of an Executive Board member a mandatory minimum shareholding requirement up to one year gross cash base salary plus fixed shares will apply, including the principle ‘once achieved, always achieved’.
This new remuneration level remains approximately 7% below the lower, ‘modified’ Euro Stoxx 50 benchmark and, thus, in line with the principles of the Dutch Banking Code and ING’s Executive Board remuneration policy. It reflects the prudent approach taken by the Supervisory Board and the long-term sustainable character of ING’s Executive Board remuneration policy.
3 Hans Wijers was appointed to the Supervisory Board by the 8 May 2017 AGM. His Supervisory Board membership became effective as of 1 September 2017. The remuneration figures for 2017 reflect a partial year as a member of the Supervisory Board.
Loans and advances to Supervisory Board members Supervisory Board members may obtain banking and insurance services from ING Group subsidiaries in the ordinary course of their business and on terms that are customary in the sector. The Supervisory Board members do not receive privileged financial services. As of 31 December 2017 there are no loans and advances outstanding to Supervisory Board members.
Supervisory Board remuneration structure amounts in euros Annual remuneration Chairman Supervisory Board 125,000 Vice Chairman Supervisory Board 95,000 Supervisory Board Member 70,000 Committee fees (annual amounts) Chairman Committee 20,000 Member Committee 10,000 Chairman Corporate Governance Committee (until 9 May 2017) 7,500 Member Corporate Governance Committee (until 9 May 2017) 5,000 Attendance fees (per meeting) Attendance fee outside country of residence 2,000 Attendance fee outside continent of residence 7,500
Consolidated annual accounts Consolidated statement of financial position 103 Consolidated statement of profit or loss 104 Consolidated statement of comprehensive income 106 Consolidated statement of changes in equity 107 Consolidated statement of cash flows 110 Notes to the consolidated annual accounts 112 Notes to the accounting policies Reporting entity 112 Authorisation of the Consolidated annual accounts 112 Basis of preparation of the Consolidated annual accounts 112 1 Accounting policies 112 Notes to the Consolidated statement of financial position 2 Cash and balances with central banks 132 3 Loans and advances to banks 132 4 Financial assets at fair value through profit or loss 132 5 Investments 134 6 Loans and advances to customers 136 7 Investments in associates and joint ventures 138 8 Property and equipment 140 9 Intangible assets 141 10 Other assets 143 11 Deposits from banks 144 12 Customer deposits 144 13 Financial liabilities at fair value through profit or loss 144 14 Provisions 145 15 Other liabilities 147 16 Debt securities in issue 148 17 Subordinated loans 148 18 Equity 150 Notes to the Consolidated statement of profit or loss 19 Net interest income 157 20 Net commission income 158 21 Valuation results and net trading income 158 22 Investment income 160 23 Result on disposal of group companies 160 24 Other income 160 25 Staff expenses 161 26 Other operating expenses 164 27 Discontinued operations 165 28 Earnings per ordinary share 167 29 Dividend per ordinary share 168 Notes to the Consolidated statement of cash flows 30 Net cash flow from investing activities 168 31 Changes in liabilities arising from financing activities 168 32 Cash and cash equivalents 168 Segment reporting 33 Segments 169 34 Information on geographical areas 177
Other information Independent auditor’s report 309 Articles of Association – Appropriation of results 315
ING Group Annual Report 2017 103 in EUR million 2017 2016
Net result attributable to Equityholders of the parent 4,905 4,651 4,010
Remeasurement of the net defined benefit asset/liability 35 –29 –65 24
Unrealised revaluations available-for-sale investments and other revaluations –293 –293 10 –283
Realised gains/losses transferred to the statement of profit or loss –90 –90 –2 –92
Total amount recognised directly in other comprehensive income –1,682 –117 –1,799 27 –1,772 Net result from continuing and discontinued operations 153 4,752 4,905 82 4,987
Changes in individual reserve components are presented in Note 18 ‘Equity’.
Remeasurement of the net defined benefit asset/liability 35 –65 –65 –65
Total amount recognised directly in other comprehensive income 4 –265 –261 –75 –336 Net result from continuing and discontinued operations 124 4,527 4,651 75 4,726
Realised gains/losses transferred to the statement of profit or loss –94 –94 2 –92
Share of other comprehensive income of associates and joint ventures –7 –7 2 –5
Effect of exchange rate changes on cash and cash equivalents 260 155 –342
5 In 2016, Repayment of subordinated loans includes a cash outflow of EUR 128 million related to the third and final tranche of mandatory exchangeable subordinated notes from the Anchor investors into NN Group ordinary shares in February 2016.
Comparison of the Consolidated statements of cash flow between 2017, 2016, 2015 is impacted by NN Group. Included in the 2015 statement of cash flow is the NN Group cash flows for five months until deconsolidation at the end of May 2015.
The ING Group Consolidated annual accounts have been prepared on a going concern basis.
b) Upcoming changes in IFRS after 2017 Changes to IFRS effective in 2018 and onwards expected to have no significant impact on ING Group The following published amendments are not mandatory for 2017 and have not been early adopted by the group. ING Group is still currently assessing the detailed impact of these amendments, however the implementation of these amendments is expected to have no significant impact on ING Group’s Consolidated annual accounts.
In 2017 the program’s focus was on: • Performing three ‘parallel runs’ to test readiness of systems, processes and a number of controls for transition to IFRS 9 as per 1
ING has almost completed the implementation of IFRS 9. The main procedures that are in the process of being finalised are the transfer of program activities, further embedding internal controls in the processes, and the last model validations.
Two criteria are used to determine how financial assets should be classified and measured at amortised cost (AC), fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVPL): 1. The business model assessment, performed to determine how a portfolio of financial instruments as a whole is managed in order to classify the business model as Hold to Collect (HtC), Hold to Collect & Sell (HtC&S), or other; and 2. The contractual cash flow characteristics test, performed to determine whether the financial instruments give rise to cash flows that are Solely Payments of Principal and Interest (SPPI). Principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period and for other basic lending risk and costs as well as margin.
• The remaining amount of change in the fair value is presented in the SOPL. The impact of this change is that an amount of approximately EUR 0.2 billion will be reclassified within equity from Retained earnings to OCI.
Impact As a result of the combined application of the business model analysis and SPPI test, the classification and measurement of the following portfolios will change: • The most significant change is the reclassification of a part of the available-for-sale (AFS) investment portfolio, which will be split into a portfolio classified at AC and a portfolio at FVOCI. Approximately EUR 35.5 billion of debt securities previously classified at AFS under IAS 39 will be measured at AC based on the IFRS 9 HtC business model. The reclassification from AFS to AC will result in a reduction of the unrealised revaluation gains in equity at transition date of approximately EUR 0.6 billion.
• For a mortgage portfolio of EUR 3.4 billion, the measurement will change from AC to FVOCI as it meets the HtC&S business model requirements. As the fair value of the portfolio is higher than the AC, this wil have a positive impact on equity of EUR 0.2 billion.
Financial instruments that have not had a significant increase in credit risk since initial recognition require, at initial recognition a provision for ECL associated with the probability of default events occurring within the next 12 months (12 month ECL). For those financial assets with a remaining maturity of less than 12 months, a Probability of Default (PD) is used that corresponds to the remaining maturity.
• Stage 2: Lifetime ECL – Significantly increased credit risk In the event of a significant increase in credit risk since initial recognition, a provision is required for the lifetime ECL representing losses over the life of the financial instrument (lifetime ECL).
Significant increase in credit risk A financial asset moves from Stage 1 to Stage 2 when there is a significant increase in credit risk since initial recognition. ING Group established a framework which incorporates quantitative and qualitative information to identify this on an asset level applying a relative assessment. Each financial asset will be assessed at the reporting date on the triggers for significant deterioration. ING Group assesses significant increase in credit risk using: • Delta in the lifetime default probability; • Forbearance status; • Watch list status. Loans on the watchlist are individually assessed for Stage 2 classification; • Intensive care management; • Internal rating; • Arrears; and the • More than 30 days past due backstop for Stage 1 to Stage 2 transfers.
The alternative scenarios are based on observed forecast errors in the past, adjusted for the risks affecting the economy today, and the forecast horizon. The probabilities assigned are based on the likelihoods of observing the three scenarios and are derived from confidence intervals on a probability distribution. The scenarios are adjusted on a quarterly basis.
As the inclusion of forward-looking macroeconomic scenarios requires judgement, a Macroeconomic scenarios team and a Macroeconomic scenarios expert panel were established. The Macroeconomic scenarios team is responsible for the macroeconomic scenarios used for IFRS 9 ECL purposes with a challenge by the Macroeconomic scenarios expert panel. This ensures that the macroeconomic scenarios are sufficiently challenged and that key economic risks, including immediate short term risks, are taken into consideration when developing the macroeconomic scenarios used in the calculation of ECL. The Macroeconomic scenarios expert panel is a diverse team composed of senior management representatives from the Business, Risk, Finance, and an external party.
Individual provisions (ISFA, INSFA) 3.9 Stage 3 – Lifetime ECL 0.02 3.9 1 Includes provisions for contingent liabilities 2 The change for Stage 3 financial assets is rounded.
The estimated impact of the adoption of IFRS 9 on shareholders’ equity is approximately EUR -0.9 billion and -18 basis points on CET1 capital ratio at implementation date 1 January 2018, consisting of: Estimated IFRS 9 transition impact impairments as at 1 January 20181
ING assessed the impact of IFRS 15 and expects that it will have no significant effect on ING Group’s Net result and/or Other comprehensive income and Shareholders’ equity.
Realised gains and losses on financial assets For financial assets at amortised cost, realised gains and losses on investments are determined as the difference between the sale proceeds and amortised cost. For available-for-sale financial assets, the accumulated fair value adjustments in other comprehensive income are included in the statement of profit or loss when the asset is disposed. For equity securities, the cost is determined using a weighted average per portfolio. For debt securities, the cost is determined by specific identification.
Recognition of financial liabilities Financial liabilities are recognised on the date that the entity becomes a party to the contractual provisions of the instrument.
Derecognition of financial liabilities Financial liabilities are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished and the consideration paid is recognised in profit or loss.
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus transaction costs. Subsequently, they are carried at amortised cost using the effective interest method less any impairment losses. Loans and receivables include Cash and balances with central banks, Loans and advances to banks, Loans and advances to customers, and some categories of Other assets and are reflected in these line items in the statement of financial position. Interest income from loans and receivables is recognised in Interest income in the statement of profit or loss using the effective interest method.
For certain financial assets and liabilities quoted market prices are not available. For these financial assets and liabilities, fair value is determined using valuation techniques. These valuation techniques range from discounting of cash flows to various valuation models, where relevant pricing factors including the market price of underlying reference instruments, market parameters (volatilities, correlations and credit ratings), and customer behaviour are taken into account. ING maximises the use of market observable inputs and minimises the use of unobservable inputs in determining the fair value. It can be subjective dependent on the significance of the unobservable input to the overall valuation. All valuation techniques used are subject to internal review and approval. Most data used in these valuation techniques are validated on a daily basis when possible.
Impairments of financial assets at amortised cost (loan loss provisions) ING Group assesses periodically and at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, but before the balance sheet date, (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The following circumstances, among others, are considered objective evidence that a financial asset or group of assets is impaired: • The borrower has sought or has been placed in bankruptcy or similar protection and this leads to the avoidance of or delays in repayment of the financial asset; • The borrower has failed in the repayment of principal, interest, or fees and the payment failure has remained unsolved for a certain period; • The borrower has demonstrated significant financial difficulty, to the extent that it will have a negative impact on the expected future cash flows of the financial asset; • The credit obligation has been restructured for non-commercial reasons. ING Group has granted concessions, for economic or legal reasons relating to the borrower’s financial difficulty, the effect of which is a reduction in the expected future cash flows of the financial asset; and
ING Group estimates individual impairment provisions for individually significant financial assets that have objective evidence of impairment. The key judgement exercised in this area is determination of when an impairment event has occurred. Key assumptions in determining the amount of the individual provision are the expected future cash flows from the financial asset in question.
Expected future cash flows in a portfolio of financial assets that are collectively evaluated for impairment, are estimated on the basis of the contractual cash flows of the assets in the portfolio and historical loss experience for assets with credit risk characteristics similar to those in the portfolio. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Current observable data may include changes in unemployment rates, property prices, and commodity prices. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
The Group’s investment in associates and joint ventures (net of any accumulated impairment loss) includes goodwill identified on acquisition. The Group’s share of its associates and joint ventures post-acquisition profits or losses is recognised in the statement of profit or loss, and its share of post-acquisition changes in reserves is recognised in equity. The cumulative post-acquisition changes are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, including any long-term interests in the associate like uncollateralised loans that are neither planned nor likely to be settled in the foreseeable future, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the associates and joint ventures. Unrealised losses are also eliminated unless they provide evidence of an impairment of the asset transferred. Accounting policies of associates and joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group. The reporting dates of all significant associates and joint ventures are consistent with the reporting date of the Group.
Acquisitions, goodwill and other intangible assets Acquisitions and goodwill ING Group’s acquisitions are accounted for using the acquisition method of accounting. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued in exchange for control of the acquiree. Goodwill, being the difference between the cost of the acquisition (including assumed debt) and the Group’s interest in the fair value of the acquired assets, liabilities and contingent liabilities as at the date of acquisition, is capitalised as an intangible asset. Goodwill is only capitalised on acquisitions. The results of the operations of the acquired companies are included in the statement of profit or loss from the date control is obtained.
Goodwill impairment ING assesses at each reporting period, whether there is an indication that an intangible asset may be impaired. Irrespective of whether there is an indication of impairment, intangible assets with an indefinite useful life, including goodwill acquired in a business combination, and intangible assets not yet available for use, are tested annually for impairment. Goodwill is allocated to groups of CGUs (that is, the group of cash generating units or CGUs) for the purpose of impairment testing. These groups of CGUs represent the lowest level at which goodwill is monitored for internal management purposes. Goodwill is tested for impairment by comparing the carrying value of the group of CGUs to the recoverable amount of that group of CGUs. The carrying value is determined as the IFRS net asset value including goodwill. In compliance with IAS 36 ‘Impairment of assets’, the carrying value is determined on a basis that is consistent with the way in which the recoverable amount of the CGU is determined. When the carrying values need to be allocated between Retail and Wholesale, solvency (risk-weighted assets) are used as a basis. The recoverable amount is estimated as the higher of fair value less costs of disposal and value in use. Several methodologies are applied to arrive at the best estimate of the recoverable amount. Impairment of goodwill, if applicable, is included in the statement of profit or loss in Other operating expenses.
Changes in the defined benefit obligation that effects Shareholders’ equity and/or Net result, include mainly: • Service cost which are recognised as staff costs in the statement of profit or loss; • Interest expenses using a high quality corporate bond rate at the start of the period which are recognised as staff costs in the
Diluted earnings per share data are computed as if all convertible instruments outstanding at year-end were exercised at the beginning of the period. It is also assumed that ING Group uses the assumed proceeds thus received to buy its own shares against the average market price in the financial year. The net increase in the number of shares resulting from the exercise is added to the average number of shares used to calculate diluted earnings per share.
The net cash flow shown in respect of Loans and advances to customers relates only to transactions involving actual payments or receipts. The Addition to loan loss provision which is deducted from the item Loans and advances to customers in the statement of financial position has been adjusted accordingly from the result before tax and is shown separately in the statement of cash flows.
Reference is made to Note 41 ‘Assets not freely disposable’ for restrictions on Cash balances with central banks.
Loans include balances (mainly short-term deposits) with central banks amounting to EUR 4,032 million (2016: EUR 2,880 million).
Reference is made to Note 41 ‘Assets not freely disposable’ for restrictions on Loans and advances to banks.
Other non-trading derivatives mainly includes interest rate swaps and foreign exchange currency swaps for which no hedge accounting is applied. As at 31 December 2017, Other non-trading derivatives includes EUR 51 million (2016: EUR 175 million ) and EUR 2 million (2016: EUR 19 million) related to warrants on the shares of Voya Financial Inc. and NN Group N.V. respectively. In 2017 ING sold warrants for 19 million of the shares in Voya Financial Inc. Reference is made to Note 21 ‘Valuation results and net trading income’.
Financial assets at fair value through profit or loss 9,216 11,532
99% (2016: 97%) of the exposure in the ABS portfolio is externally rated AAA up to and including A-.
There are no borrowed debt securities recognised in the statement of financial position.
Loans to, or guaranteed by, public authorities 26,975 27,746 19,397 18,634 46,372 46,380
Loan loss provisions –1,693 –2,349 –2,822 –2,829 –4,515 –5,178 1 In 2017, Loans and advances to customers by type as at 31 December 2016 have been restated to conform to current year presentation.
As at 31 December 2017, Loans and advances to customers includes receivables with regard to securities which have been acquired in reverse repurchase transactions amounting to EUR 421 million (2016: EUR 47 million).
Loans and advances to customers and Loans and advances to banks include finance lease receivables and are detailed as follows: Maturities of gross investment in finance lease receivables
Loans to, or guaranteed by, public authorities 3 7 3 7
Loans guaranteed by credit institutions 2 2 7 12 9 14
Changes in the composition of the group and other changes 3
In 2017, Revaluations as presented in the table above of EUR –8 million relates to several smaller revaluations. In 2016 revaluations of EUR 38 million includes EUR 54 million relating to TMB, EUR 17 million relating to Equens SE, and EUR –31 million due to other revaluations.
In 2017, Disposals of EUR 245 million is mainly attributable to the sale of Appia Group Ltd UK of EUR 146 million and several other smaller divestments in associates. In 2016, Disposals of EUR 54 million is mainly attributable to the sale of Enterprise Center of EUR 40 million and capital repayment CBRE Asia Value Fund of EUR 10 million.
In 2017, disposals of EUR –145 million is mainly attributable to the sale of office buildings in Belgium.
Gross carrying amount as at 31 December 1,275 1,274 2,249 2,432 3,524 3,706
Net carrying value as at 31 December 816 903 648 571 5 10 1,469 1,484
The recoverable amount exceeds the carrying value of the CGUs for 2017 and 2016 and therefore no impairment is required.
Software Software, includes internally developed software amounting to EUR 477 million (2016: EUR 395 million).
The TLTRO aims to stimulate lending to the real economy in the Eurozone. The interest rate on the TLTRO’s is fixed over the life of each operation at the benchmark rate of the European Central Bank.
Other staff-related liabilities Other staff-related liabilities includes vacation leave provisions, variable compensation provisions, jubilee provisions, and disability/illness provisions.
Amounts to be settled Amounts to be settled decreased compared to 31 December 2017 as a result of lower market activity.
More than 1 year but less than 2 years 7,084 12,151
More than 2 years but less than 3 years 7,629 7,365
More than 1 year but less than 2 years 3,932 2,724
More than 2 years but less than 3 years 1,341 4,168
Share capital and share premium - Share capital 39 39 928
Issued share capital as at 31 December 2015 3,870,183 928 Issue of shares 8,301 2 Transfer to share premium –891
Issued share capital as at 31 December 2016 3,878,484 39 Issue of shares 7,306
Reference is made to Note 27 ‘Discontinued Operations’, for further information on NN Group divestment transactions.
Pursuant to the Dutch Civil Code, capital may only be repaid if none of ING Groep N.V.’s creditors opposes such a repayment within two months following the announcement of a resolution to that effect.
If, and to the extent that the profit available for distribution is not sufficient to pay the dividend referred to above in full, the shortfall will be made up from the reserves insofar as possible. If, and to the extent that, the dividend distribution cannot be made from the reserves, the profits earned in subsequent years shall first be used to make up the shortfall before any distribution may be made on shares of any other category.
Interest income on non-trading derivatives (no hedge accounting) 594 623 788
Brokerage and advisory fees 192 166 140 21 Valuation results and net trading income
Valuation results on assets and liabilities designated at fair value through profit or loss (excluding trading) –56 –79 372
The portion of trading gains and losses relating to trading securities still held as at 31 December 2017 amounts to EUR –68 million (2016: EUR –232 million; 2015: EUR 147 million).
In 2017, 2016 and 2015 the Result on disposal of group companies included realised deferred profits on divestments in prior periods related to Baring Private Equity Partners. In addition, 2015 includes a release of goodwill related to the disposal of the remaining portfolios of ING Lease (UK). Reference is made to Note 9 ‘Intangible assets’.
In 2015, Other income – Other was mainly impacted by positive results on the sale of loans and property, partly offset by nonrecurring charges related to increased prepayments and renegotiations of mortgages.
Continuing operations - average number of employees at full time equivalent basis 13,141 13,660 14,586 38,363 38,283 38,134 51,504 51,943 52,720
Share-based compensation arrangements include EUR 69 million (2016: EUR 69 million; 2015: EUR 63 million) relating to equity-settled share-based payment arrangements and EUR 5 million (2016: EUR 6 million; 2015: EUR 13 million) relating to cash-settled share-based payment arrangements.
The fair value of share awards granted is recognised as an expense under Staff expenses and is allocated over the vesting period of the share awards. As of 2015, ING Group no longer has share awards containing a market based performance condition. Previously, the fair values of share awards containing a market based performance condition have been determined using a Monte Carlo simulation based valuation model. The model takes into account the risk free interest rate, the current stock prices, expected volatilities and current dividend yields of the performance peer group used to determine ING’s Total Shareholder Return (TSR) ranking.
Addition/(unused amounts reversed) of other provisions 167 213 7 1 Computer costs is renamed to IT related expenses
Other operating expenses include lease and sublease payments in respect of operating leases of EUR 307 million (2016: EUR 310 million; 2015: EUR 281 million) in which ING Group is the lessee. No individual operating lease has terms and conditions that significantly affect the amount, timing and certainty of the consolidated cash flows of the Group.
Software and other intangible assets 30 44 15 30 44 15
Other operating expenses – Other in 2016 included a EUR 116 million one-off procured cost savings in Belgium.
Total net result from discontinued operations (before non-controlling interests) – 441 –122 1 The tax effect on the result on disposal of discontinued operations in 2016 is EUR 2 million (2015: nil).
Net result from discontinued operations – – 793 1 NN Group.
ING Group Annual Report 2017 168 29 Dividend per ordinary share
– Interim dividend, paid in cash in August 2016 0.24 931
Notes to the consolidated statement of cash flows 30 Net cash flow from investing activities Information on the impact of companies acquired or disposed is presented in Note 46 ‘Consolidated companies and businesses acquired and divested’.
31 Changes in liabilities arising from financing activities 2016 Cash Flows Non cash changes 2017
Total Liabilities from financing activities 120,457 97,789 –99,180 – 178 –40 –1,009 –6,141 112,054 32 Cash and cash equivalents
Cash and cash equivalents at end of year 18,977 16,164 20,379
–4,607 –614 –2,383 Total as included in the statement of financial position: – deposits from banks –36,821 –31,964 –33,813
The Executive Board of ING Group and the Management Board Banking set the performance targets, approve and monitor the budgets prepared by the business lines. Business lines formulate strategic, commercial, and financial policy in conformity with the strategy and performance targets set by the Executive Board of ING Group and the Management Board Banking.
Income from retail and private banking activities in Belgium (including Luxembourg), including the SME and mid-corporate segments. The main products offered are similar to those in the Netherlands.
Income from retail and private banking activities in Germany (including Austria). The main products offered are current and savings accounts, mortgages and other customer lending.
Underlying result as presented below is a non-GAAP financial measure and is not a measure of financial performance under IFRS. Because underlying result is not determined in accordance with IFRS, underlying result as presented by ING may not be comparable to other similarly titled measures of performance of other companies. The underlying result of ING’s segments is reconciled to the Net result as reported in the IFRS Consolidated statement of profit or loss below. The information presented in this note is in line with the information presented to the Executive Board of ING Group and Management Board Banking.
Remove impact of: 1 Net result, after tax and non-controlling interests. 2 Special items in 2017, comprise a tax charge at ING Australia Holdings Ltd related to the years 2007-2013, for which a full reimbursement is expected to be received from NN Group. 3 Insurance Other comprises mainly the net result relating to warrants on the shares of Voya Financial and NN Group N.V. 4 Underlying figures are derived from figures according to IFRS by excluding the impact from divestments, special items, Insurance Other, and discontinued operations.
1 Comprises for the most part the funding charges of ING Groep N.V. (Holding).
Remove impact of: Insurance Other3 –33 –33 1 Net result, after tax and non-controlling interests. 2 Special items in 2016 primarily comprise restructuring charges and impairments related to the intended digital transformation programmes as announced in
Net result IFRS from continuing operations 16,845 10,673 1,637 70 4,466
1 Comprised for the most part the funding charges of ING Groep N.V. (Holding).
Net result IFRS attributable to equity holder of the parent 4,659 –131 4,528 –518 4,010
Underlying net result 1,282 653 738 620 1,903 –221 4,976 Special items –192 –418 –12 –149 –27 –799
Underlying income – Net interest income 4,537 2,099 2,172 1,527 1,515 1,636 227 13,714
– Total investment and other income 445 480 –17 22 296 245 –193 1,277
– Total investment and other income 187 434 120 25 330 580 –33 1,642
The tables below provide additional information, for the years 2017, 2016 and 2015 respectively, on names of principal subsidiaries and branches, nature of main activities and average number of employees on a full time equivalent basis by country/tax jurisdiction.
Rest of Europe Poland ING Bank Slaski S.A. Wholesale banking/Retail banking 8,664 1,119 29,976 444 112
Spain Branch of ING Bank N.V. Wholesale banking/Retail banking 1,135 509 23,858 97 25
Italy Branch of ING Bank N.V. Wholesale banking/Retail banking 838 336 16,728 –4 7
Asia China Branch of ING Bank N.V. Wholesale banking 81 35 2,298 7 –2
1 Public subsidies received, as defined in article 89 of the CRD IV, amounts to EUR 0.5 million.
Australia has a very high tax charge due to a tax charge at ING Australia Holdings Ltd related to the years 2007-2013, for which a full reimbursement is expected to be received from NN Group. Although the impact on net result was nil, this special item affected both the tax and ‘other income’ line in the Consolidated statement of profit or loss. Due to the tax reforms in the US and Belgium, which resulted in a tax charge to record a reduction in deferred tax assets, the tax charge is significantly higher. Austria, China, Singapore and Taiwan all have lower tax charges due to prior year adjustments.
ING Bank N.V. Wholesale banking/Retail banking 13,660 5,767 295,120 1,341 343
Romania Branch of ING Bank N.V. Wholesale banking/Retail banking 1,806 288 5,456 123 21
Latin America Brazil Branch of ING Bank N.V. Wholesale banking 70 43 2,097 13 –
Asia China Branch of ING Bank N.V. Wholesale banking 72 36 2,049 7 –2
ING Bank N.V. Wholesale banking/Retail banking 14,586 5,185 471,510 818 365
France1 Branch of ING Bank N.V. Wholesale banking/Retail banking 625 256 7,489 67 23
Latin America Brazil Branch of ING Bank N.V. Wholesale banking 56 48 1,496 32 12
Asia China Branch of ING Bank N.V. Wholesale banking 59 39 1,551 16 10
Hong Kong Branch of ING Bank N.V. Wholesale banking 103 85 5,052 49 1
The Netherlands has a high tax charge, partly due to the non-deductible Dutch bank tax and partly due to the recognition of a deferred tax liability regarding previously deducted (UK) branch losses. The UK has a low tax charge due to the recognition of previously unrecognised tax losses carried forward. Mauritius has no tax charge, due to an unrealised tax exempt result, following the merger of ING Vysya with Kotak in April 2015.
Additional notes to the Consolidated annual accounts 35 Pension and other post-employment benefits 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 provisions in the statement of financial position, other than relating to short-term timing differences included in other assets/liabilities.
Other countries 161 117 341 277 –180 –160 Funded status (Net defined benefit asset/liability) 3,206 3,337 3,140 3,249 66 88
ING does not manage the pension funds and thus receives no compensation for fund management. The pension fund has not engaged ING in any swap or derivative transactions to manage the risk of the pension funds.
Remeasurements: Actuarial gains and losses arising from changes in demographic assumptions –7 –17 9 10
Amounts recognised directly in Other comprehensive income (equity) were as follows: Opening balance –371 –306
The accumulated amount of remeasurements recognised directly in Other comprehensive income (equity) is EUR –476 million (EUR – 400 million after tax) as at 31 December 2017 (2016: EUR –483 million, EUR –371 million after tax).
Determination of the net defined benefit asset/liability The defined net benefit asset/liability is reviewed and adjusted annually. The assumptions used in the determination of the net defined benefit asset/liability and the Other post-employment benefits include discount rates, mortality rates, expected rates of salary increases (excluding promotion increases), and indexation. The rates used for salary developments, interest discount factors, and other adjustments reflect country-specific conditions.
Sensitivity analysis of key assumptions ING performs sensitivity analysis on the most significant assumptions: discount rates, mortality, expected rate of salary increase, and indexation. The sensitivity analysis has been carried out under the assumption the changes occurred at the end of the reporting period.
Financial assets and liabilities at fair value through profit or loss 697 –290 12 419
Financial assets and liabilities at fair value through profit or loss 739 –58 16 697
Unused tax losses carried forward recognised as a deferred tax asset 658 903
The table above includes a breakdown of certain net deferred tax asset positions by jurisdiction for which the utilisation is dependent on future taxable profits whilst the related entities have incurred losses in either the current or the preceding year. In 2017, the aggregate amount for the most significant entities is EUR 107 million (2016: EUR 113 million).
(reimbursement is included in the result before tax), recorded under ‘Adjustment to prior periods’; • Impact on deferred tax positions following changes in the income tax rate in the USA and Belgium, recorded under ‘Impact on deferred tax from change in tax rates’; and • The recapture of previously deducted UK tax losses in the Netherlands due to increased profitability in the United Kingdom, recorded under ‘Current tax from previously unrecognised amounts’.
The effective tax rate in 2015 was lower than the weighted average statutory tax rate. This was mainly caused by non-taxable income, the recognition of tax benefits from previously unrecognised amounts and prior year adjustments which were only partly offset by non-deductible items.
Changes in composition of the group and other changes –12 –1
• Bid-Offer adjustments are required to adjust mid-market values to appropriate bid or offer value in order to best represent the exit value, and therefore fair value. It is applicable to financial assets and liabilities that are valued at mid-price initially. In practice this adjustment accounts for the difference in valuation from mid to bid and mid to offer for long and short exposures respectively. In principle assets are valued at the bid prices and liabilities are valued at the offer price. For certain assets or liabilities, where market quoted price is not available, the price within the bid-offer spread that is most representative of fair value is used.
Financial assets at fair value through profit or loss and Investments Derivatives Derivatives contracts can either be exchange-traded or over the counter (OTC). The fair value of exchange-traded derivatives is determined using quoted market prices in an active market and those derivatives are classified in Level 1 of the fair value hierarchy. For those instruments not actively traded, fair values are estimated based on valuation techniques. OTC derivatives and derivatives trading in an inactive market are valued using valuation techniques because quoted market prices in an active market are not available for such instruments. The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instruments. The principal techniques used to value these instruments are based on (amongst others) discounted cash flows option pricing models and Monte Carlo simulation. These valuation models calculate the present value of expected future cash flows, based on ‘no-arbitrage’ principles. These models are commonly used in the financial industry. Inputs to valuation models are determined from observable market data where possible. Certain inputs may not be observable in the market directly, but can be determined from observable prices via valuation model calibration procedures. The inputs used include for example prices available from exchanges, dealers, brokers or providers of pricing, yield curves, credit spreads, default rates, recovery rates, dividend rates, volatility of underlying interest rates, equity prices, and foreign currency exchange rates. These inputs are determined with reference to quoted prices, recently executed trades, independent market quotes and consensus data, where available.
The fair value of private equity is based on quoted market prices, if available. In the absence of quoted prices in an active market, fair value is estimated on the basis of an analysis of the investee’s financial position and results, risk profile, prospects, price, earnings comparisons and revenue multiples, and by reference to market valuations for similar entities quoted in an active market.
Level 1 – (Unadjusted) quoted prices in active markets This category includes financial instruments whose fair value is determined directly by reference to (unadjusted) quoted prices in an active market that ING Group can access. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer markets, brokered markets, or principal to principal markets. Those prices represent actual and regularly occurring market transactions with sufficient frequency and volume to provide pricing information on an ongoing basis. Transfers out of Level 1 into Level 2 or Level 3 occur when ING Group establishes that markets are no longer active and therefore (unadjusted) quoted prices no longer provide reliable pricing information.
Level 3 Financial assets and liabilities Financial assets measured at fair value in the statement of financial position as at 31 December 2017 of EUR 193 billion includes an amount of EUR 2.0 billion (1.1%) which is classified as Level 3 (31 December 2016: EUR 2.5 billion, being 1.2%). Changes in Level 3 from 31 December 2016 to 31 December 2017 are disclosed above in the table Changes in Level 3 Financial assets.
Furthermore, Level 3 financial assets includes approximately EUR 0.4 billion (31 December 2016: EUR 0.5 billion) which relates to financial assets that are part of structures that are designed to be fully neutral in terms of market risk. Such structures include various financial assets and liabilities for which the overall sensitivity to market risk is insignificant. Whereas the fair value of individual components of these structures may be determined using different techniques and the fair value of each of the components of these structures may be sensitive to unobservable inputs, the overall sensitivity is by design not significant.
The remaining EUR 0.3 billion (31 December 2016: EUR 0.5 billion) of the fair value classified in Level 3 financial liabilities is established using valuation techniques that incorporates certain inputs that are unobservable.
– Other 5 1 Option pricing model Commodity volatility (%) 9% 13% 42% 55%
Dividend yield Dividend yield is an important input for equity option pricing models showing how much dividends a company is expected to pay out each year relative to its share price. Dividend yields are generally expressed as an annualised percentage of share price.
Investments in associates and joint ventures are accounted for using the equity method. For further information, reference is made to Note 7 ’Investments in associates and joint ventures’. Other non-financial assets (Property in own use, and Investment properties) are recognised at fair value at the balance sheet date.
With respect to exchange rate and interest rate derivative contracts, the notional or contractual amount of these instruments is indicative of the nominal value of transactions outstanding at the balance sheet date; however they do not represent amounts at risk. ING Group uses credit derivatives to manage its exposure to credit risk, including total return swaps and credit default swaps, to sell or buy protection for credit risk exposures in the loan, investment, and trading portfolios. Hedge accounting is not applied in relation to credit derivatives.
Fair values of outstanding derivatives designated under fair value hedge accounting
This cash flow hedge reserve will fluctuate with the fair value changes of the underlying derivatives and will be reflected in the statement of profit or loss 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 26 years, with the largest concentrations in the range of 1 to 3 years.
Fair values of outstanding derivatives designated under cash flow hedge accounting
Loans and advances to banks 14,638 4,373 5,414 3,779 654 28,858
Loans and advances to customers 56,151 17,187 42,515 162,805 285,002 563,660
Remaining assets (for which maturities are not applicable)3 3,143 3,143 1 Includes assets on demand. 2 Includes Other assets and Current and Deferred tax assets, commodities, and precious metals (which have no maturity) as presented in the Consolidated statement of financial position. ‘Other assets’ adjusted to conform to the current year presentation. 3 Included in remaining assets for which maturities are not applicable are property and equipment, and investments in associates and joint ventures. Due to their nature remaining assets consist mainly of assets expected to be recovered after more than 12 months.
ING Group Annual Report 2017 206 40 Liabilities by maturity The tables below include all financial liabilities by maturity based on contractual, undiscounted cash flows. Furthermore, the undiscounted future coupon interest on financial liabilities payable is included in a separate line and in the relevant maturity bucket. Derivative liabilities are included on a net basis if cash flows are settled net. For other derivative liabilities the contractual gross cash flow payable is included.
Financial assets at fair value through profit or loss 1,072 447
Financial assets at fair value through profit or loss 3,995 1,428 2,120 4,106 6,864 8,965
Financial liabilities at fair value through profit or loss 3,985 1,443 2,148 4,635 2,599 4,280
The table above include the associated liabilities which are reported after offsetting, compared to the gross positions of the encumbered assets.
Included in the table above, are the carrying amounts of transferred assets under repurchase agreements, and securities lending that do not qualify for derecognition.
Reverse repurchase, securities borrowing and similar agreements 409 –209 200 200
Impact of enforceable master netting arrangements or similar arrangements1 Derivatives –5,929 4,208 1,721 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 statement of financial position line items.
Loans and advances to customers Other 191,453 –186,963 4,490 387 4,103
Customer deposits Repurchase, securities lending and similar agreements 36 36 36
Other contingent liabilities include acceptances of bills and are of a short-term nature. Other contingent liabilities also include contingent liabilities resulting from the operations of the Real Estate business including obligations under development and construction contracts. Furthermore other contingent liabilities include a contingent liability in connection with a possible Dutch tax obligation that relates to the deduction from Dutch taxable profit for losses incurred by ING Bank in the United Kingdom in previous years. The existence of this obligation will be confirmed only by the occurrence of future profits in the United Kingdom.
Criminal investigations: ING Bank is the subject of criminal investigations by Dutch authorities regarding various requirements related to client on-boarding, money laundering and corrupt practices. ING Group has also received related information requests from US authorities. ING Group and ING Bank are cooperating with such ongoing investigations and requests. Management has concluded under IFRS that it is more likely than not that a present obligation per 31 December 2017 exists and that an outflow of resources is probable, but was not able to estimate reliably the possible timing, scope or amounts of any fines, penalties and/or other outcome, which could be significant. ING expects to receive more information from the Dutch authorities concerning the potential consequences of their investigation in the first half of 2018.
SIBOR – SOR litigation: In July 2016, investors in derivatives tied to the Singapore Interbank Offer Rate (‘SIBOR’) filed a US class action complaint in the New York District Court alleging that several banks, including ING, conspired to rig the prices of derivatives tied to SIBOR and the Singapore Swap Offer Rate (‘SOR’). The lawsuit refers to investigations by the Monetary Authority of Singapore (‘MAS’) and other regulators, including the US Commodity Futures Trading Commission (‘CFTC’), in relation to rigging prices of SIBOR- and SORbased derivatives. In April 2017, the New York District Court issued an oral ruling dismissing all claims; a corresponding written ruling was issued in August 2017. In September 2017, plaintiffs filed an amended complaint. Defendants moved to dismiss the amended complaint. Currently, it is not possible to provide an estimate of the (potential) financial effect of this claim.
Medical insurance coverage claim by (former) Belgian employees: A number of retired employees of ING Belgium have initiated legal proceedings against ASCEL (a non-profit organisation established by ING Belgium that provided medical insurance coverage to current and retired employees till the beginning of 2015 via a subdivision of ASCEL: FMC) and ING Belgium following the decision to externalise this medical insurance coverage which resulted in an increase of premium. In a decision of September 2016, the Court has considered that FMC has validly been closed but that, as the medical coverage qualifies as an insurance contract not linked with the professional activity of the claimants, ING could not unilaterally terminate the agreement between FMC and the pensioners. In October 2017, ING reached an agreement with the claimants to settle this case. In January 2018, this settlement has entered into force for all retired employees who are insured with the external provider. This settlement will be paid out of the existing provision.
Interest rate derivatives claims: ING is involved in several legal proceedings in the Netherlands with respect to interest rate derivatives that were sold to clients in connection with floating interest rate loans in order to hedge the interest rate risk of the loans. These proceedings are based on several legal grounds, depending on the facts and circumstances of each specific case, inter alia alleged breach of duty of care, insufficient information provided to the clients on the product and its risks and other elements related to the interest rate derivatives that were sold to clients. In some cases, the court has ruled in favour of the claimants and awarded damages, annulled the interest rate derivative or ordered repayment of certain amounts to the claimants. The total amounts that need to be repaid or compensated in some cases still need to be determined. ING may decide to appeal against adverse rulings. Although the outcome of the pending litigation and similar cases that may be brought in the future is uncertain, it is possible that the courts may ultimately rule in favour of the claimants in some or all of such cases. A provision has been taken. However, the aggregate financial impact of the current and future litigation could become material.
Mortgage expenses claims: ING Spain has received claims and is involved in procedures with customers regarding reimbursement of expenses associated with the formalization of mortgages. In all but two court proceeding in first instance the expense clause of the mortgage contract has been declared null and all or part of the expenses were ordered to be reimbursed by ING Spain. The courts in first instance have applied in their rulings different criteria regarding the reimbursement of expenses. ING Spain has filed an appeal against a number of these court decisions. ING Spain has also been included, together with other Spanish banks, in a class action filed by a customer association. The outcome of the pending litigation and similar cases that may be brought in the future is uncertain. A provision has been taken. However, the aggregate financial impact of the current and future litigation could change and will depend on, amongst others, an expected future ruling by the Spanish Supreme Court regarding the expenses that should be reimbursed by the banks.
Other In 2015 the merger between ING Vysya and Kotak Mahindra Bank was completed and the legal entity ING Vysya Bank ceased to exist. As a result of this transaction, ING holds a stake in the combined company which operates under the Kotak brand.
The principal subsidiaries, investments in associates and joint ventures of ING Groep N.V. and their statutory place of incorporation or primary place of business are as follows: Proportion of ownership and interest held by the Group
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.
4. Unconsolidated Securitisation programme In 2013 ING transferred financial assets (mortgage 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 statement of financial position. The derecognition did not have a significant impact on net result. Following this transfer ING continues to have two types of on-going 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 held by ING at 31 December 2017 amounted to EUR –41 million (2016: EUR –5 million); fair value changes on this swap recognised in the statement of profit or loss in 2017 were EUR –36 million (2016: EUR –6 million). Fee income recognised in the statement of profit or loss in 2017 amounted to EUR 2 million (2016: EUR 2 million).
Transactions between ING Groep N.V. and its subsidiaries are eliminated on consolidation. Reference is made to Note 47 ‘Principal subsidiaries’ for a list of principal subsidiaries and their statutory place of incorporation.
Key management personnel compensation Transactions with key management personnel (Executive Board, Management Board Banking and Supervisory Board) and postemployment 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.
ING Group Annual Report 2017 222 in EUR thousands 2017 2016
1 Year on year development includes changes due to change in composition of the Board.
Total number of shares and stock options 487,433 555,064 325,118 446,022
ING Group Risk Management As a global financial institution with a strong European base, offering banking services, ING is exposed to a variety of risks. ING operates through a comprehensive risk management framework and integrates risk management in its daily business activities and strategic planning. This ensures the identification, measurement and control of risks at all levels of the organisation so that ING Group’s financial strength is safeguarded. Taking measured risks is the core of ING’s business.
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 an opinion of the External Auditor as part of the notes to the consolidated financial statements. Disclosures in accordance to Part Eight of the CRR and CRD IV, and as required by the supervisory authority, are published in our ‘Additional Pillar III Report’, which can be found on our corporate website ing.com.
Purpose and business model The purpose of ING’s risk management function is to support the ambition of ING to be the primary bank for our customers, empowering the business through an integrated, state of the art, enterprise-wide risk management platform. The following principles support this purpose: • The risk management function is embedded in all levels of ING’s organisation and is part of the daily business activities and strategic planning to have a sustainable competitive advantage; • Products and portfolios are structured, underwritten, priced, approved and managed properly and compliance with internal and external rules is monitored; • Delegated authorities are consistent with the overall bank strategy and risk appetite; and • Transparent communication to internal and external stakeholders on risk management.
The head of ING’s line of business and their delegates form the first line of defence and have primary accountability for the performance, operations, compliance and effective control of risks affecting their respective businesses. They originate loans, deposits and other products within applicable frameworks and limits, they know our customers well and are well-positioned to act in both the customers’ and ING’s best interest. The COO is responsible and accountable for proper security and controls on both local and global applications and IT-platforms servicing the bank.
Board level risk oversight ING has a two-tier board structure consisting of a management board (Executive Board (EB) for ING Group and Management Board Banking (MBB) for ING Bank) and the Supervisory Board (SB); both tiers play an important role in managing and monitoring the risk management framework.
• The EB is responsible for managing risks associated with all activities of ING Group, whereas the MBB is responsible for managing risks associated with all activities of ING Bank. The EB and MBB responsibilities include ensuring that internal risk management and control systems are effective and that ING Group and ING Bank comply with relevant legislation and regulations. On a regular basis, the EB and MBB report on these issues and discusses the internal risk management and control systems with the SB. On a quarterly basis, the EB and MBB report on the ING’s risk profile versus its risk appetite to the Risk Committee, explaining changes in the risk profile.
As part of the integration of risk management into the annual strategic planning process, the MBB annually issues a Planning Letter which provides the corporate strategic direction and addresses key risk issues. Based on the Planning Letter, the business lines and business units develop their business plans which align with the bank’s strategic direction. The process includes a qualitative and quantitative assessment of the risks involved. As part of the process, strategic limits and risk appetite levels are explicitly discussed. Based on the business plans, the MBB formulates the Strategic Plan which is submitted to the SB for approval.
Tier 1 level consists of regional and/or business unit CROs. These CROs bear direct responsibility for risk (mitigating) decisions in the respective area of responsibility, and report directly to ING’s CRO and to the head of their regional area and business unit. This dual reporting system aims to ensure that the local risk management function is independent from the operating functions and that it is aligned with the corporate risk policies and goals.
Risk model governance and validation Risk models are built according to 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 (MD) and Model Risk Management (MRM) departments, specific model risk committees for each risk type approve new models. After approval by the specific risk committee, and where necessary the regulator, a new risk model is implemented and approved for use. In addition, MRM validates each model on a regular basis. Validation results and its capital impact are reported on a quarterly basis to senior management, the risk committee and to the supervisor.
The Orange Code is the sum of two parts, the ING Values and ING Behaviours, with integrity being an important principle. The ING Values (being honest, prudent and responsible) are designed to be non-negotiable promises we make to the world, principles we seek to stick to, no matter what. The ING Behaviours (take it on and make it happen, help others to be successful, and be always a step ahead) represent our way to differentiate ourselves. The Orange Code is embedded in commitments we make to each other and the standards by which we will measure each other’s performance.
Step 2. Set Risk Appetite Framework Based on ING’s risk assessment and risk ambition, specific targets are set for both financial and non-financial risks: Financial risk For financial risks, ING expresses its risk appetite as a tolerance allowed to key ratios deviating from their target levels. Therefore, the high level risk ambition is translated into quantitative targets for solvency risk, funding & liquidity risk and for concentration risk.
Funding and liquidity risk management has two dimensions: liquidity risk management focuses on having a sufficient buffer to cope with the short-term situation, funding risk management ensures long-term compliance with both internal and external targets. Managing funding and liquidity risk focuses both on ‘business as usual’ (based on the run-off profile to show the stickiness of deposits combined with the run-off of assets without new production) and on a stressed situation. In the stressed situation, we use for liquidity risk the time to survive under a specific scenario, while for funding risk we focus on having a stable funding profile.
The business risk appetite statement is focusing on earnings stability and diversification, as avoiding to put all eggs in one basket reduces the risk that volumes and/or margins will suddenly drop due to unexpected changes in the business environment for certain markets and products. ING has determined for its business risk a geographical segmentation statement through the business mix and a total income classification statement (based on a minimum of Fee and Commission Income).
ING measures and monitors its exposure to non-financial risk on an ongoing basis by assessing risks, analysing scenarios and mitigating actions as a result of audit and risk assessment findings. The aggregation of the assessed risk levels is expressed in an expected loss figure on non-financial risk, which is compared to the tolerance levels as captured in the NFR Risk Appetite Statements (RAS) based on a percentage of the MTP-income. Furthermore, reported actual losses per financial reporting year and weighted overdue percentages for audit & risk assessment findings must be below a certain threshold. The overall non-financial risk levels and tolerance breaches are periodically reported through the Non-Financial Risk Dashboard (NFRD). The NFRD provides an overview of key risks within the non-financial risk areas on a quarterly basis. Changes in capital are monitored and reported in the NFRD as well. In case risk events cause ING to move towards or beyond the tolerance level, management is required to undertake action.
Step 3. Cascade into statements per risk type and business unit Risk appetite is translated per risk type, which is further cascaded down into the organisation to the lowest level. Risk appetite statements are then translated into dedicated underlying risk limits which are used for day-to-day monitoring and management of ING’s risks.
Step 1. Risk assessment & scenario selection ING formally determines its main risks on an annual basis through the execution of a so called risk assessment. Senior management, business representatives and risk specialists are involved in this process which covers risks in the macroeconomic circumstances, political and regulatory developments as well as portfolio specific risks. Based on the risk assessment, scenarios are selected to be evaluated in the remainder of the year The results of the risk assessment and scenario selection are discussed and endorsed in the Stress Testing Steering Committee (STSC). All stakeholders are represented in the STSC, such as representatives of the different Corporate Risk departments, Capital Management, Finance and the Global Research organisation. The STSC submits the results of the risk assessment and scenario selection to the F&RC for discussion and advice.
Methodology For the calculation of the impact of the scenarios detailed and comprehensive models are used. In these models, statistical analysis is combined with expert opinion to make sure that the results adequately reflect the scenario assumptions. The methodologies are granular and portfolio-specific and use different macro-economic and market variables as input variables. The stress testing models are subject to a thorough review by the Model Validation department.
EC is defined as the amount of capital that a transaction or business unit requires in order to support the economic risks it takes. EC is focusing on the bank activities within ING Bank consolidated and therefore only available per that scope. In general, EC is measured as the unexpected loss above the expected loss at a given confidence level. This economic capital definition is in line with the net market value (or surplus) definition. The EC calculation is used as part of the CRR/CRD IV Pillar II Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) that is performed regularly by the supervisor.
Common Equity Tier 1 ratio Leverage ratio LCR liquidity buffer Capital utilisation Net Liquidity Position Net Stable Funding Ratio Single Name Concentration event Country Concentration event Sector Concentration event Event Risk Etc.
Basel III revisions, CRR/CRD IV and upcoming regulations On 23 November 2016, the European Commission published legislative proposals to amend and supplement certain provisions of the Capital Requirements Directive (CRD), the Capital Requirements Regulation (CRR), the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (the SRM Regulation). The proposals are wide-ranging and may have significant effects on ING, including with regard to the total loss absorbing capacity (TLAC) or the minimum requirement own funds and eligible liabilities (MREL) it must maintain. On 25 October 2017, it was announced that the European Parliament, the Council and the Commission agreed on elements of the review of the BRRD, CRR and CRD proposed in November 2016. The first consolidated CRR text with the amendments to the initial Commission's Proposal has been shared with the delegations. This shows that the Council discussions are progressing quickly reaching agreement on most of the topics.
The implementation by our dedicated teams has covered all key BCBS239 principles, resulting in improvements across the data management and reporting chain. By incorporating the BCBS239 principles in ING’s internal control Framework, the principles have become a key driver of ING’s data aggregation and risk reporting practices. Also in today’s continuously changing environment, ING will ensure that key risk data aggregation and reporting practices remain aligned with the BCBS239 principles.
The topics have emerged either as part of the annual Risk Assessment that is performed as part of the Stress Testing Framework or from the Risk Appetite Framework. The sequence in which the risks are presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
ING also works on strengthening its global cybercrime resilience including strong collaboration against cybercrime with the financial industry, law enforcement authorities, government (e.g. National Cyber Security Center) and Internet Service Providers (ISPs).
Climate change risk The climate is changing and this is an unparalleled challenge to our world. The causes and the solutions to these challenges are complex, but we realise that it is attributed directly or indirectly to human activity that alters the composition of the global atmosphere, in addition to natural climate variability. As a financial institution, we too have a responsibility and it may ultimately affect our results if our customers are affected.
• Pre-settlement (PS) risk: arises when a client defaults on a transaction before settlement and ING has to replace the contract by a trade with another counterparty at the then prevailing (possibly unfavourable) market price. This credit risk category is associated with derivatives transactions (exchange traded derivatives, OTC derivatives and securities financing transactions.
Investment risk -Investments (available-for-sale and held-to-maturity) -Loans and advances to customers
Country risk is the risk of loss for ING associated with lending, pre-settlement, money market and investment transactions as a result of country risk events. A country risk event can be described as economic, financial and political shocks and transfer or exchange restrictions, affecting all counterparties in a specific country. The occurrence of a country risk event may cause all clients in a country to be unable to ensure timely payments, despite their willingness to meet their contractual debt obligations. As such, country risk is an additional factor to be taken into account in the credit approval process of individual customers, as the country risk event probability may impact the default probability of individual counterparties.
By means of the instruments, actual country limits are set (each of which should not exceed the country’s boundary), reviewed monthly and updated when needed. In case of countries with elevated levels of geo-political or severe economic cycle risk the monitoring is performed on a more frequent basis with strict pipeline and exposure management to protect ING from adverse impacts.
The ESR policy framework is reviewed every three years on the basis of significant changes identified in the sectors that are more vulnerable to environmental and social risks and impacts. In addition, environmental and social risks for all lending transactions are reviewed during the periodic credit reviews. ESR transactions where funds will be used for asset based finance may require enhanced ESR due diligence e.g. application of the Equator Principles. Such enhanced ESR evaluation is also required for any high-risk transaction, such as those that impact indigenous people etc.
ESR Policy Development and Governance: • MBB / GCTP: Ultimate approval authority for approving new and updated ESR policies.
As the risk assessment processes are decentralized each front-office team must be highly familiar with ING’s environmental and social framework. Hence, ING makes significant investment in internal training programs to help CDUs, front office and risk management staff in assessing the environmental and social risks. In 2017 alone, 285 colleagues have been specifically trained on the ESR policy framework worldwide.
Practice based drivers ING has a conservative approach to non-performing exposures. Non-performing exposures are recognized early based on unlikely to pay triggers. For non-retail, ING typically classifies default based on a borrower rating and not a facility rating which means that a customer will only have one PD (probability of default) regardless of the type(s) of transactions done with ING. As a consequence, if one facility is in default, usually all facilities of the client are in default. Non-performing clients which were granted forbearance measures have an additional probation period of 1 year starting from the last moment they are classified as forborne, before returning to performing status.
Economic capital is calculated using the economic values of rating models (PD, EAD and LGD), in line with regulatory requirements.
• Loss Given Default (LGD): The third element is the loss given default. LGD models are intended to estimate the amount ING would lose after liquidating collateral pledged in association with a given loan or financial obligation, or alternatively, from liquidating the company as a whole as part of a workout process. LGD models are based on cover types, estimated recovery rates given orderly liquidation, and (in)direct cost of liquidation.
ING uses the internal assessment approach for the support facilities it provides to asset backed commercial paper (ABCP) conduit Mont Blanc Capital Corp., based on externally published rating agency methodologies. For more details about the internal assessment approach, see the Sponsor securitisations section in the Pillar 3 disclosure.
There are no exposures under the advanced, Internal Model Method (IMM) under Pillar 1. Under Pillar 2 ING uses the IMM for FX and interest rate derivative exposures.
Exposure classes The BCBS has developed the concept of ‘Exposure Classes’ which has been transposed into CRR/CRDIV. These are essentially groupings of credit risks associated with a common client type, product type and/or cover type. For the AIRB Approach, most of the exposure classes have subcategories. ING has applied the following definitions to determine Exposure Classes: • Sovereigns include Sovereign Government entities, Central Banks and recognised Local / Regional Authorities as well as
• Other Retail includes all other credit obligations related to Retail SMEs (such as partnerships and one-man businesses) and private individuals (such as consumer loans, car loans and credit cards). Under these exposure class definitions, it is possible for a private individual to have exposure classified as both residential mortgages and retail other.
• Securitisations include securitisation programs for which ING acts as an investor, sponsor or originator.
PD 1 The Government Central PD model is a fully statistical model, containing only quantitative risk drivers. >7 years LGD 1 The LGD model for Sovereigns and other governments is an unsecured recovery model built on assessment of structural factors that influence a country’s performance. >7 years
PD 1 The Corporate Large model is a global hybrid model build on 13 years of data, including balance sheet and qualitative information as well as country risk and parent influence.
PD 6 The SME PD models are estimated statistically and directly predict a PD. Most of these models are developed locally to reflect regional/jurisdiction circumstances.
PD 41 The PD models for private individuals are all developed statistically and include borrower specific information, payment behaviour and product related information. These are statistical models that directly predict a PD.
Overall the rating class concentration improved, decreased concentrations are observed for all classes below rating class BBB whereas the other classes mainly show increased concentrations. The overall exposure for ING remained concentrated in the BBB and BB rating classes.
The rating distribution for Retail Benelux improved mostly driven by an updated Dutch mortgage PD model shifting concentration from risk classes BBB to A. Further positive risk migration in Retail Netherlands was due to positive rating changes and decreased defaulted exposures. Following a one notch rating downgrade for the government of Belgium, Belgian government related organisations were downgraded throughout the year shifting exposure from rating class AA to A. In Retail Challengers & Growth Markets exposures shifted from rating class BBB to A following a refinement of the PD mortgage model in Retail Germany. The decrease in rating class BBB was partly offset by an update of the ING Italy mortgage PD model increasing concentration in rating class BBB.
The concentration in Central Governments decreased following a reduction in government bond exposures of France, the Netherlands, Austria and Belgium within Wholesale Banking and Retail Challengers & Growth Markets. In the Wholesale Banking portfolio this was partly offset by an increase in US government bonds
Cover valuation methodology General guidelines for cover valuation are established to ensure consistency of the application within ING. These general guidelines also require that the value of the cover needs to be monitored on a regular basis. Covers are revalued accordingly and whenever there is reason to believe that the market is subject to significant changes in conditions. The frequency of monitoring and revaluation depends on the type of covers.
Pre-settlement1 44,685 1 More information on the credit risk mitigants can be found in the Pre-settlement section.
Cover values including guarantees received - Consumer lending portfolio – 2017
The collateralisation of the consumer lending portfolio continued to improve over the year 2017. The rise in collateralisation levels was due to improved housing prices, seen over different mortgage markets, driven by the Netherlands as main market.
Business lending portfolio Business lending accounts for 41.4% of ING Bank’s total outstandings. In line with our objective to give stakeholders insight into the portfolio, we present the business lending portfolio per industry breakdown in accordance with the NAICS definition and per region and main market. Business Lending presented in this section does not include pre-settlement, investment and money market exposures, which are outlined in the next sections.
Cover values including guarantees received - Consumer lending portfolio – 2016
Total Business Lending 320,153 134,667 15,185 99,569 90,777 128,985 35.3% 5.2% 4.3% 6.1% 8.6% 40.6% of which Total Nonperforming
Total Business Lending 310,395 128,578 17,004 89,204 98,559 132,672 33.6% 4.1% 5.9% 7.4% 10.6% 38.3% of which Total Non1 ‘Others’ comprises industries with outstandings below EUR 13 billion.
Total Business Lending 320,153 134,667 15,185 99,569 90,777 128,985 35.3% 5.2% 4.3% 6.1% 8.6% 40.6% of which Non-performing 8,531 4,132 441 3,261 2,947 2,877 23.2% 3.9% 6.1% 7.3% 17.0% 42.4%
Cover values including guarantees received - Business lending portfolio – 2016
MtM after netting and collateral Outstandings Africa 107 96 85 119 84 49 47 89 America 21,296 10,864 6,846 7,690 20,866 10,891 6,549 9,241 Asia 7,150 3,663 3,020 3,542 8,318 4,743 3,558 3,918 Australia 483 264 241 532 537 303 228 492
1 More information on the Restructuring and Non-performing categories can be found in the Credit restructuring section.
Wholesale Banking: for business loans (governments, institutions, and corporates), ING classifies the relevant obligors as nonperforming when any of the following default triggers occurs: • 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 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 has granted concessions relating to the borrower’s financial difficulty, the effect of which is a reduction in expected future cash flows of the financial asset below current carrying amount.
Watch List, Restructuring and Recovery are discussed at least on a quarterly basis between Front Office, respective Credit Risk Management executives and GCR, at which time it may be decided to change the status of an account from Watch List to Restructuring or Recovery or vice versa.
Non-performing loans ING’s loan portfolio is under constant review. Loans with past due financial obligations of more than 90 days are reclassified as nonperforming. For commercial lending portfolios, there generally are reasons for declaring a loan non-performing prior to being 90 days past due. These reasons include, but are not limited to, ING’s assessment of the customer’s perceived inability to meet its financial obligations, or the customer filing for bankruptcy or bankruptcy protection.
ISFA, INSFA and IBNR provisions are reported and calculated by using common standards across ING. 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 Provisioning Committee (IPC) discusses and approves the LLP for ING, on the basis of proposals originating from ING’s business units.
For corporate customers, ING applies forbearance measures to support clients with fundamentally sound business models that are experiencing temporary difficulties. The aim is to maximise the repayment ability of the clients.
ING’s forborne assets decreased by EUR 3.1 billion (21%) to EUR 11.8 billion per 2017, of which Wholesale Banking decreased by EUR 1.6 billion and Retail Banking decreased by EUR 1.4 billion.
The main concentration of forborne assets in a single country was in the Netherlands with 54% of the total Retail Banking forborne assets (2016: 61%) and 51% of the non-performing forborne assets (2016: 60%). Retail banking forborne assets decreased by EUR 1.4 billion compared to 2016, and was mainly visible in consumer lending and mortgages. Specifically forborne assets decreased by EUR 0.6 billion in the Dutch Residential mortgage portfolio. Due to a continued improved economic environment, visible by the increasing house prices and improved credit worthiness of our clients.
Besides monitoring and control of market risk, FR and FI-FM maintain a limit framework in line with ING’s Risk Appetite Framework. The businesses are responsible for adhering to limits that are ultimately approved by ALCO Bank. Limit excesses are reported to senior management on a timely basis and the business is required to take appropriate actions to reduce the risk position. To adhere to the established limit framework, ING implements hedging and risk mitigation strategies that range from the use of traditional market instruments, such as interest rate swaps, to more sophisticated hedging strategies to address a combination of risk factors arising at the portfolio level.
ING’s approach to interest rate risk management, as set forth in this framework, is centralisation of risks from commercial books (that capture the products sold to clients) to central interest rate risk books. This enables a clear demarcation between commercial business results and results on unhedged interest rate positions.
- Addition of the market spreads in the calculation of the NPV-at-Risk measure. - Savings model updates for market developments
Net Interest Income (NII) at Risk NII-at-Risk measures the impact of changing interest rates on (before tax) net interest income of the banking books for year one. This excludes credit spread sensitivity and longer term earnings impact. The NII-at-Risk figures in the tables below reflect a parallel interest rate shock with a time horizon of one year. Next to parallel scenarios also the impact of non-parallel scenarios and the impact over a longer horizon is part of IRRBB monitoring and management. The NII-at-Risk asymmetry between the downward scenario and upward shock scenarios is primarily caused by the convexity risk in the mortgage and savings portfolio due to the embedded options and pricing constraints.
The NII-at-Risk is mainly influenced by the sensitivity of savings to interest rate movements due to pass through rate differences between savings rates and investment yields and is partially offset by the sensitivity of mortgages. The investment of own funds only impacts the Earnings sensitivity marginally, as only a relatively small part has to be (re)invested within the 1-year horizon.
The NPV-at-Risk in the upward scenario changed by EUR -147 million. The change for the Corporate Line can be attributed to longer term investments. The changes for Retail Banking Benelux and Retail Challengers & Growth Markets are due to the savings model updates.
Governance – FX translation result ING’s strategy is to keep the target CET1 ratio within a certain range when FX rates fluctuate, whilst limiting the volatility in the profit and loss account. Therefore, hedges are only done to the extent that hedge accounting can be applied. Taking this into account, the CET1 ratio hedge can be achieved by deliberately taking foreign currency positions equal to certain target positions, such that the target CET1 capital and risk-weighted assets are equally sensitive in relative terms to changing FX rates. A selection of emerging market currencies that meet specific requirements do not have a target position, but are allowed to remain open under the policy.
Governance ING maintains a strategic portfolio with substantial equity exposure in its banking books. Local offices are responsible for the management of the equity investments positions. Financial Risk is responsible for monitoring the regulatory capital for Equity Investments on a monthly basis and it acts independently from the management in monitoring these positions.
Real Estate price risk in banking books Real Estate price risk arises from the possibility that real estate prices fluctuate. This affects both the value of real estate assets and earnings related to real estate activities.
Governance Real Estate is a run-off business consisting of Real Estate Development and Real Estate Investment Management activities which are being wound down by sale of assets, strict execution of contract maturity or through portfolio sales.
Year-on-year variance analysis In total, real estate market risk exposure in the banking books decreased by nearly EUR 0.2 billion mainly as a result of divestments. The remainder is due to impairments and fair value changes.
In general, positions are valued by taking the bid price for a long position and the offer price for a short position. In cases where positions are marked at mid-market prices, a fair value adjustment is calculated.
ING applies a Funding Valuation Adjustment (FVA) to address the funding costs associated with the collateral funding asymmetry on uncollateralized or partially collateralized OTC derivatives in the portfolio. This adjustment is based on the expected exposure profiles of the uncollateralized or partially collateralized OTC derivatives and market-based funding spreads.
Stressed VaR The SVaR is intended to replicate a VaR calculation that would be generated on the bank’s current portfolio with inputs calibrated to the historical data from a continuous 12-month period of significant financial stress relevant to the bank’s portfolio. To calculate SVaR, ING uses the same model that is used for VaR with a 10-day horizon. The historical data period used currently includes the height of the credit crisis around the fall of Lehman Brothers, and is reviewed regularly. The historical data period is chosen so that it gives the worst scenario loss estimates for the current portfolio. The same SVaR model is used for management purposes and for regulatory purposes. The same model is used for all legal entities within ING with market risk exposure in the trading portfolio.
The market risk regulatory capital under Standardized Approach is fully driven by the foreign exchange risk in the banking books. The foreign exchange risk in the banking books in 2017 remained at comparative level to 2016.
ING Group Annual Report 2017 280 amounts in EUR millions 2017 2016 Foreign exchange Foreign exchange US Dollar -45 US Dollar 201 Polish Zloty 28 Romanian New Leu 45 South Korean Won 26 Chinese Yuan -40 Japanese Yen -21 South Korean Won -22 Taiwan New Dollar 21 Czech Koruna 21 amounts in EUR thousands 2017 2016 Interest Rate (BPV1) Interest Rate (BPV1) US Dollar 141 Euro -119 Russian Ruble -66 South Korean Won -44 Japanese Yen 61 Polish Zloty -32 Taiwan New Dollar 52 Indian Rupee -23 Polish Zloty 47 Romanian New Leu 22
The size and composition of the Liquidity buffer depends on ING’s risk appetite and regulatory liquidity standards. In the buffer, only assets are included that are ‘unencumbered’ and freely available for liquidity purposes. Bank Treasury ensures functional management of all liquidity buffers within ING, both buffers at ING level and buffers at local business unit level. The liquidity buffer is held as an insurance against a range of stress scenarios, covering the additional need for liquidity that may arise over a defined short period of time under stress conditions.
Overall, (reverse) stress testing is an integral part of the liquidity and funding risk management framework and also serves as input for the contingency funding plan and risk appetite statements.
The funding mix remained well diversified. Retail deposits remained ING’s primary sources of funds and remained stable at 51% of the total funding mix per year end 2017. The Loan-to-Deposit ratio (excluding securities at amortised costs) remained stable at 1.05 per year end 2017.
Governance The Head of Corporate Operational Risk Management (CORM), Corporate Information Risk Management (CIRM), Corporate Security & Investigations (CSI) and Corporate Compliance Risk Management (CCRM) report to the Chief Compliance Officer (CCO)/Head of NonFinancial Risk (NFR) and are jointly responsible for developing the framework of non-financial risk policies and standards within ING and for monitoring the adherence to and quality of non-financial risk management in the business.
Non-Financial Risk Committees (NFRCs) and Management Teams (MTs) manage, measure and monitor operational, information and compliance risks. The Bank NFRC is the primary approval and oversight committee for non-financial risk matters. Additionally NFRCs exist at Division and/or Entity level providing input to the Bank NFRC. They are chaired by the first line of defence with the purpose to steer the risk management activities of the first and second lines of defence in their scope. Non-financial risk topics are an integral part of the agenda of regular MTs at various levels in the organisation.
Processes aims at identifying key threats, vulnerabilities and the associated risks which might cause adverse events. Event identification is performed and precedes a risk assessment. Different techniques for event identification exist within ING, e.g. Risk & Control Self-Assessments, scenario analysis, external events inventories, internal events analyses (e.g. lessons learned based on information from event reporting), business environment assessment and monitoring .
Business Environment Assessment The Business Environment Assessment (BEA) assesses internal control factors and external factors that could influence the internal and external operating environment in the future, and which may lead to unacceptable operational risk exposure and endanger achieving our strategic objectives.
The Non-Financial Risk (NFR) reporting deliverables consist primarily of the quarterly Non-Financial Risk Dashboard (NFRD) report and a monthly NFRD booklet. The iRisk tool (Governance, Risk & Compliance solution) serves as the single source of truth for NFR information and supports the three lines of Defence in their Risk Management and Reporting activities.
Given the heavy reliance on IT systems in financial institutions, controls that monitor the various aspects of IT risk, such as integrity and confidentiality, are embedded in ING’s risk and control framework.
Compliance risk Definition Compliance risk is defined as the risk of impairment of ING’s integrity, leading to damage to ING’s reputation, legal or regulatory sanctions, or financial loss, due to a failure (or perceived failure) to comply with applicable laws, regulations and standards and the ING Values as part of the Orange Code. We aim to effectively manage compliance risks that could expose ING to reputational damage, fines, civil and criminal penalties, payment of damages, court orders and suspension or revocation of licenses that would adversely impact our customers, staff, shareholders and other stakeholders.
The Compliance Risk Management function established a compliance control framework in which controls are defined based on laws, regulations and standards that are part of the internal control framework of ING applicable to non-financial risks. To support management in mitigating compliance risks, the Bank Compliance Risk Management function trains and advices the business in
ING Group Annual Report 2017 286 managing compliance risks related to e.g. money laundering, terrorist financing, sanction and export control compliance, conflicts of interests, misselling, corruption and protection of customers’ interests, Financial Account Tax Compliance Act (FATCA), Common Reporting Standard (CRS), and US withholding tax and information reporting regulations.
Risk categories ING categorises compliance risk into four conduct-related integrity risk areas: • Client conduct refers to the compliance risks arising from the relationship with or generated by the conduct of our clients and/or business partners, like money laundering or terrorist financing. Those risks are generally defined within ING as Financial Economic Crimes (“FEC”). Furthermore, Client conduct refers to the compliance risks relating to FATCA, CRS, and US withholding tax and information reporting regulations; • Personal conduct refers to the compliance risks arising from the conduct of ING employees; • Financial Services conduct refers to the compliance risks arising from or generated by the conduct of ING when developing, marketing and/or selling products and services to its clients; and • Organisational conduct refers to the compliance risks arising from the way the Bank is organising itself to develop its activities. This category covers for instance the licences required to perform its regulated banking activities or the operating effectiveness of its information barriers.
Financial Economic Crime (FEC) Policy and Minimum Standards The FEC Policy and Minimum Standards reflect relevant national and international laws, regulations and industry standards. The FEC Policy is mandatory and applies to all ING entities, majority owned ING business, businesses under management control, staff departments, product lines and to all client engagements and transactions.
Non-Financial Risk Awareness & Learning Promoting Integrity Programme The Promoting Integrity Programme was started in 2010 and is a programme consisting of e-learning modules on key bank-wide topics that can be followed-up with dialogue sessions in which managers discuss the issues raised with their teams. The programme is sponsored by board members and senior managers and is created for the benefit of every employee in every part of ING to enhance the understanding of how their actions and behaviour can help earn and retain customer and stakeholder trust. In 2017, Integrity led behaviour was addressed by means of the mandatory PIP e-learning ‘ING Values: Integrity in practice’ which was rolled out globally.
Compliance Forum ING In 2017, Compliance Risk Management developed a Compliance Forum for Compliance Officers within ING worldwide. This forum is about building expertise and sharing experience. The focus is on regulatory developments, innovation and the future of compliance – what compliance officers can do to Think Forward. Participants are engaged in lively discussions on current topics, take part in workshops and plenary sessions to experience and develop the new ways of working within ING. Participants can connect with colleagues from across the globe and share knowledge and views on the compliance function of the future. Part of the Compliance community was trained in 2017 and in 2018 the remainder will be trained.
Compliance Risk Culture Monitoring The Compliance Risk Management function enhanced its control framework by assessing the operation of soft controls in relation to compliance risks in addition to hard controls. The aim of Compliance Risk Culture Monitoring is to assess the risks that might influence the conduct and risk culture, promoting the individual integrity of the employees and enhancing the overall culture that is led by integrity.
Developments The capital position further strengthened in 2017 reflecting strong profitability based on core lending growth but with a lower risk weight and complemented with further optimisation of the capital structure. At both consolidated and entity level, ING has sufficient buffers to withstand certain adverse scenarios without breaching currently applicable and possible future requirements.
ING Bank NV continues to maintain a strong and high quality capital level, with a fully-loaded common equity Tier 1 ratio and a phased-in common equity Tier 1 ratio of 13.1%, thereby complying with CRR/CRD IV solvency requirements. ING Bank NV paid EUR 3.2 billion of dividend to ING Group in 2017. The fully loaded Tier 1 ratios (including grandfathered securities) remained stable at 14.7%, while the phased-in Tier 1 ratio (including grandfathered securities) increased form 14.4% to 14.6%, primarily reflecting developments in ING Bank’s common equity Tier 1 ratio. The Banks’s fully loaded and phased in total capital ratio (including grandfathered securities) respectively increased from 17.8% to 18.3% and 17.4% to 18.2%.
Processes for managing capital Besides measuring capital adequacy, Capital Management also ensures that sufficient capital is available through setting targets and limits relevant to the above mentioned metrics for ING Group and ING Bank and ensuring adherence to the set limits and targets through planning and executing capital management transactions. The ongoing assessment and monitoring of capital adequacy is embedded in Capital Management’s capital planning process. Following the annual budgeting process, each year a capital plan is prepared for the Group as a whole and each of its material businesses. This plan is updated on a quarterly basis and is assessed to what extent additional management actions are required. At all times maintaining sufficient financial flexibility should be preserved to meet important financial objectives. At the foundation of the capital plan are ING’s risk appetite statements that determine target setting. These constraints are being cascaded to the different businesses in line with our risk management strategy.
Stress testing is an integral component of ING’s risk and capital management framework. It allows us to (i) assess potential vulnerabilities in our businesses, business model or portfolios; (ii) understand the sensitivities of the core assumptions in our strategic and capital plans; and (iii) improve decision-making through balancing risk and return. In addition to internal stress test scenarios reflecting the outcomes of the annual risk assessment, ING also participates in regulatory stress test exercises. ING participated in the 2017 EU-wide stress test that the ECB conducted in order to assess the sensitivity towards Interest Rate Risk in the Banking Book.
minus a ING Group interim dividend payment of EUR 933 million, which was paid out in 3Q2017. 2 Including EUR 2,691 million which is CRR/CRD IV-compliant (4Q2016: EUR 3,052 million) and EUR 2,446 million to be replaced as capital recognition is subject to
Interim profit not included in CET1 capital –44 -617 –44 -617
CRR/CRD IV grandfathering rules (4Q2016 EUR 2,954 million). 2 Including EUR 8,995 million which is CRR/CRD IV-compliant (4Q2016 EUR 7,347 million), and EUR 2,091 million to be replaced as capital recognition is subject to
ICAAP/SREP process On a yearly basis ING submits extensive documentation on the Internal Capital Adequacy Assessment Process (ICAAP) to its regulator as prescribed in the CRD IV frameworks. This documentation includes a description of ING’s internal capital models, its risk appetite framework, an asset quality analysis and a capital planning, both under normal circumstances and in certain stressed scenarios. This documentation is an important input for the regulator’s Supervisory Review and Evaluation Process (SREP) resulting in a letter to ING Management. The SREP is conducted by the ECB and examines on a regular basis ING’s internal models and processes. The regulatory 2017 guidance indicated that the minimum capital ratios ECB considers adequate for ING Group and ING Bank sufficiently covered by ING’s own capital standards.
ING Group Annual Report 2017 296 in EUR million 2017 2016
Result after tax –123 –35 Result from (disposal of) group companies and participating interests after taxation 12 5,028 4,686
ING Group Annual Report 2017 297 in EUR million Share capital Share premium Revaluation reserves
ING Group Annual Report 2017 298 in EUR million Share capital Share premium Revaluation reserves
Changes in the composition of the group and other changes –891 891 319 –333 –14
A legal reserve is carried at an amount equal to the share in the results of participating interests since their first inclusion at net asset value less the amount of profit distributions to which rights have accrued in the interim. Profit distributions which can be repatriated to the Netherlands without restriction are likewise deducted from the Share of participating interests reserve.
In 2017, ING Groep N.V. issued 7.3 million ordinary shares (2016: 8.3 million depositary receipts for ordinary shares, converted into ordinary shares per 26 July 2016). These issues were made in order to fund obligations arising from share-based employee incentive programmes.
Changes in composition of the group and other changes 424 424
In March, and October 2017 respectively, ING Groep N.V. redeemed the USD 1,100 million 7.20% perpetual and the USD 500 million 6.2% Perpetual Debt Securities. In September 2017 ING redeemed the USD 1,500 million subordinated loan with ING Capital Funding Trust III.
The number of debentures held by group companies as at 31 December 2017 is nil with a statement of financial position value of nil(2016: nil with a statement of financial position value of nil).
The interest rate on the Amounts owed to group companies as at 31 December 2017 is 0.0% (2016: 0.0%).
Dividend of EUR 0.67 per ordinary share 15 Subsequent events On 29 January 2018 ING announced it had reached agreement to acquire a 75% stake in Payvision. Payvision is a Netherlands based payments service provider with a total estimated value of EUR 360 million. The transaction is not expected to have material impact on ING's CET1 ratio.
Groep N.V. as at 31 December 2017 and of its result and its cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code; • the accompanying parent company annual accounts give a true and fair view of the financial position of ING Groep N.V. as at 31 December 2017 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the ‘Our responsibilities for the audit of the annual accounts’ section of our report.
We are independent of ING Groep N.V. in accordance with the EU Regulation on specific requirements regarding statutory audits of public-interest entities, the Wet toezicht accountantsorganisaties (Wta, Audit Firms Supervision Act), the Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics).
We consider profit before taxation from continuing operations as the most appropriate benchmark based on our assessment of the general information needs of users of the annual accounts. We believe that profit before taxation from continuing operations is a relevant metric for assessment of the financial performance of the Company. Given the relatively high balance sheet total and gross income, we have not used alternative benchmarks in determining materiality. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the annual accounts for qualitative reasons.
No prohibited non-audit services We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audits of public-interest entities.
Risks related to financial conditions, market environment and general economic trends
European sovereign debt crisis and the United Kingdom’s withdrawal from the European Union Market concerns over the direct and indirect exposure of European banks and insurers to the sovereign debt of several EU Member States since 2010 have resulted in a widening of credit spreads and increased costs of funding for some European financial institutions. The sovereign debt crisis has also highlighted issues relating to the strength of the banking sector in Europe and the euro. In addition, risks and ongoing concerns about the crisis in the Italian banking sector and its potential spill-over effect into other Member States, deterioration of the political situation in Turkey, as well as the possible default by one or more Member States could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of European and other financial institutions, including us. Additionally, the possibility of capital market volatility spreading through a highly integrated and interdependent banking system remains elevated. In the event of any default or similar event with respect to a sovereign issuer, some financial institutions may suffer significant losses, following which they would require additional capital, and such capital may not be available. We are exposed to the risk of downgrades of European sovereign ratings or corporate ratings, because they may affect our financial costs and, as a result, our profitability. Market disruptions in Europe related to sovereign debt and the banking sector continue to be a threat to global capital markets and remains a challenge to global financial stability. In the event of any default or similar event with respect to a sovereign issuer, some financial institutions may suffer significant losses, following which they would require additional capital, which may not be available. Market and economic disruptions stemming from the crisis in Europe also have affected, and may continue to affect, consumer confidence levels and spending, bankruptcy rates, levels of incurrence of, and default on, consumer debt and home prices, among other factors. There can be no assurance that market disruptions in Europe, including the increased cost of funding for certain government and financial institutions, will not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilise the affected countries and markets in Europe or elsewhere. To the extent uncertainty regarding the economic recovery continues to negatively impact consumer confidence and consumer credit factors, our business and results of operations could be significantly and adversely impacted. Additionally, extreme prolonged market events, such as the recent global credit crisis, could cause us to incur significant losses and may lead to USD funding shortages for EU Banks.