We believe all sustainable progress is driven by people with the imagination and determination to improve their future and the futures of those around them. We empower people and organisations to realise their own vision for a better future – however modest or grand. Empowering people to stay a step ahead in life and in business
› Net loan growth of 3% spread across Retail and Commercial Banking.
› The IPO of NN Group, our former European/ Japanese insurance businesses, largely completing our restructuring.
ING Group annual reports These reports can be read on desktop, tablet and mobile devices at www.ing.com. The ING Group Annual Report is also available in print.
Our aim is to inform stakeholders about our financial and non-financial performance in 2014, to provide a full and clear account of how we create value over time, and how the new Think Forward strategy has been designed and implemented to meet the new challenges, risks and prospects ING faces in a fast-changing world.
Our journey We made significant progress in 2014 on our road to becoming a standalone bank. Key milestones included the IPO of NN Group, the reinstatement of dividends and the final repayment to the Dutch State. I want to express our gratitude to the Dutch State and its citizens for their support and also thank customers for their continuing loyalty and our employees for their perseverance and commitment.
On 4 November 2014, when the ECB assumed banking supervision responsibilities across the eurozone, an important step was made towards a European Banking Union. This further strengthening of financial integration in Europe should help to foster economic growth. Many challenges remain, but the Single Supervisory Mechanism is, I believe, a step in the right direction.
We have also laid out how we want to do this through our Customer Promise: being clear and easy; available anytime, anywhere; empowering people and anticipating their financial needs with the right information to make smart decisions; and striving to keep getting better every day. Unfortunately, the drive to simplify processes has also led to the recent announcement of further reductions in our workforce in the Netherlands. This is a necessary step as we move towards an omnichannel approach that better
Again, we directly involved our employees. We asked them to think with us about innovation. I am proud to say that the first of our internal Innovation Days resulted in more than 700 employee-generated ideas. Seven winning concepts have been chosen and all received initial funding to turn the concepts into reality.
In 2014, environmental and social risk assessments were further embedded in core processes. We were involved in many transactions that underscored our efforts to fund the transition to a more sustainable economy. The share of renewables among the electricity-generating projects in the Structured Finance Power portfolio continues a trend of gradual increase, from 23 percent in 2009 to 43 percent in 2014. The financing of the Sarulla Geothermal Power Project is a great example. This will deliver sustainable electricity to the Indonesian market and will significantly reduce the country’s annual carbon dioxide emissions.
Looking forward Our 2014 results were strong. We are on the right track and we are making progress. ING is well positioned to benefit from the transformation that is taking place in the banking landscape. There are still challenges ahead. In particular, we need to step up efforts to become faster, more agile and more innovative if we are to meet our customers’ ever-changing expectations. We remain committed to realising our Ambition 2017 programme, which includes our intention to pay a minimum of 40 percent of ING Group’s annual net profits to shareholders, through dividends, with effect from 2015. Furthermore, at the end of each financial year the Board will recommend whether to return additional capital to shareholders dependent on financial, strategic and regulatory considerations.
EUR 406 bln in retail deposits for our customers. We pay interest and keep this money safe.
We introduced initiatives across the businesses to give customers greater insight into, and more direct control over, their financial affairs, such as a savings planner and a financial health test.
ING Group 4 Report of the Executive Board How we create value
Our core functions › Offering savings and investment opportunities › Offering credit to private individuals, companies and institutions › Facilitating payments › Servicing companies’ other financial operational needs › Managing risks and assets › Providing financial insight, overview and advice › Providing access to capital markets for financing, hedging and investment purposes.
Our operations touch the lives of many stakeholders, including customers, employees, shareholders and suppliers. Each individual stakeholder can expect us to act with integrity. We have established a set of standards for all employees that we collectively value, strive to live up to and invite others to measure us by. They consist of values and behaviours. The ING values are principles we stick to – no matter what. We are honest, we are prudent and we are responsible.
Risk and capital management chapter for more information about our capital structure.
Encouraging a culture of innovation is therefore a key business activity. We need to be able to respond in a competitive and fast-changing economic environment to generate new products and services that anticipate customer demand, introduce efficiencies and make better use of information technology.
We are steadfast in our purpose and role in society. We want to accelerate the transition to a sustainable society in key areas linked to our core business. We view sustainability as part of our business rather than an end in itself. We also envision this as a decisive movement towards a stable society where everyone has access to financial services.
This requires resilience from us and from our stakeholders: we need to be able not only to deal with adversity in challenging times, but to seize opportunities too. Societal trends such as digitisation, economic trends and regulatory developments which have an impact on our operations all influence the value we add now and in the future.
In a fast-changing and ever-digitising world, customer behaviour and customer needs are continuously changing, and we needed a clear sense of purpose and direction guiding how to serve our customers best.
We believe that the ultimate purpose of a financial institution is to support and stimulate economic, social and environmental progress leading to a better quality of life for people in society. We don’t just want to mitigate harm and do good; we also want to drive progress. We believe all sustainable progress is driven by people with the imagination and determination to improve their future and the future of those around them. Facilitating economic growth by playing our role as a bank should go hand in hand with social progress and environmental preservation or else our results cannot be sustained in the long term. One of the ways in which we strive to accelerate the transition to a more sustainable economy is by backing ambitious and responsible entrepreneurs and companies. We also believe that doing so will create a higher quality asset portfolio in the long term.
Empowering people to stay a step ahead in life and in business.
2. To eliminate our Group debt. At year-end 2014 this stood at EUR 1.5 billion (2013: EUR 4.9 billion). The combined market value of our remaining stakes in NN Group and Voya (EUR 7.5 billion at year-end 2014), the latter of which is now fully divested should comfortably facilitate the elimination of our outstanding Group debt.
Clear and easy Banking doesn’t have to be difficult and time consuming. Less is more. It’s mostly about clear products, plain language, fair prices and simple processes. This saves both time and money.
Earn the primary relationship To be relevant for customers we have to understand them. We can use our understanding to empower customers to make smarter decisions, but we can only get to know them well if we enjoy a primary banking relationship. To earn this position, we need a strong foundation based on high-quality basic services.
Develop analytics skills to understand our customers better Banking has always been about analysing customers’ information. However, with more and more digital interaction instead of face-to-face contact, our approach to analysing data to understand our customers better needs to be adapted. The more we understand our customers the more relevant we can make our services. Using customer data and other data, we can develop financial tools that empower our customers, helping them to make smarter decisions for themselves, based on better quality financial information. Data analytics also serve our customers’ interests by strengthening fraud detection and prevention, and improving operational excellence. We are focusing on realising these benefits without compromising security or privacy.
Therefore we have been streamlining our policies and controls, while making sure that we retain solid processes.
We have responded by articulating what we mean by performance culture. We have developed new global behaviours together with our people and have improved performance management.
Building on our strengths We are currently well positioned to be successful in the coming years.
Market Leaders In Benelux countries our strategy is to grow in selected segments, continue to develop towards a direct-first model, invest in digital leadership and deliver on operational excellence programmes.
Challengers We plan to invest in our Challenger markets to use our strong savings franchises and expand into payments accounts to build primary banking relationships with customers.
Commercial Banking We are a network bank for our clients across Europe with global reach and we are investing in our business transformation programme, the Commercial Banking Target Operating Model. We have a number of global franchises. We are targeting continued growth in our client base and in Industry Lending and Transaction Services. In Challenger countries we are expanding our asset generating capabilities to promote locally optimised balance sheets and broader franchises.
In 2014, agreement was also reached on the Single Resolution Mechanism (SRM) consisting of a Single Resolution Board (SRB) and a Single Resolution Fund (SRF). The SRM will apply to banks covered by the SSM to ensure an orderly resolution of failing banks within the eurozone. ING is supportive of the SRM as an important second pillar of the Banking Union.
In 2014, EU agreement was reached regarding a revision of the Deposit Guarantee Scheme (DGS) directive. EU Member States are obliged to build up ex-ante deposit guarantee funds of an (in principle) minimum target size of 0.8 percent of covered deposits in 10 years. Banks’ contributions will be risk based taking into account EBA guidance. The DGS directive will be applicable as of 2015 and ING will start to contribute to the Dutch DGS fund as of mid-2015.
This presents a huge opportunity for banks. Mobile users tend to check in much more frequently than other users. There is the potential for more frequent contact with our customers. The richness and the quantity of data available to banks allow them to create a platform for more tailor-made services.
Increasingly, our customers are self-directed. Many of our retail customers are avid users of technological devices. They are well informed, they know what they want and they want it immediately.
The banking industry is highly regulated. Banks have all the requirements in place to act in the full interests of their customers. Safe banking requires specific knowledge of financial services and in-depth knowledge of customers as well as rigorous risk-management systems. As competition from outside the banking sector continues to increase, we have to become faster, more agile and more innovative.
ING’s solid foundations give us an excellent platform from which to face existing and future challenges, and become a better company for all our stakeholders. We have a long legacy as a financial institution. We are a leader in digital banking.
We are investing in building profitable, mutually beneficial relationships with our customers, based on the quality of our service. We intend to continue working hard on regaining trust, demonstrating that we care about our customers and all other stakeholders, and to be even clearer about the strategic choices we make.
› Well-known, strong brand with positive recognition from customers in many countries.
Weaknesses › Currently low/subdued economic growth in markets where ING has significant market positions.
Sustainability Annex 2014 for more information about the materiality process and methodology.
What the materiality matrix tells us The high-priority material issues show that we need to balance financial and non-financial expectations if we are to address stakeholders’ concerns effectively. We are addressing these issues directly and through integrated reporting. This year’s report incorporates considerably more non-financial information.
‘Enhancing customers’ financial capabilities’ is another issue that is becoming more important to stakeholders. Our Customer Promise includes ‘empower’; i.e. ‘we want to empower our customers to make smart financial decisions’.
We posted strong commercial and financial results, with an increase in interest results and lower risk costs.
Focus on innovation led to a steady stream of innovative ideas, some of which were implemented.
CEO statement, Our strategy and progress, Retail Banking and Sustainability Annex 2014.
We continued dealing with increasing regulatory scrutiny in the post-crisis environment
The fact that we strive for equal opportunities for all, for example via our diversity programmes, contributes to our performance culture and is more and more expected by society at large.
Is our capacity to lend to people and businesses compromised by our objective to strengthen our capital and liquidity position? In the past two years, our funding capacity has not been a factor hampering our efforts to serve our clients. Notwithstanding, we have been confronted with a reduced demand for credit from SMEs and individuals as well as insufficient creditworthiness of SMEs in some countries and certain markets. For many SMEs, solvency levels have worsened significantly since the beginning of the crisis. ING is striving to address this by supporting initiatives aimed at strengthening SME buffer capital and increasing their financial transparency in order to improve their access to credit.
How can we accelerate the transition to a more sustainable economy if we do business with companies that don’t comply with the highest social and environmental standards? The growing global population and increasing the standards of living in emerging economies pose daunting social and environmental challenges. We enable ambitious companies that already meet the highest social and environmental standards wherever we can. However, we also need to be prepared to support clients which still have challenges ahead of them, to help them make their existing business models more sustainable.
ING Group 20 Report of the Executive Board How we are balancing our responsibilities
Transparency is an important objective, which we pursue in other ways. We respect the law including national statutory requirements and international transparency obligations, and also the rules we set for ourselves.
What do we consider to be an adequate level of pay for our employees in the light of our ambition to remain a top employer as well as the increased public criticism of remuneration standards in the financial services industry? We have operations in over 40 countries and more than 53,000 employees, of whom around 38,000 are based outside the Netherlands.
Sustainable transitions financed and Sustainable assets under management 19.5 bln Sustainable transitions financed 1,538 mln Sustainable assets under management
In the past few years, Retail Banking has been working towards converging its traditional banking model to a digital-first model. Our customers are increasingly self-directed. A digital-first offering allows us to offer transparent products, consistent fair pricing and process excellence at low costs.
Agility towards change is key in today’s banking environment. We are working on becoming a more agile, innovative business, which can respond to the latest consumer demands quickly and flexibly. An agile way of working is therefore a key part of our IT programme and will be addressed in 2015.
Strong retail deposits gathering ability (in EUR bln, full-year 2014) (1)
(1) 2009 and 2011 have been adjusted for the divestments of ING Direct USA, Canada and UK.
Cross-buy = average number of products per active customer Luxembourg is reported under Belgium; Austria is reported under Germany
In this chapter we start by explaining the scope and scale of the Retail Banking division, summarise business unit activities and highlight key developments. Secondly, we show how our activities are furthering ING’s strategy by empowering our customers. Thirdly, we discuss how we are creating a differentiating customer experience. Finally, we highlight our 2014 performance.
To support the transition to omnichannel service delivery, the IT infrastructure and processes in the Netherlands are being further simplified and automated. This innovative and demanding undertaking in the Netherlands will help develop best practices for future development across the Bank.
Improving reliability In 2014, we struggled with several system outages, mainly in the Netherlands. We put a lot of effort in solving these issues in 2014 and are continuing to improve our systems as we’re aware of the inconvenience of these outages. We are already seeing the initial results of our efforts. For example, the availability of our online payments system has improved, resulting in an increase in the availability of iDeal.
In the longer term, infrastructure issues will be addressed to help improve day-to-day processes such as payments.
Overall, a Bank DPE and Bank DPO have also been appointed.
We have appointed a global head of Consumer and SME Lending, who will – in close co-operation with the countries – develop specific consumer retail lending and SME propositions following a digital-first model. Initially, the main focus will be on challenger markets, innovative customer propositions and mobile distribution. ING Spain will keep developing the SME segment, following its initiative to widen the target range to micro-companies. It increased its maximum turnover to EUR 2 million (from EUR 0.3 million). Senior management was closely involved in the challenge to obtain a deep understanding of the needs of 21st century SMEs.
Earning primary relationships Embedding this combination of qualities into the way we interact with our customers will help us progress our strategic priority of earning primary relationships.
ING-DiBa is the first major German bank to offer customers this service. We expect a large proportion of our new customers to opt for the simplified procedure.
The Retail operations in Belgium include Record Bank, which continues to focus on one of its core values: “keeping things simple for the customer”. Customer appreciation is reflected in the funds entrusted volume, which went up by 4.9 percent compared to 2013. Outstanding credits grew by 7.8 percent. In the production of consumer credits, Record Bank now ranks second in Belgium according to the latest ranking. In 2014, Record Bank launched its Record Fund, a unique product on the Belgian market. This Fund is a mixed index fund, mirroring the evolution of the market.
More transparency We empower customers to make clearer choices with greater transparency. ING Netherlands, for example, has increased transparency right across its product range. This has encompassed many aspects of its communications, from producing crystal-clear infographics for comparing rates on its website to alerting business customers about the best time to make a deposit to ensure the interest bonus.
Accelerating innovation Our businesses stepped up innovation during 2014 with a series of product and services initiatives.
Clear and easy › Empower through transparency › Smart, simple products and services › Flawless execution.
Anytime, anywhere › Mobile first › Omnichannel experience › Advice when needed.
Empower › Anticipate customer needs › Provide customers with insight › Connecting a community of customers.
ING Belgium launched Business Banking given the special requests of business customers in the field of online banking. Business Banking also simplifies financial management for our professional customers. Any transactions can be carried out virtually via this single online banking service.
In the Netherlands, braille transcripts for savings accounts with a variable interest rate are in place for both private and business customers. Visually impaired customers can also use “Inge”, a voice-activated system to check balances or make payments.
Our Branch in a Briefcase project in Belgium (see box) also assists by reducing the need for physical visits.
ING Netherlands also offers its services through 261 fullservice branches and 371 ING Servicepoints.
If you’re a Personal Banking customer in Belgium, for example, there is no need for you to visit a branch. One of ING Belgium’s commercial agents will come to you. The agents, who have varied skills, bring most branch facilities along in their briefcase, wherever you are. It’s convenient and it saves you time.
Called Dreamstarter, the online platform connects social entrepreneurs and non-profits with people who want help. In 2014, the Bank drew attention to the plight of youth in the country. A young entrepreneur, Jami Green, spent 24 hours in an upright display case in Melbourne to raise awareness and funds. Within 72 hours, he had raised over AUD 27,000 (over EUR 18,000 at the exchange rates at that time), and got his business off to a flying start.
We also support schemes that promote financial literacy in children and help them to become moneywise. ING offers a wide range of global programmes in this area.
ING Group 30 Report of the Executive Board Retail Banking continued
investments, such as educational projects and research and advisory services. One example of such a project is a touring bus in India that educates women in rural areas. Our research and advisory service is another important part of our financial inclusion activity. Its “A Billion to Gain?” report has been published biannually since 2006.
ING Groenbank’s microfinance lending portfolio amounts to EUR 75 million and is distributed locally via ING Vysya Bank (EUR 40 million) in India and ING Turkey (EUR 30 million). For the African continent, we have partnered with Oikocredit by investing EUR 5 million in its fund. ING Groenbank has already supported over 500,000 micro and small enterprises since 2004.
Socially responsible investments Promoting responsible finance opportunities means creating value for our customers by embedding the principles of sustainability in our products and services. More than a decade ago, we initiated the inclusion of environmental and social topics in our investment strategies for retail and private banking customers in the Netherlands. Nowadays, we can offer a fully mature and socially responsible investment (SRI) strategy that meets a growing demand. We do this by offering dedicated SRI funds as well as portfolios of sustainable company assets. Offering SRI funds runs parallel with our goal of giving our customers a broad choice and enables them to make an informed decision when applying sustainability criteria to their investment decisions.
Our dedicated team of SRI analysts is embedded in the Dutch ING Investment Office. This ensures that the products offered meet ING’s stringent criteria in terms of both financial and sustainable performance. In 2014, we formalised the decision-making for SRI in the Netherlands by setting up a Responsible Investment Committee. Our products are aligned with ING’s overall view on sustainable development.
We are also integrating sustainability indicators into our more conventional investment strategies, for example by excluding producers of controversial weapons. Companies that are responsive to stakeholder expectations and show resilience to environmental and social challenges will be better positioned in the future and will increase business continuity.
Retail Belgium delivered another strong underlying result. The result before tax rose to EUR 844 million, from EUR 663 million in 2013, mainly reflecting higher interest results and lower risk costs.
Underlying income declined by 2.1 percent, but grew by 6.2 percent, adjusted for the deconsolidation of ING Vysya Bank at the end of March 2014. This increase was mainly due to higher interest results supported by increased volumes. Net funds entrusted (excluding currency effects and the deconsolidation of ING Vysya Bank) grew by EUR 6.1 billion, with growth in most countries, notably Spain and Poland. Net lending (also adjusted for the sale of a mortgage portfolio in Australia) rose by EUR 5.4 billion, mainly in Turkey, Poland, Australia and Spain.
Operating expenses, excluding the deconsolidation of ING Vysya Bank, were up 0.3 percent, as higher expenses due to strategic investments to support business growth were largely offset by favourable currency impacts.
Risk costs declined to EUR 165 million (or 39 basis points of average risk-weighted assets) from EUR 280 million (or 64 basis points) in 2013. The decline is predominantly caused by the deconsolidation of ING Vysya Bank and a small net release in the UK Legacy run-off portfolio, whereas in 2013 it included an addition of EUR 60 million.
To achieve this and to be relevant to clients in a very competitive market, we must understand their businesses intimately and offer real expertise. This guides our commercial strategy and the priorities we set ourselves. For the bank more broadly, Commercial Banking contributes to the diversification of assets, which balances our strengths in savings and deposit gathering. In 2014, we achieved good growth in lending assets within Commercial Banking, specifically supporting the development of stronger local franchises in designated ‘challenger’ markets.
We provide a range of products and services to support our clients’ needs. Our lending capabilities anchor most of our client relationships and our offering is enhanced through Transaction Services, such as International Payments & Cash Management, Trade Finance Services and Working Capital Solutions. Financial Markets, as the Bank’s gateway to the professional markets of the world, serves our clients from treasury through to capital markets, risk management and structured financial products.
Driving sustainable progress in society section, pages 39–41 for more information.
Greenwich Associates recognised us as: Greenwich Quality Leader 2015 in the Netherlands
EMEA Finance recognised Structured Finance as: Best Structured Finance House in EMEA
We acted as joint mandated lead arranger and joint facility agent for a USD 5.6 billion term loan facility for STAR Rafineri AS. This refinery project is Turkey’s largest-ever project financing.
Project Finance International awarded STAR Rafineri AS with “Middle East & Africa Refinery Deal of the Year”
A EUR 750 million term loan for a major international investor to buy a portfolio of nine premium real estate assets in an exclusive Paris shopping district was a landmark transaction in the European real estate sector in 2014. ING acted as sole global coordinator, underwriter and documentation agent, as well as sole financial adviser. We also played an instrumental role as a strategic client adviser during the bidding process.
We aim to take an integrated and holistic approach to developing client solutions by proactively putting them at the centre of all that we do, doing our utmost to understand how their business works and to deliver deep insights about ways in which we can add value. Our objective is to identify the clients’ business drivers and needs, analyse their financial supply chains and balance sheets in order to create relevant solutions to the challenges they face and to realise new opportunities for increased efficiencies.
TFS finances, settles and mitigates risks of international trade for clients in all markets globally, but primarily in Asia, Central and Eastern Europe, Latin America, Africa and the Middle East. WCS combines ING’s Supply Chain Finance and Trade Receivables activities – it is a growth area for the Commercial Bank, offering substantial opportunities for our clients to achieve efficiency benefits. From the bank’s perspective, the underlying short-term and capital-efficient nature of this asset class makes it an attractive area for us to expand our activities.
Treasury Management International recognised us as: Best Bank for Financial Supply Chain Management – Western Europe Best Bank for Payments & Collections – Central & Eastern Europe
One of the landmark deals of 2014 was NN Group as it was establishing an independent capital structure in order to prepare itself for a stand-alone future. We acted as global coordinator and bookrunner for both the Initial Public Offering (IPO) and a successful placement of a EUR 1.0 billion pre-IPO hybrid debut bond. This deal was followed by a series of successful hybrid transactions for other insurance companies such as AXA, AEGON and Atradius as well as the post-IPO NN perpetual hybrid bond, for which ING also acted as bookrunner. This transaction has positioned ING as one of the leading advisers in the insurance hybrid bond market.
With regard to the latter, ING exposure in Russia is in large part to major Russian natural resource exporters. We have sought to continue support for long-term clients while reducing overall exposure.
In relation to oil price falls, most of our oil- and gasrelated lending is affected to a very limited extent. The largest part by volume is short-term transactional finance for oil and gas provided to clients who do not take outright price risk. Most of the remainder is to projects with medium- or long-term offtake contracts or to investment grade companies. We have reviewed our reserve-based lending, which has exposure to oil prices, and based on the current oil price environment we see limited risk of increased loan losses.
ING is responding by adapting to the new benchmarks. We will start offering merchant acquiring in more countries, enhanced with value-added services, such as forecasting and fraud reduction. We are also teaming up with external vendors to further improve the pace of innovation. In addition, we are improving our service delivery through our multi-year, multi-product transformation programme.
Lending is the foundation for most of our relationships. We seek to step up to more lead-financing positions for many of our core clients. We can support them in realising their ambitions through our industry-lending expertise, our advisory, structuring and capital markets capabilities, and our strong network. We aim to get closer to these clients than any other bank.
And we are simplifying and standardising client processes; for example, by reducing the time it takes to bring new clients on board or open international accounts.
We develop our analytics skills and data analytics products in close collaboration with our clients, for our clients. With respect to data confidentiality and limitation on specific data use, we take great care to ensure that activities comply with legal and ethical standards.
The client appreciated the content, quality and relevance of this analysis. ING was awarded the mandate for a EUR 250 million term-loan facility. We acted as joint bookrunner and mandated lead arranger and were the sole non-French bank to be involved in the financing of the acquisition.
We accelerate sustainable transitions through ING’s lending capabilities Commercial Banking contributes to a sustainable economy because we strongly believe that sustainable business is better business. Developing a forwardthinking agenda based on sustainability is a priority for ING and is increasingly gaining importance for companies worldwide. That is why ING created a Sustainable Lending team in 2012 to promote sustainable business opportunities.
› Low carbon transport such as public transport or significant improvement in fuel efficiency
In absolute terms, the renewables portfolio grew by EUR 455 million in 2014. Please see the renewables section for more details on the renewable energy portfolio.
Evaluating sustainability impacts ING has embedded sustainability assessments into its core business processes and assesses the environmental and social impact of every lending opportunity. These assessments are a mandatory part of our Know Your Client (KYC) procedures as well as deal approval processes.
Increasingly, clients are approaching ING to develop financial solutions that meet sustainability challenges. They want to implement energy efficiency measures or develop circular business models that integrate reducing, reusing and recycling measures.
Shared global behaviours backed by strong values are critical to the performance culture we aim to build. But that culture should not be monolithic. Embracing difference is equally important both to reflect human diversity and to ensure we connect with our customers at the local level. We also encourage employees to grow and give back to society. A corporate culture that embraces difference is part of this process.
Developing Orange leaders that make a difference A strong culture needs engaging and convincing leaders. True Orange leaders are clear about what they expect from their people. They energise their teams and empower them to deliver on our promises to customers and other stakeholders. We equip them to promote agility, innovation and the ING way.
In 2014, we invested around EUR 57 million in learning and development for our employees. New approaches to learning are becoming more commonplace at ING. More than 70 percent of all learning is now done outside traditional channels, for example, e-learning.
Our courses, led by ING employees, are oriented towards building skills, technical knowledge and personal development. By year-end 2014 nearly 1,200 individuals had benefited from these courses.
Attracting, retaining and motivating our employees We take a long-term view when it comes to developing and improving the skills and competencies of our employees. We use among others learning and talent management to develop our people.
This Dutch programme is facilitated by an online intranet platform where employees can quickly and easily access the tools and advice available. Supported by an award-winning communication strategy, the programme offers a number of development tools including assessments, tests and competency training, a career call centre, coaching, career plan, specialist programmes and management schemes.
Around a third of employees based in the Netherlands had benefited from the programme up until 2014.
Talent management and job rotation Our global talent sharing initiative, the ING International Talent Programme (IITP) ensures we have the right types of talent in the right numbers to meet ING’s future leadership needs. In 2014, we recruited 104 trainees to this programme (40 females and 64 males) from 10 different countries.
Job rotation and short-term assignments increase employees’ understanding of ING, optimise learning on the job and grow networks and knowledge sharing. International and national short-term assignments up to 18 months increased by 29 percent compared to 2013. We also facilitate job swaps within the organisation.
The 2014 results show a positive development in the level of engagement with increased trust and better understanding among our employees of how their efforts contribute to the strategy. Employees are more confident about ING’s long-term future and the impact we have in the market.
› Improving the pipeline of women in the ING Graduate Programme.
The ING Way In July 2014, we appointed a chief innovation officer (CInO), who is introducing a new framework for innovation across the Bank. ‘The ING Way’ is based on a disciplined and replicable methodology for converting ideas to implementation. Local innovation in business units is shared and replicated. Knowledge-sharing frameworks and tools encourage co-creation between countries. A centralised customer experience centre facilitates low-cost experimentation and manages key innovation projects.
Becoming the next generation digital bank A chief operations officer (COO) was appointed to the MBB in May to steer our IT and operational excellence initiatives. Several of such initiatives are in progress, focused on transforming ING into the next generation digital bank.
The Power of IT The move towards digital-first service delivery (with mobile as the key distribution channel) needs to deliver more agile ways of working, increased replication and collaboration, flexible and modular architectures and a high-performing workforce.
Building a culture of innovation ING has transformed the banking industry before with its disruptive ING Direct model. It seeks to do so again. There is renewed focus on building a culture of innovation throughout the bank.
In support of our ambition to accelerate innovation, we launched a EUR 25 million Innovation Fund in late 2013. The fund favours projects which enhance customer experience and have multi-country relevance.
We have therefore introduced three drivers to stimulate strategy execution: 1. Simplified and standardised technology 2. Agile and automated processes 3. High-performing workforce of skilled engineers
In the coming years the Concept of One will provide extra guidance in realising ING’s IT strategy.
Improving reliability We made significant progress in 2014, but certain IT challenges still need to be addressed. For example, online banking service outages in the Netherlands need to be eliminated, and the real-time processes necessary for delivering an omnichannel customer experience will likely lead to stability challenges. To improve the reliability of online banking services for customers in the Netherlands and Belgium, a team of cross-domain IT managers has been mandated to focus exclusively on realising a significant improvement in the stability of our systems. A detailed plan of approach will be delivered in early 2015, whereafter the necessary improvements will be implemented.
Genoma is a multi-year transformative project that supports ING Spain’s strategy of delivering a differentiating customer experience by moving from ‘reporting’ (past transactions) to ‘helping’ (empowering customers to make smart financial decisions).
All digital banking processes adopt a mobile-first philosophy, resulting in clear and easy products and services that are available anytime, anywhere. Genoma was launched for ING Direct Spain customers in July.
A comprehensive framework for risk management Risk management is a vital business attribute. The key objective of risk management at ING is to make sure that all risks are managed in the best possible way for all stakeholders. Risk management is deeply embedded into our culture, our people and our behaviour.
Deep understanding of the relevant risks, our exposure to them and the effectiveness of our controls for mitigating those risks are essential for our success. We have built a strong risk culture. We have a clearly defined risk appetite supported by an effective risk governance framework, which endorses and enforces appropriate behaviours and enables the Bank to operate in a safe and sound manner, with integrity and in compliance with applicable laws and regulations.
Commercial departments have primary responsibility for day-to-day risk management. For example, they originate loans, deposits and wealth management products to help our customers manage their financial future. They know our customers well and are best placed to act in their interests and those of ING.
The second line of defence ensures that risks are actively and appropriately managed. The Chief Risk Officer (CRO) coordinates risk management centrally to evaluate and manage exposure on a bank-wide basis.
Monitoring and managing risk is at the heart of the business. Strong and integrated risk management is essential for sustainable value creation both in day-to-day business activities and for strategic planning.
is k 3 lin es o f d ef en ce
ING Group 48 Report of the Executive Board Risk and capital management
ING’s robust risk appetite framework monitors a range of risk metrics to restrict the impact of adverse markets and events on ING’s capital and liquidity position. ING also conducts bank-wide and portfolio-specific stress tests to assess resilience in specific market conditions. Given the continuously changing environment, underlying assumptions and relevant metrics are regularly reviewed.
R isk repo rtin g economic situations in both countries. ING actively monitors and manages the exposures in both countries, while we have sought to continue support for longterm clients. At the end of 2014, ING Bank’s exposure to Russia was EUR 7.0 billion. In the last six months, the exposure was reduced by EUR 2.1 billion at constant FX rates.
ING has a robust ESR framework that is integrated into its overall risk management methodology. In an evolving regulatory context that is increasingly including environmental and social risks, having an established and integrated ESR framework is a source of competitive advantage.
The ESR framework also supports ING’s objective of maintaining a more sustainable portfolio. In 2014, the dedicated ESR team issued more than 200 advices itemising specific areas of attention and improvements in transactions ING financed. The execution of these improvements by our clients actively stimulates the transition towards a more sustainable economy.
ING Bank already has a detailed Recovery Plan in place. This is continuously updated under the supervision of the regulators to ensure it remains aligned. We diligently share information with the Dutch Resolution Authority to provide the basis for the development of our Resolution Plan. The EBA has published various technical standards to harmonise plans across Europe. ING Bank is now working to further align the structure and content of its Recovery and Resolution Plans with European regulation.
The strong capital position and resilient balance sheet of the Bank allowed us to pass AQR and stress tests with comparative ease. These clear results are a confirmation of ING’s prudent management approach. Subsequently, ING finalised the repayment of a final tranche of core Tier 1 securities to the Dutch State ahead of schedule, as described below.
In 2014, ING’s Board approved a new ESR policy on coal-fired power and coal mining. This new policy sets greenhouse gas emissions thresholds for project and asset specific financings in the coal sector that are realistic and achievable in today’s marketplace. The policy covers both specific purpose and corporate lending facilities, and helps support our energy clients’ transition to a lower carbon footprint. New restrictions on financing the controversial mountain-top removal mining practice in the US Appalachia have also been introduced.
ING also participates in the Thun Group of Banks which pursues the application of how UN Guiding Principles on Business and Human Rights and OECD Guidelines for Multinational Enterprise (which include specific chapters on Environmental Management and Human Rights) can be applied in the banking sector.
Capital Management serves strategic objectives The continued strength of ING’s capital position, the adequacy of our financial position and risk management effectiveness allow us to empower people and businesses to realise their goals. It also allows ING to resume dividend payments on common shares to shareholders.
In addition, under revised IAS 19 accounting rules, “unrecognized actuarial gains and losses” on defined benefit pension plans are recognised immediately in equity, which increases volatility driven by movements in financial markets. The transfer of the obligations connected to the current Dutch DB Plan removes this source of volatility for both Bank and Insurance. It also removes the potential direct negative impact on capital in the event of a net pension liability. Consequently, the agreement has made the capital position more stable.
ING Group’s successful IPO of NN Group in July 2014 generated approximately EUR 2.2 billion proceeds and reduced its shareholding to 68.1% at year-end 2014. In February 2015, ING’s stake was reduced to 54.6%. We are well placed to bring our shareholding below 50% by end-2015 as per EC requirements.
Dividend As stated in our Ambition 2017 programme, ING is committed to returning capital to shareholders through a sustainable dividend policy. Effective from 2015, ING intends to pay a minimum of 40% of ING Group’s annual net profits by way of dividend, consisting of both an interim and a final dividend. Furthermore, the Board will recommend whether to return additional capital to shareholders at the end of each financial year. Such decisions will reflect considerations including expected future capital requirements, growth opportunities available to the Group, the net earnings of the Group, and regulatory approvals as appropriate. The Board proposes to pay a final 2014 dividend of EUR 470 million, or EUR 0.12 per (depositary receipt for an) ordinary share, subject to the approval of shareholders at the Annual General Meeting in May 2015.
The remaining bonds issued under the Credit Guarantee Scheme of the State of the Netherlands were fully repaid in March 2014. ING Group paid a fee of 84 basis points over the issued bonds to the Dutch State to participate in the Credit Guarantee Scheme in 2009.
ING Group capital CRR/CRD IV also prescribes regular reporting on ING Group solvency ratios. The starting point for the riskbased ratio is ING Group shareholders’ equity, from which similar regulatory adjustments are deducted as in the CET1 capital calculation of ING Bank. In addition, this capital base is further adjusted for the carrying value of NN Group and Voya.
The Group’s phased-in CET1 ratio at the end of the year improved by 0.3%-point from the previous quarter to 13.5%, largely due to the quarterly net profit after excluding the proposed dividend. This ratio is well in excess of 10.5%, which we understand will be the regulatory guidance level for the Group.
When setting targets, ING Bank also takes other constraints into account, including: › Additional regulatory capital requirements including the amount of Tier 1 capital, Total capital and the Basel I floor.
› Rating agency considerations. Each rating agency provides a different analysis and specific topics may need to be addressed.
Following the final payment to the Dutch State in November 2014, the so called call ban was lifted. This ban was part of the behavourial sanctions imposed by the European Commission as a result of the Restructuring Agreement. Subsequently, ING Bank called EUR 1.6 billion of non-CRD IV eligible Tier 2 securities with a nominal amount of EUR 0.2 billion.
Capitalising subsidiaries The introduction of the SSM has put additional emphasis on the equal and adequate distribution of equity throughout ING Bank subsidiaries. Legal entities must always comply with local regulatory minimum capital requirements. ING’s subsidiaries are well capitalised. As a matter of policy, consolidated targets are cascaded down to individual businesses. This process aims for an equal distribution of capital and to avoid trapped capital. The subsequent transferability of capital provides room for loan growth and supports our strategy of developing local asset generating capabilities at the local level.
ING has demonstrated the ability to generate capital continuously. This leaves us well positioned to develop further lending capabilities that serve customer needs. All remaining core Tier 1 securities have been repaid to the Dutch State and regulatory requirements have been met. The strength of the balance sheet provides a firm foundation for growing the business and paying dividends.
(Depositary receipts for) ordinary shares of EUR 0.24 nominal value 3,858.9 3,840.9 (Depositary receipts for) own ordinary shares held by ING Group and its subsidiaries 4.3 4.0 (Depositary receipts for) ordinary shares outstanding in the market 3,854.6 3,836.9
Listings Depositary receipts for ING Group ordinary shares are listed on the stock exchanges of Amsterdam, Brussels and New York (NYSE). Options on ING Group ordinary shares (or the depositary receipts thereof) are traded on the NYSE Euronext Amsterdam Derivative Markets and the Chicago Board Options Exchange.
United States United Kingdom France Switzerland Netherlands Germany Rest of Europe Rest of World
(1) Year-end 2014 figures, estimated based on institutional share ownership figures provided by Nasdaq Corporate Solutions.
Main credit ratings of ING at 31 December 2014 Standard & Poor’s Moody’s Fitch
Score: 76 (out of 100) Included in World Index and Europe Index
Score: 72 (out of 100) Included in World Index. Not included in Europe Index
Score: 64 for disclosure (out of 100) and D for performance Position: Not Included
Publication results 1Q 2015 Thursday, 7 May 2015, 7:00 am Annual General Meeting Monday, 11 May 2015 Publication results 2Q 2015 Wednesday, 5 August 2015, 7:00 am Publication results 3Q 2015 Wednesday, 4 November 2015, 7:00 am
Guidelines ING’s integrated report, including the Sustainability Annex, is prepared in accordance with the G4 Sustainability Reporting Guidelines and the Financial Services sector supplement (comprehensive level) and Dutch Accounting Standard 400. The content and quality criteria provided by the guidelines (for example sustainability context, stakeholder inclusiveness, materiality, completeness, balance, comparability, accuracy and reliability) are integral to our reporting process.
ING Group 58 Report of the Executive Board About this report
Assurance Assurance for this integrated report, including the accompanying Sustainability Annex, is provided by Ernst & Young Accountants LLP (EY). EY has reviewed and provided a limited level of assurance on the sustainability information in the chapters ‘ING at a glance’, ‘CEO statement’, ‘How we create value’, ‘Our strategy and progress’, ‘Market and regulatory context’, ‘What matters most to our stakeholders’, ‘How we are balancing our responsibilities’, ‘Key figures’, ‘Retail Banking’, ‘Commercial Banking’, ‘People’, ‘Innovation and information technology’, ‘ING Shares’, ‘Composition of the Executive Board and Management Board Banking’ and the Sustainability Annex to the integrated annual report. We refer to page 60 for the assurance report of the independent auditor. The chapters ‘Risk and capital management’ and ‘Remuneration report’ are an integral part of the audited consolidated annual accounts. EY concluded that these accounts give a true and fair view of the financial position of ING Group as at 31 December 2014, 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 and with Part 9 of Book 2 of the Dutch Civil Code. We refer to page 335 for the independent auditor’s report.
Furthermore, EY audited ING Group’s internal control over financial reporting as of 31 December 2014, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). EY concluded that ING Group maintained, in all material respects, effective internal control over financial reporting as of 31 December 2014, based on these COSO criteria. We refer to page 86 for the report of the independent registered public accounting firm.
To: the Stakeholders, the Supervisory Board and the Executive Board of ING Groep N.V. We have reviewed the sustainability information in the chapters ‘ING at a glance’, ‘CEO statement’, ‘How we create value’, ‘Our strategy and progress’, ‘Market and regulatory context’, ‘What matters most to our stakeholders’, ‘How we are balancing our responsibilities’, ‘Key figures’, ‘Retail Banking’, ‘Commercial Banking’, ‘People’, ‘Innovation and information technology’, ‘ING Shares’, ‘Composition of the Executive Board and Management Board Banking’ and the Sustainability Annex in the Annual Report for the year 2014 (hereafter: the Report) of ING Groep N.V., Amsterdam (hereafter: ING). The Report comprises a description of the policy, the activities, events and performance of ING relating to sustainability during the reporting year 2014.
Focus areas and milestones During 2014, the main points of attention at Supervisory Board meetings included the new Think Forward strategy; the IPO of NN Group; the repayment to the Dutch State; the further divestment of Voya; financial and risk reporting; and ING’s financial results.
2014 was a notable year for ING. A year with important achievements: the launch of the new Bank strategy, the repayment to the Dutch State, and with the IPO of NN Group and deconsolidation of Voya, ING moved closer to completing its restructuring plan. We, as members of the Supervisory Board, believe that ING is well set for the future and is in a good position to grasp new opportunities that arise from the new banking environment.
During the year, the Supervisory Board participated in various educational sessions to gain fresh insights and improve our understanding on a broad range of societal issues, as well as learn more about how people prefer to see banks. Topics such as remuneration, customer behaviour trends, innovation, cybercrime and data analytics were on the agenda.
On behalf of the Supervisory Board, I would like to express my gratitude to all ING employees for their hard work and many contributions to serve its customers and all other stakeholders. Their efforts have brought ING to where it is today. ING can look back with pride on 2014 and start 2015 with confidence.
Jeroen van der Veer Chairman of the Supervisory Board of ING Group March 2015
During the year the Supervisory Board approved two repayments to the Dutch state on the state aid received in October 2008, including the final repayment in November. In 2014, three tranches of Voya shares were approved for sale of which the last one in 2014 was successfully executed in November, reducing ING’s stake in Voya to approximately 19 percent at year-end. A draft post-IPO capital plan was reviewed by the Supervisory Board. Corporate social responsibility issues that are relevant to ING were discussed during the year and the proposal to draft an integrated Annual Report for the first time, incorporating ING’s Sustainability Report, was approved.
Following the new Think Forward strategy the Supervisory Board regularly discussed senior executive succession planning for ING Bank. In the second half of 2014, possible adjustments to the remuneration policy were discussed following CRD IV and in preparation for the future Wbfo (Wet beloningsbeleid financiele ondernemingen) legislation. The Supervisory Board approved the proposed adjustments to the remuneration policy for Identified Staff to comply with CRD IV and the future Wbfo legislation.
In preparation for the NN Group IPO the composition of the NN Group Executive Board was decided upon as well as the remuneration policy for the future NN Group Supervisory Board and the NN Group Management Board.
The Audit Committee regularly discussed, amongst others, financial reporting, auditor's independence, internal controls over financial reporting, the reports from the external auditor, capital management and regulatory matters.
Committee also advised on the fulfilment of the NN Group Executive Board positions as well as on the nomination of external candidates for the then future NN Group Supervisory Board.
Remuneration Committee meetings In 2014, the Remuneration Committee met seven times with no absentees.
The annual review of the remuneration framework for ING Bank and the insurance operations took place as well as the annual risk analysis of the remuneration policy. The Identified Staff selection criteria and the list of Identified Staff for ING Bank and insurance operations were reviewed and approved. Later in 2014, an additional assessment of the Identified Staff selection took place under CRD IV regulation. Throughout the year the Remuneration Committee approved Identified Staff related remuneration matters, based upon the governance framework.
ING Group 66 Corporate Governance Report of the Supervisory Board continued
Following the 2014 Annual General Meeting, Eric Boyer de la Giroday joined the Risk Committee and the Audit Committee. Hermann Lamberti succeeded Joost Kuiper as chairman of the Audit Committee. Joost Kuiper succeeded Peter Elverding as vice-chairman and became chairman of the Remuneration Committee and member of the Nomination Committee. In January 2015, Joost Kuiper decided for health reasons to step down as chairman of the Remuneration Committee to be able to reduce his commitments. He was succeeded by Henk Breukink. Isabel Martin Castella became a member of the Nomination Committee and stepped down from the Risk Committee.
This section discusses the application by ING Groep N.V. (“ING Group”) of the Dutch Corporate Governance Code effective as from 1 January 2009 (“Corporate Governance Code”) and provides information on the share capital and control, the Executive Board, the Supervisory Board and the external auditor.
As a result of the repayment/unwinding of these support agreements, these special governance arrangements ceased to apply on 11 December 2013. The only remaining Supervisory Board member appointed upon a recommendation from the Dutch State no longer had special approval rights from 11 December 2013 and stepped down on 12 May 2014.
Differences between Dutch and US corporate governance practices In accordance with the requirements of the US Securities and Exchange Commission, ING Group, as a foreign private issuer whose securities are listed on the New York Stock Exchange (“NYSE”), must disclose in its Annual Report on Form 20-F any significant differences between its corporate governance practices and those applicable to US domestic companies under the NYSE listing standards.
› Consistent with Dutch law, the board committees generally act only in an advisory capacity to the supervisory board and, for instance, ING’s compensation committee may not directly set the compensation of the CEO.
Capital structure, shares 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 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 one-third of the total issued share capital of ING Group (see page 54). The purpose of this call option is to protect the independence, the continuity and the identity of ING Group against influences which 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). The ordinary shares are not used for protective purposes. The ordinary shares, which are all registered shares, are not listed on a stock exchange.
The Board of ING Trust Office currently comprises five members who are independent from ING Group. No Executive Board member or former Executive Board member, Supervisory Board member or former Supervisory Board member, ING Group employee or former ING Group employee or permanent adviser or former permanent adviser to ING Group is on the Board of ING Trust Office. The Board of ING Trust Office appoints its own members, without any requirement for approval by ING Group.
› Without such delegation, if ING Group wished to issue new shares, there would be an increased risk that conditions in the financial markets may have changed during the time needed for convening a general meeting, especially due to the 42-day statutory convocation period. In view of the importance of flexibility with respect to the issuance of shares, the Executive Board and the Supervisory Board will periodically evaluate the delegation of authority to issue shares and, if necessary, make adjusted proposals to the General Meeting.
› In the General Meeting of 2014 the shareholders resolved to conditionally amend the Articles of Association in order to facilitate a possible spin-off of (a part of) NN Group by means of a repayment in kind without the need to call an extraordinary general meeting. As a consequence of this resolution the Executive Board may, subject to approval of the Supervisory Board, decide to spin-off (a part of) NN Group by increasing the issued share capital to facilitate a repayment in kind by subsequently reducing the issued share capital.
Transfer of shares and depositary receipts and transfer restrictions Shares 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. The Articles of Association and the trust conditions for registered shares in the share capital
Shareholders’ structure Pursuant to the Dutch Financial Supervision Act (Wet op het financieel toezicht), any person who, directly or indirectly acquires or disposes of an interest in the voting rights and/or the capital of ING Group as a result of which acquisition or disposal the percentage of his voting rights or capital interest, whether through ownership of shares, depositary receipts, American depositary shares or any other financial instrument whether stock-settled or cash-settled, such as call or put options, warrants, swaps or any other similar contract, reaches, exceeds or falls below certain thresholds, is required to notify in writing the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten) immediately after the acquisition or disposal of the triggering interest in ING Group’s share capital. These thresholds are 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% or 95% of the issued share capital of ING Group. The notification will be recorded in a public register which is held by the AFM.
ING Group is not aware of any investors (or potential shareholders) with an interest of 3% or more in ING Group other than the ING Trust Office, the ING Continuity Foundation and Blackrock Inc. as per year-end 2014.
ING Group strives to provide clear, accurate and timely financial information that is in strict compliance with the applicable rules and regulations, in particular those concerning selective disclosure, price sensitive information and equal treatment. In addition to the Annual General Meeting, ING Group communicates with its shareholders and the investment community through earnings announcements, presentations, and meetings with analysts or investors.
ING Group strives to maintain an open and constructive dialogue with current and potential investors, and with industry analysts. The scope of such bilateral communication may range from single investor queries via email, to more elaborate discussions with analysts or institutional investors that take place via telephone or face to face. These meetings are not announced in advance, nor can they be followed by webcast or any other means. ING Group’s Investor Relations department is the main point of contact for these communications. However, Executive Board members or Management Board members or divisional management members may also participate in investor meetings. Information provided during such occasions is always limited to that which is already in the public domain, and no bilateral contacts take place shortly before the publication of regular quarterly results releases. If bilateral communication between ING Group and investors is organised and/or facilitated through a broker, an analyst or specialist salesperson representing the broker may be present in the meeting. ING Group does not provide brokers with any form of compensation pertaining to such meeting organisation and/or facilitation services.
ING Group hosted one Investor Day on 31 March 2014. The event took place in Amsterdam, the Netherlands, and focused on the “Think Forward” strategy update.
Dialogue with shareholders and holders of depositary receipts Shareholders and holders of depositary receipts were given the opportunity to contact ING about the Annual General Meeting 2014, via the Annual General Meeting dedicated web page on the website of ING Group ( ).
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. Shareholders and holders of depositary receipts who hold shares and/or depositary receipts for 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 a subsequent sale or purchase of shares or depositary receipts for shares. The record date is published in the notice for the general meeting. In accordance with US requirements, the depositary sets a record date for the American Depositary Shares (“ADSs”), which date determines which ADSs are entitled to give voting instructions. This record date can differ from the record date set by ING Group for shareholders and holders of depositary receipts.
ING Trust Office promotes the solicitation of specific proxies or voting instructions of holders of depositary receipts. ING Trust Office encourages the greatest possible participation of holders of depositary receipts and promotes the execution of voting rights in a transparent way. At the same time it prevents a minority of shareholders and holders of depositary receipts from using a chance majority of votes to the disadvantage of the shareholders and holders of depositary receipts neither present nor represented at a General Meeting of ING Group.
Bo ar d Pa re nt c om pa ny a nn ua l a cc ou nt s
› An amendment of the Articles of Association, a legal merger or division of ING Group, and winding-up of ING Group, all subject to a proposal made by the Executive Board upon approval by the Supervisory Board.
› The authorisation of a repurchase of outstanding shares and/or a cancellation of shares.
Function of the Executive Board The Executive Board is charged with the management of ING Group, which means, among other things, that it is responsible for the setting and achieving of ING Group’s objectives, strategy and policies, as well as the ensuing delivery of results. It also includes the day-today 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, which was approved by the Supervisory Board. The Executive Board Charter is available on the website of ING Group (
However, because of the fact that ING Group needs to balance several relevant selection criteria when composing its Executive Board, the composition of the Executive Board did not meet the abovementioned gender balance in 2014 (no women). ING Group will continue to strive for an adequate and balanced composition of its Executive Board in future appointments, by taking into account all relevant selection criteria including, but not limited to, gender balance, executive experience, experience in corporate governance of large stock-listed companies and experience in the political and social environment.
Remuneration and share ownership Members of the Executive Board are permitted to hold shares and depositary receipts for shares in the share capital of ING Group for long-term investment purposes. Transactions by members of the Executive Board in these shares and these depositary receipts for shares are subject to the ING regulations for insiders. These regulations are available on the website of ING Group ( ).
Details of the remuneration of members of the Executive Board, including shares granted to them, together with additional information thereto, are provided in the Remuneration report, starting on page 87.
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 conflicting interests will be disclosed in the Annual Report. In deviation from the Corporate Governance Code however, this does not apply if (i) such disclosure would be against the law; (ii) the confidential, share-price sensitive or competitionsensitive character of the transaction prevents disclosure; and/or (iii) the information is so competition-sensitive that the disclosure could damage the competitive position of ING Group.
ING Group indemnifies the members of the Supervisory Board against direct financial losses in connection with claims from third parties as far as permitted by law on the conditions laid down in an indemnity statement. ING Group has also taken out liability insurance for the members of the Supervisory Board.
Transactions involving actual or potential conflicts of interest In accordance with the Corporate Governance Code, transactions with members of the Supervisory Board in which there are significant conflicting interests will be disclosed in the Annual Report. In deviation from the Corporate Governance Code however, this does not apply if (i) such disclosure would be against the law; (ii) the confidential, share-price sensitive or competition- sensitive character of the transaction prevents such disclosure; and/or (iii) the information is so competitionsensitive that disclosure could damage the competitive position of ING Group.
The Remuneration Committee advises the Supervisory Board, among other things, on the terms and conditions of employment (including remuneration) of the members of the Executive Board and on the policies and general principles on which the terms and conditions of employment of the members of the Executive Board and of senior managers of ING Group and its subsidiaries are based. On 31 December 2014, the members of the Remuneration Committee were: Joost Kuiper (chairman), Henk Breukink and Jeroen van der Veer.
Former vice-chairman Management Board Banking ING Group N.V. and ING Bank N.V.
Most relevant ancillary positions: member of the Board of Airbus Group N.V. (formerly European Aeronautic Defense and Space Company N.V.). Member of the Supervisory Board Open-Xchange AG.
Financial reporting A description of the main features of ING Group’s internal control and risk management systems in relation to the financial reporting process is included in the statement with respect to Section 404 of the SarbanesOxley Act on pages 85–86, which is deemed to be incorporated by reference herein.
Furthermore, EY also audited and reported on the effectiveness of internal control over financial reporting on 31 December 2014.
ING Group has started a project with the objective of changing its external audit firm as of the financial year 2016 and will propose to the 2015 Annual General Meeting the appointment of KPMG Accountants as its auditor.
Annual General Meeting ING Group 2014, votes cast and voting behaviour ING Trust Office attended the AGM 2014 and during this meeting ING Trust Office asked the Executive Board and the Supervisory Board of ING Group various questions. These questions are included in the adopted minutes of the AGM 2014, available on the website of ING Group ( ).
During the AGM 2014, holders of 54% of the outstanding depositary receipts used their voting rights by means of binding voting instructions to the ING Trust Office (36% of the outstanding depositary receipts) or by attending the meeting in person or by being represented by a third party (18% of the outstanding depositary receipts).
A more detailed overview of these voting results can be found on the website of ING Group ( ).
ING Trust Office promotes the solicitation of proxies of shareholders of ING Group other than ING Trust Office itself and of specific proxies or voting instructions of holders of depositary receipts. ING Trust Office encourages the greatest possible participation in the decision-making process in Annual General Meetings of shareholders and holders of depositary receipts and promotes the execution of voting rights in a transparent way. At the same time it aims to prevent a situation occuring where a minority of shareholders and holders of depositary receipts could use a chance majority of votes to the disadvantage of the shareholders and holders of depositary receipts nor present nor represented at a general meeting of ING Group.
The Board convened a meeting of holders of depositary receipts, which was held on 19 November 2014. During this meeting holders of 0.000006% of the total number of depositary receipts issued were present or were represented during this meeting. During the meeting a report was made on the activities of ING Trust Office. In addition, the Board answered various questions from holders of depositary receipts attending the meeting.
An amount of EUR 275,465 (2013 EUR 231,322) is related to the costs of administration of the depositary receipts.
ING Group 82 Corporate Governance Report of ING Trust Office continued mailto:jet.rutgers%40ing.nl?subject=
In 2014 the board of ING Continuity Foundation (the "Board") held two meetings, on 4 April and 26 November.
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. 2014 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
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of ING Groep N.V. as of 31 December 2014 and 2013, and the related consolidated profit and loss accounts, consolidated statements of comprehensive income, consolidated statements of cash flows and consolidated statements of changes in equity for each of the three years in the period ended 31 December 2014 and our report dated 16 March 2015 expressed an unqualified opinion thereon.
Legal and regulatory developments in 2014 With effect from 1 January 2014, the Capital Requirements Directive III (CRD III) is replaced by the Capital Requirements Directive IV (CRD IV). In the Netherlands, CRD IV has been implemented in the Dutch regulation on Sound Remuneration Policies pursuant to the Financial Supervision Act 2014 (the Regeling Beheerst Beloningsbeleid Wft 2014 – Rbb 2014), with effect from 1 August 2014. The Rbb 2014 replaces the Dutch regulation on Sound Remuneration Policies pursuant to the Financial Supervision Act 2011 (the Regeling Beheerst Beloningsbeleid Wft 2011 – Rbb 2011).
Both the upfront part of the variable remuneration and every deferred part are equally divided between cash and shares.
(1) By shares, reference is made to depositary receipts issued by the ING Trust Office in bearer form for ING Groep N.V. shares. For the sake of simplicity in this chapter, reference is made to (ING) shares, instead of depositary receipts.
of four years and allow reappointment by the General Meeting of Shareholders. In the case of an involuntary exit, Executive Board members are eligible to an exitarrangement limited to one year of base salary.
Special employment conditions Special employment conditions, such as commitments made to secure the recruitment of new executives, may be used in exceptional circumstances subject to strict control by the Supervisory Board.
(2) Wilfred Nagel was appointed to the Executive Board on 14 May 2012. The figures for him reflect compensation earned in the capacity as an Executive Board member. Thus the figure for 2012 reflects a partial year as an Executive Board member.
Options held by the members of the Executive Board number of options
LSPP Deferred shares 30 Mar 2011 30 Mar 2014 4,116 4,116 € 10.10 Patrick Flynn – Wilfred Nagel (4) LSPP Deferred shares 28 Mar 2012 28 Mar 2014 3,398 3,398 € 10.08
LSPP Performance shares 30 Mar 2011 30 Mar 2014 5,612 6,314 € 10.10 LSPP Deferred shares 30 Mar 2011 30 Mar 2014 3,368 3,368 € 10.10
(3) Upfront or deferred share units are cash settled instruments of which the ultimate value will be based on ING Group’s share price at the vesting date.
(1) Ralph Hamers was appointed to the Executive Board on 13 May 2013. The 2013 emoluments for him reflect the partial year as an Executive Board member.
(2) Wilfred Nagel was appointed to the Executive Board on 14 May 2012. The 2012 emoluments for him reflect the partial year as an Executive Board member.
ING shares held by Executive Board members Executive Board members are permitted to hold ING shares as a long-term investment. The table below shows an overview of the shares held by members of the Executive Board at 31 December 2014, 2013 and 2012.
Proposed amendments to the Executive Board Remuneration policy Since 2009 the base salary level of the Executive Board has not been increased and no variable remuneration was paid to the Executive Board.
Now that ING has made the final repayment of the State support and also the regulatory landscape has further materialized with the introduction of the Wbfo, the Supervisory Board reviewed the contractually agreed remuneration of the members of the Executive Board and compared that against the Executive Board remuneration policy as approved in 2010. This resulted in the following proposed amendments to the remuneration policy: 1. Change of the at target variable remuneration percentage to 80% of the maximum allowed variable remuneration percentage according to the Wbfo which is currently 20%, as described below.
These amendments to the current remuneration policy for the Executive Board will be put forward for adoption at the 2015 AGM. If adopted, it will become effective as of performance year 2015.
Benchmarks The current remuneration level of the CEO and other members of the Executive Board is benchmarked against the Euro Stoxx 50. In addition to the benchmark peer group as agreed in the Executive Board remuneration policy, other peer groups were also reviewed as part of the overall analysis. The remuneration developments in the financial sector deviate more in the last years from the non-financial sector. In order to take these developments into account, separate peer groups for the financial sector and for the non-financial sector were reviewed. Also those benchmarks confirm that the current actual direct compensation level of the members of the ING Executive Board are significantly below median level of the Euro Stoxx 50 peer group and such other peer groups.
With effect from 1 January 2015, the base salary of the CEO has been increased to EUR 1,630,000 and the base salaries of the CFO and CRO to EUR 1,180,000. As a result, total compensation at target compared to policy by year end 2014 will be reduced with 17% from EUR 2,286,000 to EUR 1,890,800 for the CEO and with 16% from EUR 1,620,000 to EUR 1,368,800 for the CFO/CRO.
Herman-Josef Lamberti 81 46 Isabel Martin Castella 87 48 Eric Boyer de la Giroday (3) 53
(3) Eric Boyer de la Giroday is a member of the Supervisory Board as of May 2014. The remuneration figures for 2014 reflect a partial year as a member of the Supervisory Board.
European works council 2014 N. (Norbert) Lucas, chairman, Germany R. (Rene) De Meij, secretary, Belgium J.P. (Jean Pierre) Lambert, chairman Bank, Belgium H. (Herman) Van Eesbeek, Belgium C.M. (Mihai) Ailincai, secretary Bank, Romania A. (Aad) Kant, chairman Insurance, the Netherlands R. (Reinoud) Rijpkema, secretary Insurance, the Netherlands
Notes to the consolidated statement of cash flows 36 Net cash flow from investing activities 179 37 Interest and dividend included in net cash flow 179 38 Cash and cash equivalents 179
Commission Restructuring Plan 57 Other events 240 58 Subsequent events 242
Independent auditor’s report 335 Proposed appropriation of result and subsequent events 339
– non-trading derivatives 6,040 11,155 18,752 – designated as at fair value through profit and loss 13,551 13,855 13,399 Liabilities held for sale 12 142,132 146,401 67,497
References relate to the notes starting on page 129. These form an integral part of the consolidated annual accounts.
Consolidated profit and loss account for the years ended 31 December
ING Group 102 Consolidated annual accounts Consolidated profit and loss account of ING Group continued
Comprehensive income attributable to: Equityholders of the parent 9,337 –3,750 5,036
Taxation paid –1,073 –1,656 –745 Changes in: – amounts due from banks, not available on demand 3,360 –9,400 5,272
Net cash flow from/(used in) investing activities 36 –7,419 9,269 576
(2) 2014 includes the repurchase premium paid on the repayment of EUR 1,500 million (2013: EUR 750 million; 2012: EUR 750 million) non-voting equity securities.
Balance as at 1 January 2012 (before change in accounting policy) 919 16,034 30,085 47,038 3,000 777 50,815 Effect of change in accounting policy –671 –671 –671 Balance as at 1 January 2012 (after change in accounting policy) 919 16,034 29,414 46,367 3,000 777 50,144
1 Accounting policies ING Group applies International Financial Reporting Standards as adopted by the European Union ‘IFRS-EU’. IFRS requires the consistent application of accounting policies. In the annual accounts the term ‘IFRS-EU’ is used to refer to International Financial Reporting Standards as adopted by the EU, including the decisions ING Group made with regard to the options available under IFRS-EU.
ING Group 108 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group
IFRS 10 Assets held for sale 1,213 Financial assets at fair value through profit and loss 1,350 Liabilities held for sale 702 Other liabilities 788 Minority interest 511 562 IFRS 10 Impact on Shareholders' equity 0 0
Changes in accounting policies in 2014: Impact on the Net result
Under the accounting policies for Japan Closed Block VA applied until 2013, the result before tax for 2014 would have been EUR 97 million lower.
For the above changes in accounting policies the comparative amounts for 2013 and 2012 were restated accordingly. As a result of the retrospective change in accounting policies set out above, the consolidated balance sheet of ING Group includes an additional balance sheet as at 31 December 2012.
Amendments to IAS 36 ‘Recoverable amount disclosures for non-financial assets’ This amendment removed certain disclosures of the recoverable amount of cash generating units which had been included in IAS 36 by the issue of IFRS 13. There is no impact on Total equity, Net result and/or Other comprehensive income.
ING Group 110 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
NN Group’s business in Japan After carefully exploring and evaluating the options available for the divestment of ING Life Japan, it was concluded that a standalone divestment of ING Life Japan, including its Corporate Owned Life Insurance (COLI) and Closed Block VA businesses, was not feasible in a manner that would appropriately meet the demands of regulators and other stakeholders in ING Group and ING Life Japan. At the end of 2013, ING Life Japan and the Japanese Closed Block VA guarantees reinsured to ING Re (‘NN Group’s business in Japan’) were no longer classified as held for sale and discontinued operations but transferred to continuing operations. ING Life Japan was combined with ING’s European insurance and investment management businesses in the IPO of NN Group on 2 July 2014 and is also presented as held for sale and discontinued operations as part of NN Group.
In March 2014, ING Group sold a further 13.3% to reduce ING Group’s interest in Voya to approximately 43.2% resulting in ING Group losing control over Voya. The share sale and the deconsolidation of Voya resulted in an after tax loss of EUR 2,005 million in the first quarter of 2014 which is recognised in the profit and loss account in the line Net result from disposal of discontinued operations. The remaining interest in Voya was recognised as an Investment in associate held for sale. The profit and loss account of the first quarter of 2014 includes the result of Voya until the deconsolidation at the end of March 2014.
Expected impact ING is currently assessing the impact of this standard. The implementation of IFRS 9, if and when endorsed by the EU, may have a significant impact on Shareholders’ equity, Net result and/or Other comprehensive income and disclosures.
Critical accounting policies ING Group has identified the accounting policies that are most critical to its business operations and to the understanding of its results. These critical accounting policies are those which involve the most complex or subjective decisions or assessments, and relate to insurance provisions, deferred acquisition costs, loan loss provisions, the determination of the fair values of real estate and financial assets and liabilities and employee benefits. In each case, the determination of these items is fundamental to the financial condition and results of operations, and requires management to make complex judgements based on information and financial data that may change in future periods. As a result, determinations regarding these items necessarily involve the use of assumptions and subjective judgements as to future events and are subject to change, as the use of different assumptions or data could produce significantly different results. For a further discussion of the application of these accounting policies, reference is made to the applicable notes to the consolidated financial statements and the information below under ‘Principles of valuation and determination of results’.
Insurance provisions and deferred acquisition costs (DAC) The establishment of insurance provisions and DAC is an inherently uncertain process, involving assumptions about factors such as court decisions, changes in laws, social, economic and demographic trends, inflation, investment returns, policyholder behaviour and other factors, and, in the life insurance business, assumptions concerning mortality and morbidity trends. Specifically, assumptions related to these items that could have a significant impact on financial results include interest rates, mortality, morbidity, property and casualty claims, investment yields on equity and real estate, foreign currency exchange rates and reserve adequacy assumptions.
ING Group 112 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
The process of defining methodologies and assumptions for insurance provisions and DAC is governed by NN Group risk management.
Principles of valuation and determination of results Consolidation ING Group (‘the Group’) comprises ING Groep N.V. (‘the Company’), NN Group N.V., ING Bank N.V. and all other subsidiaries. The consolidated financial statements of ING Group comprise the accounts of ING Groep N.V. and all entities in which it either owns, directly or indirectly, more than half of the voting power or over which it has control of their operating and financial policies through situations including, but not limited to: › Ability to appoint or remove the majority of the board of directors; › Power to govern such policies under statute or agreement; and › Power over more than half of the voting rights through an agreement with other investors.
A list of principal subsidiaries is included in Note 53 ‘Principal subsidiaries’.
ING Group 114 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
For interests in investment vehicles, the existence of control is determined taking into account both ING Group’s financial interests for own risk and its role as investment manager. Financial interests for risk of policyholders are not taken into account when the policyholders decide on the investment allocations of their insurance policies and assume all risks and benefits on these investments.
When a group of assets that is classified as held for sale represents a major line of business or geographical area the disposal group classifies as discontinued operations. Upon classification of a business as held for sale and discontinued operations the individual income and expenses are classified to Total net result from discontinued operations instead of being presented in the usual Consolidated profit and loss account line items. All comparative years in the Consolidated profit and loss account are restated and presented as discontinued operations for all periods presented. Furthermore, the individual assets and liabilities are presented in the Consolidated balance sheet as ‘Assets and liabilities held for sale’ and are no longer included in the usual balance sheet line items. Changes in assets and liabilities as a result of classification as held for sale are included in the notes in the line ‘Changes in composition of the group and other changes’.
Classification of financial instruments Financial assets at fair value through profit and loss Financial assets at fair value through profit and loss include equity securities, debt securities, derivatives, loans and receivables and other, and comprise the following sub-categories: trading assets, non-trading derivatives, financial assets designated at fair value through profit and loss by management and investments for risk of policyholders.
Available-for-sale financial assets Available-for-sale financial assets include available-for-sale debt securities and available-for-sale equity securities. Available-for-sale financial assets are initially recognised at fair value plus transaction costs. For available-for-sale debt securities, the difference between cost and redemption value is amortised. Interest income is recognised using the effective interest method. Available-for-sale financial assets are subsequently measured at fair value. Interest income from debt securities classified as available-for-sale is recognised in Interest income banking operations and Investment income in the profit and loss account. Dividend income from equity instruments classified as available- for-sale is generally recognised in Investment income in the profit and loss account when the dividend has been declared. Unrealised gains and losses arising from changes in the fair value are recognised in equity. When the securities are disposed of, the related accumulated fair value adjustments are included in the profit and loss account as Investment income. For impairments of available-for-sale financial assets reference is made to the section ‘Impairments of other financial assets’. Investments in prepayment sensitive securities such as Interest- Only and Principal-Only strips are generally classified as available-for-sale.
› Settlement risk arises when there is an exchange of value (funds, instruments or commodities) for the same or different value dates and receipt is not verified or expected until ING Group has paid or delivered its side of the trade. Settlement risk mainly relates to the risk arising on disposal of financial instruments that are classified in the balance sheet as Financial assets at fair value through profit and loss (trading assets and non-trading derivatives) and Investments (available-for-sale and held-to-maturity).
Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the profit and loss account, together with fair value adjustments to the hedged item attributable to the hedged risk. If the hedge relationship no longer meets the criteria for hedge accounting, the cumulative adjustment of the hedged item is, in the case of interest bearing instruments, amortised through the profit and loss account over the remaining term of the original hedge or recognised directly when the hedged
Investments in associates and joint ventures Associates are all entities over which the Group has significant influence but not control. Significant influence generally results from a shareholding of between 20% and 50% of the voting rights, but also is the ability to participate in the financial and operating policies through situations including, but not limited to one or more of the following: › Representation on the board of directors; › Participation in the policymaking process; and › Interchange of managerial personnel.
ING Group 120 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Property development Property developed and under development for which ING Group has the intention to sell the property after its completion is included in Other assets – Property development and obtained from foreclosures.
Equipment Equipment is stated at cost less accumulated depreciation and any impairment losses. The cost of the assets is depreciated on a straight line basis over their estimated useful lives, which are generally as follows: for data processing equipment two to five years, and four to ten years for fixtures and fittings. Expenditure incurred on maintenance and repairs is recognised in the profit and loss account as incurred. Expenditure incurred on major improvements is capitalised and depreciated.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs, taking into account the initial accounting period below. Changes in the fair value of the contingent consideration classified as equity are not recognised.
Where a business combination is achieved in stages, ING Group’s previously held interests in the assets and liabilities of the acquired entity are remeasured to fair value at the acquisition date (i.e. the date ING Group obtains control) and the resulting gain or loss, if any, is recognised in the profit and loss account. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to the profit and loss account, where such treatment would be appropriate if that interest were disposed of. Acquisition-related costs are recognised in the profit and loss account as incurred and presented in the profit and loss account as Other operating expenses.
Value of business acquired (VOBA) VOBA is an asset that reflects the present value of estimated net cash flows embedded in the insurance contracts of an acquired company, which existed at the time the company was acquired. It represents the difference between the fair value of insurance liabilities and their carrying value. VOBA is amortised in a similar manner to the amortisation of deferred acquisition costs as described in the section ‘Deferred acquisition costs’.
Other intangible assets Other intangible assets are capitalised and amortised over their expected economic life, which is generally between three and ten years. Intangible assets with an indefinite life are not amortised.
Insurance, investment and reinsurance contracts Provisions for liabilities under insurance contracts are established in accordance with IFRS 4 ‘Insurance Contracts’. Under IFRS 4, an insurer may continue its existing pre-IFRS-EU accounting policies for insurance contracts, provided that certain minimum requirements are met. Upon adoption of IFRS in 2005, ING Group decided to continue the then existing accounting principles for insurance contracts under IFRS-EU. ING Group operates in many different countries and the accounting principles for insurance contracts follow local practice in these countries. ING’s businesses in the Netherlands apply accounting standards generally accepted in the Netherlands (Dutch GAAP) for its provisions for liabilities under insurance contracts; similarly, ING’s businesses in the United States apply accounting standards generally accepted in the United States (US GAAP).
ING Group 124 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Insurance contracts Insurance policies which bear significant insurance risk and/or contain discretionary participation features are presented as insurance contracts. Provisions for liabilities under insurance contracts represent estimates of future payouts that will be required for life and nonlife insurance claims, including expenses relating to such claims. For some insurance contracts the measurement reflects current market assumptions. Unless indicated otherwise below all changes in the insurance provisions are recognised in the profit and loss account.
Insurance provisions on traditional life policies are calculated using various assumptions, including assumptions on mortality, morbidity, expenses, investment returns and surrenders. Assumptions for insurance provisions on traditional life insurance contracts, including traditional whole life and term life insurance contracts, are based on best estimate assumptions including margins for adverse deviations. Generally, the assumptions are set initially at the policy issue date and remain constant throughout the life of the policy.
contractual and related cash flows, and future developments. It includes investment income on the same basis as it is included in the profit and loss account.
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 profit and loss account; › interest expenses using a high quality corporate bond rate at the start of the period which are recognised as staff costs in the profit and loss account; and › remeasurements which are recognised in Other comprehensive income (equity).
Earnings per ordinary share Earnings per ordinary share is calculated on the basis of the weighted average number of ordinary shares outstanding. In calculating the weighted average number of ordinary shares outstanding: › Own shares held by group companies are deducted from the total number of ordinary shares in issue; › The computation is based on daily averages; and › In case of exercised warrants, the exercise date is taken into consideration.
Amounts held at central banks 10,549 10,625 Cash and bank balances 1,684 2,471 Short term deposits insurance operations 220
In 2014, the change in Cash and balances with central banks includes EUR -2,217 million (EUR –3,816 million as per classification date) related to the classification of NN Group as held for sale and EUR –398 million related to the deconsolidation of Vysya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
In 2014, the change in Financial assets at fair value through profit and loss includes EUR –43,918 million (EUR –47,821 million as per classification date) as a result of the classification of NN Group as held for sale and EUR –384 million related to the deconsolidation of Vysya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
As at 31 December 2014, Non-trading derivatives includes EUR 180 million relating to warrants on the shares of Voya.
Other includes investments in private equity funds, hedge funds, other non-traditional investment vehicles and limited partnerships.
Available-for-sale – equity securities - shares in ING managed Investment funds 1,832 – equity securities - shares in third party managed structured entities 210 1,759 – equity securities - other 2,508 3,674
In 2014, the remaining stake of 10.3% in SulAmérica S.A. was divested for EUR 170 million. The profit of EUR 31 million was recognised as Investment income in the profit and loss account. For the earlier divestments in SulAmérica S.A. reference is made to Note 7 ‘Investments in associates and joint ventures’.
ING Group 132 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
US agency RMBS 143 143 US prime RMBS 1 1 US Alt-A RMBS 5 5 Non-US RMBS 210 3,410 3,620
Disposals and redemptions –656 –1,599 –63,883 –118,718 –1,173 –3,439 –65,712 –123,756 Exchange rate differences 47 –48 1,001 –4,365 1,048 –4,413 Changes in the composition of the group and other changes –5,962 405 –64,943 –47,421 –1 –70,905 –47,017
In 2014, Changes in the composition of the group and other changes includes EUR –69,249 million as a result of the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
In 2013, Changes in the composition of the group and other changes included EUR –55,501 million as a result of the classification of Voya as held for sale and EUR 9,674 million as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’.
Reference is made to Note 24 ‘Investment income’ for details on Impairments.
In 2013, To/from loans and advances to customers/amounts due from banks in relation to Available-for-sale debt securities related to a debt security that was reclassified to Loans and advances to customers because there was no active market.
Carrying value as at 31 December 7,461 366 Fair value as at 31 December 7,215 422 Unrealised fair value losses recognised in shareholders’ equity (before tax) as at 31 December –137 nil Effect on shareholders’ equity (before tax) as at 31 December if reclassification had not been made –246 56 Effect on result (before tax) if reclassification had not been made nil nil Effect on result (before tax) for the year (interest income and sales results) 188 20 Recognised impairments (before tax) nil nil Recognised provision for credit losses (before tax) nil nil
Carrying value as at 31 December 8,707 443 Fair value as at 31 December 8,379 512 Unrealised fair value losses recognised in shareholders’ equity (before tax) as at 31 December –221 –2 Effect on shareholders’ equity (before tax) as at 31 December if reclassification had not been made –328 69 Effect on result (before tax) if reclassification had not been made nil nil Effect on result (before tax) for the year (interest income and sales results) –164 22 Recognised impairments (before tax) nil nil Recognised provision for credit losses (before tax) nil nil
Carrying value as at 31 December 16,906 857 Fair value as at 31 December 16,099 889 Unrealised fair value losses recognised in shareholders’ equity (before tax) as at 31 December –633 –65 Effect on shareholders’ equity (before tax) as at 31 December if reclassification had not been made –807 32 Effect on result (before tax) if reclassification had not been made nil nil Effect on result (before tax) for the year (mainly interest income) 467 34 Recognised impairments (before tax) nil nil Recognised provision for credit losses (before tax) nil nil
Borrowed debt securities are not recognised in the balance sheet and amount to nil (2013: nil).
Loans guaranteed by credit institutions 2 776 1,325 3,367 1,327 4,143
– more than 1 year but less than 5 years 6,147 7,239 – more than 5 years 4,337 4,949
Unearned future finance income on finance leases –1,748 –2,364 Net investment in finance leases 11,844 13,748
Loans to, or guaranteed by, public authorities 2 2 2 2
The closing balance is included in – Amounts due from banks 6 19 6 19 – Loans and advances to customers 3,058 2,970 2,931 3,165 5,989 6,135
Increase in loan loss provisions 1,594 2,289 1,594 2,289 Exchange rate differences 36 –109 –2 36 –111 Changes in the composition of the group and other changes –165 –38 –63 9 –228 –29
In 2013, Changes in the composition of the group and other changes included EUR –5 million as a result of the classification of Voya as held for sale and nil as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’. Furthermore, Changes in the composition of the group and other changes related to the sale of ING’s mortgage business in Mexico. Reference is made to Note 52 ‘Companies and businesses acquired and divested’.
Accumulated impairments of EUR 24 million (2013: EUR 25 million) have been recognised. The values presented in the table above could differ from the values presented in the individual annual accounts of the associates and joint ventures, due to the fact that the individual values have been brought in line with ING Group’s accounting principles. Where the listed fair value is lower than the balance sheet value, an impairment review and an evaluation of the going concern basis has been performed.
Significant influence for associates in which the interest held is below 20%, is based on the combination on ING Group’s financial interest and other arrangements, such as participation in the Board of Directors.
Share of results 138 150 Dividends received –53 –55 Disposals –487 –356 Exchange rate differences 181 –124 Changes in the composition of the group and other changes –1,564 –195 Closing balance 953 2,022
ING Vysya Bank Limited ING Vysya Bank Limited (‘ING Vysya’) is a private bank with retail and wholesale activities. Following the deconsolidation of ING Vysya in the first quarter of 2014, ING Vysya was recognised as an associate during the year. The remaining interest in ING Vysya is presented as an associate held for sale at 31 December 2014. These transactions are included in Changes in the composition of the group and other changes. Reference is made to Note 12 Assets and liabilities held for sale, Note 25 ‘Result on disposal of group companies’ and Note 57 ‘Other events’.
Exchange rate differences In 2014, Exchange rate differences includes EUR 47 million relating to Vysya (2013: nil), EUR 76 million (2013: EUR –65 million) relating to TMB, EUR 31 million (2013: EUR –42 million) relating to SulAmérica S.A..
Changes in the composition of the group and other changes In 2014, Changes in the composition of the group and other changes includes EUR -1,602 million related to the classification of NN Group as held for sale as well as the recognition as associate and transfer of ING Vysya to held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
The total amount of rental income recognised in the profit and loss account for the year ended 31 December 2014 is EUR 9 million (2013: EUR 74 million). The total amount of contingent rent recognised in the profit and loss account for the year ended 31 December 2014 is nil (2013: nil).
Most recent appraisal in the current year 84 100 Most recent appraisal one year ago 16
Furthermore, the exposure is impacted by third party interests, leverage in funds and off-balance commitments, resulting in an overall exposure of EUR 1.7 billion (2013: EUR 7.3 billion) of which EUR 1.7 billion (2013: EUR 2.5 billion) relates to banking operations and nil (2013: EUR 4.8 billion) relates to insurance operations. Reference is made to the section ‘Risk management’.
Amortisation and unlocking –2 –25 –281 –289 –19 –40 –302 –354 Impairments –1 –9 –1 –9 Effect of unrealised revaluations in equity 308 308 Exchange rate differences –7 27 –167 –1 –6 –7 26 –187 Disposals –4 –8 –4 –8 Changes in the composition of the group and other changes –18 –819 –103 –40 –40 –31 –72 –192 –931
Gross carrying amount as at 31 December 41 1,061 1,137 1,579 2,079 24 265 2,664 3,522 Accumulated amortisation as at 31 December –21 –1,002 –1,421 –2 –192 –1,004 –1,634 Accumulated impairments as at 31 December –3 –44 –2 –3 –5 –47 Net carrying value as at 31 December 20 1,061 1,137 574 614 20 70 1,655 1,841
Amortisation of software and other intangible assets is included in the profit and loss account in Other operating expenses and Intangible amortisation and other impairments.
at the level of the reporting unit to which it is allocated in the regular goodwill impairment test. Instead, it is reviewed as part of the valuation of the disposal group that is presented as held for sale.
As at 31 December 2014, Assets and liabilities held for sale relates to mainly to NN Group including Japan, the associate ING Vysya and the available-for-sale investment Voya . As at 31 December 2014, the Investment in associate of 43% in ING Vysya amounts to EUR 704 million. As at 31 December 2014, the available-for-sale equity investment of 18.9% in Voya amounts to EUR 1,591 million.
In September 2014, ING Group sold a further 10.8% to reduce ING Group’s interest in Voya to 32.5%. ING Group sold 22.3 million Voya shares in the public offering. In addition ING Group sold to Voya 7.7 million shares for an aggregate amount of USD 300 million. These transactions resulted in an after tax profit of EUR 40 million and is recognised in the profit and loss account in the line Net result from disposal of discontinued operations.
In November 2014, ING Group sold a further 34.5 million shares of Voya. ING Group sold 30.0 million Voya shares in the public offering. In addition, ING Group sold to Voya 4.5 million shares for an aggregate amount of EUR 138 million (USD 175 million). These transactions settled on 18 November 2014. The sale of the total of 34.5 million shares from the combined transactions reduces ING Group’s stake in Voya from 32.5% to 18.9%. As a result of these transactions, ING Group loses significant influence over Voya and accounts for its stake in Voya as an available-for-sale investment held for sale as at 31 December 2014. These transactions resulted in an after tax profit of EUR 418 million and is recognised in the profit and loss account in the line Net Result from disposal of discontinued operations in 2014. Reference is made to Note 57 ‘Other events’.
ING Direct UK In 2012, goodwill of EUR 16 million related to ING Direct UK was written-off and the charge was included in the profit and loss account in the line Result on disposals of group companies.
Insurance and investment contracts, reinsurance contracts of NN Group In 2014, following the classification as held for sale of NN Group both the Insurance and investment contracts and Reinsurance contracts are presented as Assets and liabilities held for sale. The 2013 comparatives are disclosed in Note 18 ‘Insurance and investment contracts, Reinsurance contracts’.
ING Group 146 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Where discounting is used in the calculation of Life insurance provisions, the rate is within the range 2.0% to 3.7% in 2014 based on weighted averages.
Fair value measurement The fair value hierarchy of financial assets and liabilities (measured at fair value), which are presented as held for sale is included below. The fair value hierarchy consists of three levels, depending upon whether fair values were determined based on (unadjusted) quoted prices in active markets (Level 1), valuation techniques supported by observable inputs (Level 2) or valuation techniques that incorporate inputs which are unobservable and which have a more than insignificant impact on the fair value of the instrument (Level 3). Reference is made to Note 43 ‘Fair value of assets and liabilities’ for more details on the fair value hierarchy.
Trading assets Of the total amount of financial assets classified as level 3 as at 31 December 2014 of EUR 2.7 billion, an amount of EUR 0.6 billion relates to trading assets (private equity investments) that are recognised at fair value through profit and loss.
› Earnings multiples: Earnings multiples are derived from comparable listed companies or relevant market transaction multiples for companies in the same industry and, where possible, with a similar business model and profile in terms of size, products, services and customers, growth rates and geographic focus. Adjustments are made for differences in the relative performance in the group of comparable companies.
Sensitivities If the net multiples (Earnings multiple adjusted for Marketability/liquidity) would have been increased or decreased by 10%, this would have had an impact on the directly held unquoted private equity investment portfolio of +12% and –12% respectively (2013: +13% and –13%).
Investments for risk of policyholders Of the EUR 2.7 billion Level 3 investments EUR 0.2 billion relates to investments for risk of policyholders. Therefore Net result is unaffected by reasonable changes in fair value of these investments.
Financial assets Investments for risk of policyholders 74,094 3,944 9 78,047
Real estate investments 6 6 Property in own use 102 102
As per reclassification date Fair value 6,135 Range of effective interest rates (weighted average) 1.4%–24.8% Expected recoverable cash flows 7,118 Unrealised fair value gains/losses in shareholders’ equity (before tax) –896 Recognised fair value gains (losses) in shareholders’ equity (before tax) between the beginning of the year in which the reclassification took place and the reclassification date 173 Recognised fair value gains (losses) in shareholders’ equity (before tax) in the year prior to reclassification –971 Recognised impairment (before tax) between the beginning of the year in which the reclassification took place and the reclassification nil Recognised impairment (before tax) in the year prior to reclassification nil
In 2014, the change in Reinsurance and insurance receivables includes EUR –635 million (EUR –927 million as per classification date) as a result of the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Property under development 1 14 Property developed 319 658 Property obtained from foreclosures 85 74
In 2014, the change in Property development and obtained from foreclosures includes EUR –3 million (EUR –2 million as per classification date) as a result of the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
ING Group 150 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Currency translation reserve –741 –2,161 –841 Net defined benefit asset/liability remeasurement reserve –504 –3,766 –2,861
Issue of shares 9,333 2 Issued share capital as at 31 December 2013 3,840,894 921
Opening balance –2,161 –841 93 Unrealised revaluations –53 335 –142 Realised gains/losses transferred to profit and loss 481 213 –68 Exchange rate differences 940 –1,868 –724 Impact of IPO NN Group 52 Closing balance –741 –2,161 –841
Share of associates and joint ventures reserve Treasury shares Other reserves Total
Result for the year 1,251 1,251 Changes in treasury shares –14 –14 Transfer to share of associates and joint ventures reserve 161 –161 Employee stock options and share plans 87 87 Repurchase premium –750 –750 Impact of IPO NN Group –2,339 –2,339 Changes in composition of the group and other changes –3,745 –3,745
The repurchase premium of EUR 750 million is paid in relation to the repayment of the EUR 1,500 million non-voting equity securities to the Dutch State.
Result for the year 3,545 3,545 Changes in treasury shares 378 378 Transfer to share of associates and joint ventures reserve –118 118 Employee stock options and share plans –84 –84 Repurchase premium –375 –375 Impact of Voya –2,080 –2,080 Changes in composition of the group and other changes 227 227
Ordinary shares – Restrictions with respect to dividend and repayment of capital The following equity components cannot be freely distributed: Revaluation reserve, Share of associates and joint ventures reserve (included in Other reserves), Currency translation reserve and the part of the Other reserves that relate to the former Stichting Regio Bank and the former Stichting Vakbondsspaarbank SPN.
Moreover, ING Groep N.V.’s ability to pay dividends is dependent on the dividend payment ability of its subsidiaries, associates and joint ventures. ING Groep N.V. is legally required to create a non-distributable reserve insofar profits of its subsidiaries, associates and joint ventures are subject to dividend payment restrictions which apply to those subsidiaries, associates and joint ventures themselves. Such restrictions may among others be of a similar nature as the restrictions which apply to ING Groep N.V.
Minimum capital requirements – subsidiaries, associates and joint ventures 2013 ING Bank NN Group Other Total
Minimum capital requirements – subsidiaries, associates and joint ventures 2012 ING Bank NN Group Other Total
In 2012, the regulatory capital and the required minimum regulatory capital is determined based on the Basel II rules.
Minority interest Minority interest increased with EUR 2,159 million, mainly due to the impact of the IPO of NN Group of EUR 5,397 million, and the issuance of Undated subordinated notes by NN Group of EUR 986 million (net of transaction costs) as well as an increase in the Other comprehensive income of NN Group attributable to minority interest of EUR 1,089 million since the IPO. These increases are partially offset by the deconsolidation of Voya of EUR –5,100 million and the deconsolidation of ING Vysya of EUR –451 million. Reference is made to Note 57 ‘Other events’.
Undated subordinated notes issued by NN Group In July 2014, NN Group N.V. issued Fixed to Floating Rate Undated Subordinated Notes with a par value of EUR 1 billion. The notes are undated, but are callable after 11.5 years and every quarter thereafter (subject to regulatory approval). The coupon is fixed at 4.50% per annum for the first 11.5 years and will be floating thereafter. As these notes are undated and include optional deferral of interest at the discretion of NN Group, these are classified under IFRS as equity. Coupon payments are deducted from equity if and when paid or contractually due. The discount to the par value and certain issue costs were deducted from equity at issue, resulting in a balance sheet value equal to the net proceeds of EUR 986 million. These notes are included as part of minority interest as ING Group does not hold any of these notes.
Interest held (%) Total income Total expenses Net result Minority interests
Voya – total 100 –1,187 ING Group's share(1) 56.5 –1,124 –63
Cumulative preference shares (not issued) Pursuant to the Articles of Association of ING Groep N.V. the authorised cumulative preference share capital consists of 4.5 billion cumulative preference shares, of which none have been issued. The par value of these cumulative preference shares is EUR 0.24.
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.
(1) These USD loans to NN Group were converted into EUR loans from 30 September 2013.
2014 – Subordinated notes - Anchor investors In 2014, EUR 1,125 million was received from three external investors (Asian-based investment firms RRJ Capital, Temasek and Sea Town Holdings International) in relation to the IPO of NN Group. This funding, which bears a 4% interest rate, will be repaid in three tranches of NN Group shares. The number of shares in the repayment is variable, such that the fair value of the shares at repayment date equals the notional repayment amount, taking into account a discount in the range of 1.5% to 3% of the market price. In July 2014, a first tranche of EUR 450 million of the mandatorily exchangeable subordinated notes was exchanged into NN Group shares. The remaining two tranches (each for an aggregate amount of EUR 337.5 million) will be mandatorily exchanged into NN Group shares from 2015 onwards. Reference is made to Note 22 ’Other liabilities’ and Note 57 ‘Other events’.
More than 1 year but less than 2 years 7,168 5,037 More than 2 years but less than 3 years 3,220 2,866 More than 3 years but less than 4 years 380 1,591 More than 4 years but less than 5 years 1,793 338 More than 5 years 5,512 9,151 Total floating rate debt securities 28,402 31,625
ING Group 160 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Provision for non-participating life policy liabilities 17,570 34 17,604 Provision for participating life policy liabilities 46,208 88 46,296 Provision for (deferred) profit sharing and rebates 3,799 3,799 Life insurance provisions excluding provisions for risk of policyholders 67,577 122 67,699
In 2014, the change in Insurance and investment contracts, reinsurance contracts includes EUR –111,769 million (EUR –119,118 million as per classification date) related to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’
– valuation changes for risk of policyholders 3,688 13,519 3,688 13,519 – effect of changes in other assumptions 103 –140 –102 –2 –2 –1 –142
Where discounting was used in the calculation of life insurance provisions, the rate was within the range 2.3% to 4.0% in 2013 based on weighted averages.
Changes in the composition of the group and other changes –413 2 –7 1 –420 3
In 2014, the change in Amounts due to Banks includes nil (nil as per classification date) related to the classification of NN Group as held for sale and EUR –1,683 million related to the deconsolidation of Vysya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
In 2014, ING participated in the targeted longer-term refinancing operations (‘TLTRO’) of the European central bank for an amount of EUR 5.7 billion. The TLTRO aims to stimulate lending to the real economy in the Eurozone. The interest rate on the TLTRO’s is fixed over the life of each operation at 15 bps (i.e. MRO level prevailing at the time of allotment of 5 bps plus a fixed spread of 10 basis points). Starting 24 months after each TLTRO, ING has the option to repay any part of the amounts allotted in that TLTRO at a semi-annual frequency. Parties that utilised the TLTRO’s, but whose eligible net lending in the period from 1 May 2014 to 30 April 2016 is below the benchmark, will be required to repay the TLTRO’s in September 2016.
Savings accounts 295,532 289,838 Credit balances on customer accounts 140,707 127,073 Corporate deposits 46,203 56,528
ING Group 164 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In 2014, the change in Customer deposits and other funds on deposit includes EUR –5,769 million ( EUR –6,597 million as per classification date) related to the classification of NN Group as held for sale and EUR –3,817 million related to the deconsolidation of Vysya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’. This overall change is offset by an increase in interest bearing customer deposits and other funds on deposit mainly relates to increased savings and current accounts compensated by a decrease in corporate deposits.
Amounts payable to brokers 4 50 Amounts payable to policyholders 464 2,139
In 2014, the provision for the estimated cost of the agreement with regard to unit-linked policies is included in Note 12 ‘Assets and liabilities held for sale’. In 2013, the provision for the estimated cost of the agreement with regard to unit-linked policies is included in Note 18 ‘Insurance and investment contracts, reinsurance contracts’.
ING Group 166 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In 2014, Changes in the composition of the group and other changes includes EUR –101 million as a result of the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Other In 2014, Other liabilities – Other includes a provision of EUR 920 million related to the mandatory exchange of the remaining two tranches of subordinated notes from the Anchor investors into shares of NN Group N.V. The provision is re-measured for changes in the expected number of shares to be issued and the related pro rata IFRS carrying value. This transaction did not impact the profit and loss account of ING Group as NN Group is still consolidated at 31 December 2014. Reference is made to Note 15 ‘Subordinated loans’ and Note 57 ‘Other events’.
Investment income by banking and Legacy Insurance Banking operations Legacy Insurance Total
Income from real estate investments 6 23 16 6 23 16
In 2012, ING sold all of its shares in Capital One Financial Corporation. The transaction resulted in a gain of EUR 323 million (before and after tax) and was recognised in Realised gains/losses on disposal of equity securities. Reference is made to Note 52 ‘Companies and businesses acquired and divested’.
Impairments and reversals of impairments on investments are presented within Investment income, which is part of Total income. This can be specified for each segment as follows: Impairments/reversals of impairments on investments per segment Impairments Reversal of impairments
Change in fair value of derivatives relating to – fair value hedges –486 871 –428 –486 871 –428 – cash flow hedges (ineffective portion) 35 4 17 35 4 17
The portion of trading gains and losses relating to trading securities still held as at 31 December 2014 amounts to EUR –18 million (2013: EUR –105 million; 2012: EUR 118 million).
Net operating lease income 5 1 1 Income from real estate development projects 32 22
In 2013, Other income - Other includes EUR 100 million result (before tax) on the unwinding of the Illiquid Assets Back-up Facility. Reference is made to Note 56 ‘Transactions with the Dutch State and the European Commission Restructuring plan’.
In 2012, Other income - Other included losses on disposal of Loans and advances to customers of EUR 618 million.
In 2012, impairments on Property development related to various real estate development projects (including mainly the United Kingdom, Belgium, Spain and Germany) due to worsening market conditions.
ING Group 172 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In 2012, Pension costs includes a release (curtailment) of EUR 251 million (EUR 335 million before tax) due to a change to a new pension scheme. Reference is made to Note 41 ‘Pension and other post-employment benefits’.
As at 31 December 2014, the aggregate intrinsic values of options outstanding and exercisable are EUR 68 million (2013: EUR 82 million; 2012: EUR 44 million) and EUR 68 million (2013: EUR 82 million; 2012: EUR 44 million), respectively.
As at 31 December 2014 the share awards consists of 11,282,373 share awards (2013: 21,993,875; 2012: 43,632,814) relating to equity-settled share-based payment arrangements and 1,423,891 share awards (2013: 3,066,117; 2012: 5,783,818) relating to cashsettled share-based payment arrangements.
In 2012, Other operating expenses – Other included the settlement with US authorities of EUR 473 million and the Netherlands bank tax of EUR 175 million.
Net result from classification as discontinued operations NN Group –470 –42 –394
Net result from discontinued operations In 2014, 2013 and 2012, Net result from discontinued operations includes the total net result (after tax) of the businesses classified as discontinued operations and is presented separately in the profit and loss account. Net result from discontinued operations was as follows: Net result from discontinued operations – NN Group and Voya 2014 2013 2012
Net result from classification as discontinued operations In 2014, goodwill and certain other non-current non-financial assets of EUR 103 million and EUR 367 million respectively were writtenoff as the sale of NN Group is expected to be sold below the carrying value. Reference is made to Note 12 ‘Assets and liabilities held for sale’.
In 2012, Net result from classification as discontinued operations Asia included goodwill write-offs of EUR 200 million in ING Life Korea, EUR 180 million in Investment Management Korea and EUR 15 million in ING Vysya Life Insurance.
ING Group 176 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Reference is made to Note 52 ‘Companies and businesses acquired and divested’.
the purpose of determining earnings per share under IFRS-EU and did not represent a payment (neither actual nor proposed) to the holders of the non-voting equity securities.
Effect of dilutive instruments: Stock option and share plans 6.3 8.5 6.3
For 2014, the Executive Board, with the approval of the Supervisory Board, has proposed a cash dividend of EUR 0.12 per ordinary share of EUR 0.24. The dividend will be paid entirely in cash after ratification of the proposal by the General Meeting of Shareholders.
Cash and cash equivalents includes amounts due to/from banks with a term of less than three months from the date on which they were acquired.
The Executive Board of ING Group, the Management Board of ING Bank 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 of ING Bank.
Reconciliation between Underlying and IFRS-EU income, expenses and net result 2014 Income Expenses Net result
Minority interests 90 90 Underlying net result 3,155 3,155 Divestments –41 –41 Special items –82 –82 Intercompany eliminations between ING Bank and NN Group –97 –97
Special items –4 751 –595 Intercompany eliminations between ING Bank and NN Group –147 –110
Special items in 2012 included costs mainly related to the strategic reorganisation measures taken in Retail Netherlands, Commercial Banking, the separation and costs related to the final settlement with US authorities concerning transactions subject to sanctions by the US of EUR 386 million, which was partly offset by a pension curtailment of EUR 251 million following the new Dutch employee pension scheme announced in 2012.
– Additions to loan loss provision 877 183 82 280 867 2,288
Presented as: – Other assets 589 1,006 – Other liabilities –676 –336
Opening balance 21,621 22,576 Interest income 203 824 Remeasurements: Return on plan assets excluding amounts included in interest income 1,201 –1,020 Employer's contribution 861 1,088 Participants contributions 6 10 Benefits paid –197 –586 Effect of curtailment or settlement –21,050 –97 Exchange rate differences 120 –50 Changes in the composition of the group and other changes –62 –1,124 Closing balance 2,703 21,621 2014 - Effect of curtailment or settlement In 2014, EUR 20,403 million is recognised in Effect of curtailment or settlement related to the Dutch defined benefit plan settlement as a result of the agreement that made the ING Pension Fund financially independent from ING.
Changes in composition of the group and other changes In 2014, Changes in the composition of the group and other changes include EUR –47 million as a result of the deconsolidation of ING Vysya and EUR –22 million as a result of the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
In 2013, Changes in the composition of the group and other changes included EUR –1,123 million as a result of the classification of Voya as held for sale and nil as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’.
ING Group 188 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In 2013, Changes in the composition of the group and other changes included EUR –1,494 million as a result of the classification of Voya as held for sale and EUR 45 million as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’.
The amount of the remeasurement of the net defined benefit asset/liability in 2014 was mainly a result of the change in the high quality corporate bond rate. The weighted average discount rate as at 31 December 2014 was 2.5% (31 December 2013: 3.7%). The change in this rate impacts both the Remeasurement of plan assets and Actuarial gains and losses arising from changes in financial assumptions.
In 2014, Changes in composition of the group and other changes includes EUR 143 million as a result of deconsolidation of Voya and nil as a result of classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Weighted averages of basic actuarial assumptions in annual % as at 31 December Net defined benefit asset/liability Other postemployment benefits
The discount rate is approximately 2.5% on 31 December 2014 (2013: 3.7%). The discount rate used by ING is based on AA-rated corporate bonds. Discussions were ongoing, both in the industry and at the IASB, on the definition of the discount rate for defined benefit pension liabilities and ING would reconsider the methodology for setting the discount rate if and when appropriate. During 2013, ING further refined its methodology to extrapolate the observable AA-rated corporate bond rates to the full duration of the defined benefit pension liability. The refined methodology and the resulting discount rate are more in line with observed market practices. The impact of the refinement of the extrapolation was an increase in the defined benefit obligation as at 31 December 2013 of approximately EUR 3.2 billion (EUR 2.4 billion after tax); this impact was recognised in Other comprehensive income (equity) in 2013.
ING Group 190 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Pension and other staff-related benefit costs Net defined benefit asset/liability Other post-employment benefits Other Total
Additional information on the closed defined benefit plan in the Netherlands in 2013 The largest plan in 2013 was a plan in the Netherlands (84% of total DBO in 2013).The defined benefit plan is administered by a separate fund (PFI) that is legally separated from ING Group. The board of the pension fund is required by law or by articles of association to act in the interest of the fund and of all relevant stakeholders in the scheme, i.e. active employees, inactive employees, retirees and the employer. The board of the pension fund is responsible for the investment policy with regard to the assets of the fund, including the asset-liability matching strategies of the plan. The primary financial objective of the closed defined benefit plan in the Netherlands (the plan) is to secure accumulated participant retirement benefits. From 1 January 2014 the plan is closed for new pension accruals and no premiums will be paid into the Plan.
ING Group 192 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
– Not listed 846 846 Total real estate investments 169 846 1,015
Real estate investments 349 –22 –42 285 Financial assets and liabilities at fair value through profit and loss –1,089 274 –3 6 –812 Deferred acquisition costs and VOBA 1,351 339 –332 –153 –893 312
ING Group 194 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In 2013, Changes in the composition of the group and other changes included EUR 158 million as a result of the classification of Voya as held for sale and EUR 551 million as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’.
More than 1 year but less than 5 years 145 392 4 86 More than 5 years but less than 10 years 48 124 1,313 More than 10 years but less than 20 years 347 338 6 295
Breakdown of certain net deferred tax asset positions by jurisdiction Banking operations Insurance operations Total
Participation exemption –70 –29 –560 Other income not subject to tax –169 –165 –131 Expenses not deductible for tax purposes 187 114 127 Impact on deferred tax from change in tax rates –2 36 Deferred tax benefit from previously unrecognised amounts 38 –22 –23 Current tax benefit from previously unrecognised amounts –58 –24 –37 Write-off/reversal of deferred tax assets 1 40 382 Adjustment to prior periods –51 –88 –40 Effective tax amount 971 1,037 1,077
ING Group 196 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Remeasurement of the net defined benefit asset/liability 137 230 1,060 Unrealised revaluations property in own use 4 Unrealised revaluations available-for-sale investments and other –1,719 1,841 –2,678 Realised gains/losses transferred to profit and loss (reclassifications from equity to profit and loss) 49 57 22 Changes in cash flow hedge reserve –910 305 –227 Transfer to insurance liabilities/DAC –879 911 Exchange rate differences and other 644 –25 –132 Total income tax related to components of other comprehensive income –1,799 1,529 –1,040 43 Fair Value of Assets and Liabilities Financial assets and liabilities The following table presents the estimated fair values of ING Group’s financial assets and liabilities. Certain balance sheet items are not included in the table, as they do not meet the definition of a financial asset or liability. The aggregation of the fair values presented below does not represent, and should not be construed as representing, the underlying value of ING Group.
The estimated fair values represent the price at which an orderly transaction to sell the financial asset or to transfer the financial liability would take place between market participants at the balance sheet date (‘exit price’). The fair value of financial assets and liabilities is based on quoted market prices, where available. Such quoted market prices are primarily obtained from exchange prices for listed instruments. Where an exchange price is not available, market prices are obtained from independent vendors, brokers or market makers. Because substantial trading markets do not exist for all financial instruments, various techniques have been developed to estimate the approximate fair values of financial assets and liabilities that are not actively traded. These techniques are subjective
Other liabilities The other liabilities are stated at their carrying value which is not significantly different from their fair value.
Fair value hierarchy ING Group has categorised its financial instruments that are either measured in the balance sheet at fair value or of which the fair value is disclosed, into a three level hierarchy based on the priority of the inputs to the valuation. The fair value hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to valuation techniques supported by unobservable inputs. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide reliable pricing information on an ongoing basis. The fair value hierarchy consists of three levels, depending upon whether fair values were determined based on (unadjusted) quoted prices in an active market (Level 1), valuation techniques with observable inputs (Level 2) or valuation techniques that incorporate inputs which are unobservable and which have a more than insignificant impact on the fair value of the instrument (Level 3). Financial assets in Level 3 include for example illiquid debt securities, complex OTC and credit derivatives, certain complex loans (for which current market information about similar assets to use as observable, corroborated data for all significant inputs into a valuation model is not available) and asset backed securities for which there is no active market and a wide dispersion in quoted prices.
Financial instruments at fair value The fair values of the financial instruments were determined as follows: Methods applied in determining fair values of financial assets and liabilities (carried at fair value) 2014 Level 1 Level 2 Level 3 Total
Non-trading derivatives 4,074 310 4,384 Financial assets designated as at fair value through profit and loss 346 2,320 90 2,756 Available-for-sale investments 89,101 5,728 573 95,402
ING Group 200 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Recognition of unrealised gains and losses in Level 3 Amounts recognised in the profit and loss account relating to unrealised gains and losses during the year that relates to Level 3 assets and liabilities are included in the profit and loss account as follows: › Results on trading assets and trading liabilities are included in Net trading income; › Investments for risk of policyholders are included in Net result from discontinued operations; › Non-trading derivatives are included in Valuation results on non-trading derivatives; › Financial assets and liabilities designated as at fair value through profit and loss are included in Valuation results on non-trading derivatives - Valuation results on assets and liabilities designated as at fair value through profit and loss (excluding trading); › Changes in the fair value of Real estate investments are included in Investment income; and › Impairments on Property in own use are included in Intangible amortisation and other impairments.
Amounts recognised in the profit and loss account during the year –264 131 –67 –39 –239 Revaluation recognised in equity during the year 81 81
Sale of assets –334 –45 –278 –657 Maturity/settlement –76 –45 –500 –621
In 2014, Changes in composition of the group and other changes includes EUR –2,600 million as a result of the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Main changes in fair value hierarchy in 2014 In 2014, the change in Available-for-sale investments (level 1) mainly reflects the presentation of NN Group as held for sale. This change is offset by an increase in Government bonds to strengthen the liquidity of the Group. Ahead of the introduction of the liquidity coverage ratio in 2015 matured bonds (level 2 in 2013) are re-invested in Government bonds (level 1). As at 31 December 2014, ING Direct Australia reclassified EUR 2.6 billion Government and Semi-Government debt securities from level 2 to level 1 as the input is based on quoted prices in an active market.
Amounts recognised in the profit and loss account during the year 146 9 462 –253 –103 261 Revaluation recognised in equity during the year –34 –34
In 2013, Changes in the composition of the group and other changes includes EUR –1,654 million as a result of the classification of Voya as held for sale and nil as a result of the classification to continuing operations of ING Japan.
Main changes in fair value hierarchy in 2013 In 2013, the change in Available-for-sale investments (level 2) reflects the presentation of Voya as held for sale.
Early repayment of liabilities –371 –78 –449 Maturity/settlement –68 –1 –66 –135
Amounts recognised in the profit and loss account during the year –110 315 –137 68
ING Group 202 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Financial assets Trading assets 158 –12 146 Investments for risk of policyholders 10 –1 9 Non-trading derivatives 436 26 462 Financial assets designated as at fair value through profit and loss –341 88 –253 Available-for-sale investments –130 27 –103
Financial liabilities measured at fair value in the balance sheet as at 31 December 2014 of EUR 117 billion include an amount of EUR 1.3 billion (1.1 %) which is classified as Level 3 (31 December 2013: EUR 1.4 billion, being 1.4%). Changes in Level 3 from 31 December 2013 to 31 December 2014 are disclosed above in the table ‘Changes in Level 3 Financial liabilities’.
The remaining EUR 0.9 billion of the fair value classified in Level 3 financial assets is established using valuation techniques that incorporates certain inputs that are unobservable. This relates mainly to assets that are classified as Available-for-sale investments, for which changes in fair value are recognised in shareholders’ equity and do not directly impact profit and loss.
The remaining EUR 0.4 billion of the fair value classified in Level 3 financial liabilities is established using valuation techniques that incorporates certain inputs that are unobservable.
Net asset value Price (%) 59% 101% Loans and advances 55 12 Price based Price (%) 0% 100% Structured notes 323 Price based Price (%) 0% 115%
– Equity 84 221 Option pricing model Equity volatility (%) 0% 107% Equity/Equity correlation –0.1 1.0 Equity/FX correlation –1.0 1.0
– Other 1 3 Option pricing model Commodity volatility 6% 28%
Non-listed equity investments Level 3 equity securities mainly include corporate investments, fund investments, real estate positions and other equity securities which are not traded in active markets. In the absence of an active market, fair values are estimated on the basis of the analysis of fund managers reports, company’s financial position, future prospects and other factors, considering valuations of similar positions or by the reference to acquisition cost of the position. For equity securities best market practice will be applied using the most relevant valuation method.
Interest rates Prepayment rate and reset spread are key inputs to mortgage linked prepayments swaps valuation. Prepayment rate is the estimated rate at which mortgage borrowers will repay their mortgages early, e.g. 5% per year. Reset spread is the future spread at which mortgages will re-price at interest rate reset dates.
Also, this disclosure does not attempt to indicate or predict future fair value move. The numbers in isolation give limited information as in most cases these level 3 assets and liabilities should be seen in combination with other instruments (for example as a hedge) that are classified as level 2.
Fair value hierarchy of certain ABS bonds 2014 Level 1 Level 2 Level 3 Total
Fair value hierarchy of certain ABS bonds 2013 Level 1 Level 2 Level 3 Total
Financial assets Cash and balances with central banks 12,233 12,233 Amounts due from banks 4,605 22,744 9,871 37,220 Held-to-maturity investments 580 1,615 82 2,277 Loans and advances to customers 4,060 29,127 496,004 529,191
Financial assets Cash and balances with central banks 13,316 13,316 Amounts due from banks 4,830 30,327 8,000 43,157 Held-to-maturity investments 1,225 1,928 3,153 Loans and advances to customers 3,586 29,190 508,148 540,924
Non-financial assets and liabilities In addition to financial assets and liabilities, the following table presents the estimated fair values of ING Group’s non-financial assets and liabilities that are measured at fair value in the balance sheet. Reference is made to Note 1 ‘Accounting policies’ in the sections ‘Real estate investments’ and ‘Property in own use’ for the methods and assumptions used by ING Group to estimate the fair value of the non-financial assets.
The fair values of the non-financial assets carried at fair value were determined as follows: Methods applied in determining fair values of non-financial assets 2014 Level 1 Level 2 Level 3 Total
Real estate investments 1,046 1,046 Property in own use 1,243 1,243
Non-financial assets Real estate investments –25 20 –5 Property in own use –42 –7 –49
Cash flow hedge accounting ING Group’s cash flow hedges principally consist of (forward) interest rate swaps and cross-currency interest rate swaps that are used to protect against its exposure to variability in future interest cash flows on non-trading assets and liabilities that bear interest at variable rates or are expected to be refunded or reinvested in the future. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities, based on contractual terms and other relevant factors including estimates of prepayments and defaults. The aggregate principal balances and interest cash flows for the respective portfolios form the basis for identifying the notional amount subject to interest rate risk that is designated under cash flow hedge accounting.
As at 31 December 2014, the fair value of outstanding derivatives designated under net investment hedge accounting was EUR 11 million (2013: EUR 86 million), presented in the balance sheet as EUR 111 million (2013: EUR 138 million) positive fair values under assets and EUR 100 million (2013: EUR 52 million) negative fair values under liabilities.
As at 31 December 2014, the fair value of outstanding non-derivatives designated under net investment hedge accounting was EUR 1,306 million (2013: EUR 491 million).
Loans and advances to customers 63,684 16,353 34,546 123,968 292,831 273 531,655
Remaining assets (for which maturities are not applicable) (4) 5,514 5,514
46 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.
Coupon interest due on financial liabilities 976 1,139 4,155 11,874 46,742 64,886
ING Group 214 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Less than 1–3 months 3–12 months 1–5 years Over 5 years Maturity not applicable Adjustment(2) Total
47 Assets not freely disposable The assets not freely disposable consist primarily of Loans and advances to customers pledged to secure Debt securities in issue, deposits from De Nederlandsche Bank (the Dutch Central Bank) and other banks and serve to secure margin accounts and are used for other purposes required by law. The assets not freely disposable are as follows: Assets not freely disposable (1)
Associated liabilities at carrying amount Amounts due to banks n.a n.a Other borrowed funds n.a 348 Customer deposits and other funds on deposit n.a n.a Financial liabilities at fair value through profit and loss 1,053 102 3,463 13,090
In 2013, the tables above did not include assets relating to the Illiquid Assets Back-up Facility that ING has agreed with the Dutch State. In 2014, the IABF was unwound. Reference is made to Note 56 ‘Transactions with the Dutch State and the European Commission Restructuring Plan’ for detailed disclosure on the facility.
ING Group 216 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Gross amounts of recognised financial liabilities offset in the balance sheet
Reverse repurchase, securities borrowing and similar agreements 3,061 3,061 313 2,733 15
Reverse repurchase, securities borrowing and similar agreements 4,047 4,047 22 731 3,294
Other items where offsetting is applied in the balance sheet 4,796 –5,770 –974 54 1,402 –2,430
ING Group 218 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Repurchase, securities lending and similar agreements 326 326 300 26 Corporate deposits 24,242 –20,450 3,792 3,792
Repurchase, securities lending and similar agreements 50,543 –18,860 31,683 543 20,374 10,766
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
Amounts due to banks Repurchase, securities lending and similar agreements 1,085 1,085 21 1,063 1
Repurchase, securities lending and similar agreements 34,298 –6,111 28,187 695 15,854 11,638 Other 5 –5
Other items where offsetting is applied in the balance sheet 3,333 –1,929 1,404 245 3,748 –2,589
Banking operations Contingent liabilities in respect of – discounted bills 1 1
51 Legal proceedings ING Group companies are involved in litigation and arbitration proceedings in the Netherlands and in a number of foreign jurisdictions, including the U.S., involving claims by and against them which arise in the ordinary course of their businesses, including in connection with their activities as insurers, lenders, broker-dealers, underwriters, issuers of securities and investors and their position as employers and taxpayers. In certain of such proceedings, very large or indeterminate amounts are sought, including punitive and other damages. While it is not feasible to predict or determine the ultimate outcome of all pending or threatened legal and regulatory proceedings, the Company’s management is of the opinion that some of the proceedings set out below may have or have in the recent past had a significant effect on the financial position, profitability or reputation of the Company.
Proceedings in which ING is involved include complaints and lawsuits concerning the performance of certain interest-sensitive products that were sold by a former subsidiary of ING in Mexico. Further, purported class litigation has been filed in the United States District Court for the Southern District of New York alleging violations of the federal securities laws with respect to disclosures made in connection with the 2007 and 2008 offerings of ING’s Perpetual Hybrid Capital Securities. The District Court has dismissed all claims related to the 2007 and 2008 offerings. The plaintiffs appealed that decision relating to the 2008 offering. The appellate court affirmed the District Court’s decision dismissing all claims. The plaintiffs have petitioned the Court for an en banc review of that decision by the entire Court. The request for en banc review has been denied. The plaintiffs have filed an appeal with the U.S. Supreme Court. At this moment it is not practicable to provide an estimate of the (potential) financial effect.
An administrator of an ERISA plan has filed a lawsuit seeking to represent a class of ERISA plan administrators claiming that an ING subsidiary (‘ILIAC’) has breached certain of its ERISA duties. On 11 April 2014, the parties submitted to the court a motion for preliminary approval of a class-wide settlement agreement under which ILIAC, without admitting liability, would make a payment to the class and adopt certain changes in its disclosure practices.
ING Group 224 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Sales proceeds Cash proceeds (2) 950 Investment retained in Voya (3) 2,914 Sales proceeds 3,864
Assets Cash and cash equivalents 1,901 Financial assets at fair value through profit and loss 79,339 Available-for-sale investments 54,250 Loans and advances to customers 8,245 Reinsurance contracts 4,359 Intangible assets 727 Deferred acquisition costs 4,211 Miscellaneous other assets 2,667
Liabilities Insurance and investment contracts 135,971 Financial liabilities at fair value through profit and loss 2,280 Miscellaneous other liabilities 7,288
(1) This table includes the disposal transaction that resulted in the loss of control of Voya which took place in March 2014. Reference is made to Note 57 ‘Other events’ for the earlier and subsequent transactions in Voya.
Acquisitions effective in 2013 There were no significant acquisitions in 2013.
Partial divestments effective in 2013 Voya In May 2013, Voya was successfully listed on the NYSE reducing ING’s ownership interest from 100% to approximately 71.2%. In October 2013, the sale of a second tranche further reduced ING Group’s interest in Voya to approximately 56.5%. Reference is made to Note 57 ‘Other events’.
Asia - ING’s investment management business in South Korea In July 2013, ING reached an agreement to sell its investment management business in South Korea to Macquarie Group, an Australiabased, global provider of financial services. The transaction did not have a significant impact on ING Group results. The transaction closed on 2 December 2013. Reference is made to Note 51 ‘Legal Proceedings’ for information on the notice NN Group received from the Macquarie Group.
ING Group 226 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Loans and advances to customers 30,546 26,362 539 57,447 Amounts due from banks 268 773 1,041 Financial assets at fair value through profit and loss 3 17 224 244 Real estate investments 87 87 Property and equipment 76 76
(1) Cash outflow / inflow on group companies in the cash flow statement includes in addition to the cash amounts in this table, also cash outflows / inflows on individually insignificant disposals.
ING Group 228 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
(1) In 2014, ING Direct N.V. merged with ING Bank N.V.
The structured entities over which ING can exercise control are consolidated. ING may provide support to these consolidated structured entities as and when appropriate, however this is fully reflected in the consolidated financial statements of ING Group as all assets and liabilities of these entities are included and off-balance sheet commitments are disclosed.
In 2012, two synthetic securitisation were unwound and in 2013 one synthetic securitisation is unwound. There was no impact on the balance sheets and profit and loss accounts were not impacted by these unwinding. As at 31 December 2013, there was only one such transaction remaining. As at 31 December 2014, there are no remaining Credit management securitisation programmes. The last programme ended in 2014 on the scheduled termination date.
2. 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.
In 2013, NN Bank (part of NN Group) originated a securitisation program of approximately EUR 2.1 billion mortgage loans (‘Hypenn’). The related structured entity was consolidated by NN Bank and, therefore, the related mortgage loans continued to be recognised in the balance sheet. The structured entity was partly funded through the issue of Residential Mortgage backed Securities to ING Bank (as at 31 December 2013: EUR 400 million). In 2014, NN Group is classified as held for sale and discontinued operations. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Covered bond programme Fair value pledged mortgage loans Cash balance structured entity
The liquidity facilities, including programme wide enhancements, provided to Mont Blanc are EUR 1,143 million (2013: EUR 1,728 million). The drawn liquidity amount is nil as at 31 December 2014 (2013: EUR 159 million).
5. Unconsolidated Securitisation programme In 2013 ING transferred financial assets (mortgages loans) for an amount of approximately EUR 2 billion to a newly established special purpose entity (SPE). The transaction resulted in full derecognition of the financial assets from ING’s balance sheet. The derecognition did not have a significant impact on net result. Following this transfer ING continues to have two types of 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 as at 31 December 2014 amounted to EUR 33.7 million (2013: EUR 62.3 million); fair value changes on this swap recognised in the profit and loss account in 2014 were EUR 28.6 million (2013: EUR 4.7 million). Fee income recognised in the profit and loss account in 2014 amounted to EUR 0.5 million (2013: EUR 1.2 million).
6. Investments – ING managed Investment funds NN Group is a consolidated subsidiary of ING Group and is presented as held for sale and discontinued operations in 2014. NN Group operations originates investment funds mainly as part of its life insurance operations. NN Group may hold investments in these funds for its own account through the general account investment portfolio of the insurance operations. Other investments in these funds may be held for the account of policyholders or by third parties.
ING Group 232 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Transactions with ING Bank N.V., NN Group N.V. and Voya Financial Inc.
(1) Includes their compensation earned in the capacity as Board members. (2) Excluding members that are also members of the Executive Board of ING Groep N.V. (3) In 2014, two members stepped down from the Management Board of ING Bank and one new member joined. (4) Next to compensation in the capacity as a Board member, two of the new Management Board members received a ‘sign on award’ consisting of a cash amount and shares with a total value of EUR 525,000 (in total for both Board members) at the grant date. The awards vest in the years 2014 - 2017, of which EUR 100,000 in 2014 and EUR 425,000 in the years 2015 - 2017.
ING Group 234 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Loans and advances to key management personnel amounts in thousands of euros
The total number of stock options on ING Groep N.V. shares held by the Executive Board members of ING Groep N.V. amounted to 165,506 as at 31 December 2014 (2013: 178,203) and total number of stock options on ING Groep N.V. shares held by Management Board members of ING Bank and NN Group amounted to 587,786 as at 31 December 2014 (2013: 1,187,306, including Named Executive Officers of Voya Financial Inc.). As at 31 December 2014, members of the Supervisory Board held 389,390 stock options on ING Groep N.V. shares (2013: 92,959). As at 31 December 2014, members of the Executive Board held 210,551 ING Groep N.V. shares (2013: 193,608) and members of the Management Boards of ING Bank and NN Group held 442,906 ING Groep N.V. shares (2013: 395,798, including Named Executive Officers of Voya Financial Inc.). As at 31 December 2014, members of the Supervisory Board held 168,263 ING Groep N.V. shares (2013: 285,157).
In the framework of the transactions with the Dutch State disclosed in this note, certain arrangements with respect to corporate governance and executive remuneration were agreed with the Dutch State which were in place until the Illiquid Assets Back-up Facility was unwound. The last State Nominee remained in office until 12 May 2014.
Upon closing of the sale ING provided a counter guarantee to the Dutch State covering 25% of the 80% part of the Dutch State. This guarantee covered realised cash losses if they would exceed the 35% that is implied by the market value of the portfolio in June 2011. This adjustment therefore lowered the risk exposure for the Dutch State. The impact on equity and result of the alignment for ING Bank was limited.
A divestment of more than 50% of ING’s interest as mentioned in this paragraph and furthermore below also means that ING Group (a) no longer has a majority of representatives on the Boards of these operations and (b) has deconsolidated these operations from ING Group’s financial statements in line with IFRS accounting rules.
Under the terms of the original Restructuring Plan, ING was required to divest Interadvies (at that point in time named WestlandUtrecht Bank). However, due to market circumstances and changing regulatory requirements, a divestment of WestlandUtrecht had not occurred. Instead, under the amended Restructuring Plan, the commercial operations of WestlandUtrecht Bank were combined with the retail banking activities of Nationale-Nederlanden, which is to be divested as part of ING’s insurance and investment management operations in Europe. The result has to be that Nationale-Nederlanden Bank is a viable and competitive business, which stands alone and is separate from the businesses retained by ING. To this end, ING already needs to ring-fence Nationale-Nederlanden Bank up to the divestment of more than 50% of NN Group.
› Acquisition and Price Leadership bans: With the repayment of the Core Tier 1 Securities now complete, part of the acquisition ban has ended: ING Group is no longer restricted from acquiring non-financial institutions. However, the ban on acquiring (parts of) financial institutions still applies. This ban continues to apply until ING Group has deconsolidated NN Group, or until 18 November 2015, whichever comes first. These deadlines also apply to the price leadership ban.
› EUR 1,012 million, being the estimated difference between the market value of the NN Group shares to be exchanged for the second and third tranches of the mandatorily exchangeable notes and the related estimated IFRS carrying value.
Upon deconsolidation, the divestment result will reflect ING Group’s remaining share (at the transaction date) in the difference between the carrying value of NN Group and the fair value, plus ING Group’s share in unrealised revaluations in equity plus the currency translation reserve related to NN Group. The actual divestment result depends on a number of variables, including the share price, the carrying value of NN Group, the level of unrealised reserves in equity and the stake held by ING Group at the date of the transaction. Such a divestment could have a sizeable impact on the profit and loss account and shareholders’ equity of ING Group.
Voya In May 2013, ING Group sold 28.8% of its interest in Voya through an IPO. In October 2013, ING Group further reduced its interest in Voya to 56.7%. The 2013 divestment transactions did not impact the profit and loss account of ING Group, as Voya continued to be fully consolidated. These transactions had a negative impact on shareholders’ equity (parent) of ING Group which reflected the difference between the net proceeds received and the IFRS-EU book value of the interests divested. These amounts were recognised in ‘Other reserves’. From the third quarter of 2013 Voya was presented as Assets and liabilities held for sale and discontinued operations because it was assessed highly probable that ING would lose control within a year.
On 3 March 2015, ING Group announced that it has reached agreements to sell its remaining shares in Voya Financial, Inc., which will reduce ING Group’s stake in Voya at the completion of the transactions to zero from the 19% held at 31 December 2014.
ING Bank uses risk assessment and measurement models to guide decision making. To guard the quality of these risk models, there is a governance process for approval of risk models, methods and parameters. This ensures compliance with business and regulatory requirements, via a clear assignment of responsibility and accountability. Nevertheless, users of the disclosed information in the risk management section should bear in mind that the analyses provided are based on forward looking models that rely on assumptions and estimates of future events, some of which are considered extreme and therefore unlikely to occur. In the normal course of business, ING Bank continues to develop, recalibrate and refine the various models, which may result in changes to the risk analyses as disclosed.
ING Bank’s risk management disclosures provides qualitative and quantitative disclosures about credit, market, liquidity and nonfinancial risks based on International Financial Reporting Standards as adopted by the European Union ‘IFRS-EU’. 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 approved by the EU and covered by the opinion of the External Auditors as being part of the notes to the consolidated financial statements. Pillar III information is from a regulatory perspective largely based on internal modelled risk metrics under the Basel rules and not addressed for verification to the External Auditors.
Enhanced disclosure task force Although ING Bank strives towards a reporting basis that is consistent over time, the risk management section is subject to enhancements and improvements. These are needed to reflect the continuous developments that take place in ING Bank’s risk function and on-going (macro-) economic developments that require additional disclosures. Also the continuing changes in the environment in which ING Bank operates like new regulations but also voluntary initiatives from the banks themselves need to be reflected. ING Bank is a member of the ‘Enhanced Disclosure Task Force’ (EDTF), a private sector group established by the Financial Stability Board (FSB) and composed of members representing both the users and preparers of financial reports, which released a report with recommendations for improving bank risk disclosures in the areas of among others usability, risk governance and risk management, capital adequacy, liquidity and funding, market risk, and credit risk.
The table below provides clear cross-referencing between the Risk management and Pillar III sections within the Annual Report. This navigation table enables users to locate and navigate across the different risk topics and disclosures. The sequence in which the risk disclosures are presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
Market risk is the risk of potential loss due to adverse movements in market variables.
Liquidity risk is the risk not to meet its financial liabilities when they come to be due, at reasonable cost and in a timely manner.
Compliance risk is the risk of impairment of ING Bank’s integrity as a result of failure to comply with relevant laws, regulations, ING Banks policies and standards.
With respect to comparability of risk disclosures, it is important to note that since the start of the financial crisis there has been much debate on the risk-weighted capitalisation of banks, and specifically on whether internal models are appropriate for such purposes. ING Bank is of the opinion that internal models are very valuable since they better represent the bank’s business model, its customers and its credit quality than a standardised approach. However, we also acknowledge that interpretations between banks and between regulators may differ. This stresses the importance of having a level playing field via a uniform banking supervision within the EU, but also improves and aligns risk disclosures as proposed by the EDTF as much as possible.
The commercial departments form the first line of defence and they have primary responsibility for the day-to-day risk management. They originate loans, deposits and other products, they know our customers well and are well-positioned to act in both the customers’ and ING’s best interest.
The second line of defence consists of oversight functions with a major role for the risk management organisation, headed by the Chief Risk Officer (CRO), and the corporate legal function. The membership of the CRO of the MBB ensures that risk management issues are heard and discussed at the highest level, thus establishing the appropriate tone at the top. The CRO steers a functional, independent risk organisation both at head-office and business-unit level, which supports the commercial departments in their decision-making, but which also has sufficient countervailing power to keep the risk profile within the set risk appetite.
› The Risk Committee, which assists the SB on matters related to risk governance, risk policies and risk appetite setting. › The MBB is responsible for managing risks associated with the activities of ING Bank. The MBB’s responsibilities include ensuring that internal risk management and control systems are effective and that ING Bank complies with relevant legislation and regulations. On a regular basis, the MBB reports on these issues and discusses the internal risk management and control systems with the SB. On a quarterly basis, the MBB reports on the Bank’s risk profile versus its risk appetite to the Risk Committee, explaining changes in the risk profile.
As part of the integration of risk management into the annual strategic planning process, the MBB 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.
Executive level The ING Bank Finance and Risk Committee (BF&RC) is a platform for the CRO and the Chief Financial Officer (CFO), along with their respective direct reports, to discuss and decide on issues that relate to both the finance and risk domains. The primary responsibility of the BF&RC is to co-ordinate, on a high level, the finance and risk decisions that have an impact on internal and/or external reporting.
› Optimise the balance sheet to better match assets and liabilities across the Bank and limit growth and risk of the balance sheet. › Remain financially healthy through improving cost efficiency and good risk management. Additionally, new regulatory requirements have to be met with focus on strong capital, funding and liquidity management. › Build on the ambition to be a predominantly European Bank with growth engines elsewhere.
Risk culture In the current social and economic environment risk culture is a critical factor in the success or failure of a bank’s risk management. Issues relating to risk culture are consequently of interest to all stakeholders of ING Bank. ING Bank considers the good reputation and integrity of its organisation as key requirements to operate successfully in the financial world.
Credit risk, market risk, funding & liquidity risk, non-financial risk (operational and compliance), business risk
Risk cycle process ING uses a stepwise risk management approach to know, mitigate and manage its financial and non-financial risks. The approach consists of a cycle of five recurrent activities: risk identification, risk assessment, risk control, risk monitoring and risk reporting. In short, this implies: determine what your risks are, assess which of those risks can really do harm, take mitigating measures to control these risks, monitor if the measures are effective and monitor the development of the risk and report the findings to management at all relevant levels to enable them to take action when needed.
Step 3. Cascade into Statements per risk type and business unit
Step 4. Monitoring and management of underlying risk limits In order to verify that it remains within the risk appetite framework as it is executing its budget, ING Bank reports its risk positions vis-à-vis its limits on a regular basis towards senior management committees. The Risk and Capital Management Report reflecting the exposure of ING Bank against the risk appetite targets is submitted quarterly to the MBB and to the (Risk Committee of the) SB.
Methodology For the calculation of the impact of the scenarios on P&L, RWA, revaluation reserves, etc., 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.
The following fundamental principles and definitions have been established for the model: › ING Bank uses a one-sided confidence level of 99.95% and a one-year time horizon to calculate EC; › It is assumed that all currently known measurable sources of risk are included; › The best estimate risk assumptions are as objective as possible and based on proper analysis of statistical data. There is one set of best-estimate assumptions for each risk type to be used at ING Bank; › The EC calculation is based on fair value principles. Where complete and efficient markets exist, fair value is equal to market value; › The EC calculations reflect known embedded options and the influence of customer behaviour in banking products; › The EC calculations are on a before tax basis and do not consider the effect of regulatory accounting and solvency requirements on capital levels; and › The framework does not include any franchise value of the business, discretionary management intervention or future business volumes and margins.
Correlation factors between risk types used for diversification are based on best estimate assumptions supported by statistical analysis of historical data, ING Bank risk expert judgement, external benchmark studies and common logic. As shown in the flow-chart, the correlation factors are stressed upwards where necessary to account for potential measurement inaccuracy in extreme events due to limited historical data observations. Expert opinion is used for aggregating business and operational risk.
The EC for ING Bank involves the aggregation of the underlying EC of five risk types, namely credit, transfer, market, operational and business risks. Model disclosures are given in the respective risk sections. These risk types are aggregated to provide a total diversified ING Bank EC by applying the variance-covariance approach with a 5x5 inter-risk correlation matrix.
EC is a non-accounting measure that is inherently subject to dynamic changes and updates as a result of ING Bank’s portfolio mix and general market developments. ING Bank has been and will continue recalibrating the underlying assumptions behind its economic capital model, which may have an impact on the values of EC going forward.
Economic and Regulatory Capital (Bank diversified only) by business line combination Economic capital Regulatory capital
Differences between RC and EC are mainly due to: › The EC figures shown reflect all diversification effects within ING Bank, including risk reduction between the risk categories; while for RC no diversification is taken into account.
CRR/CRD IV To accomplish this, a new Basel accord (Basel III) was adopted in 2010 and consequently translated into regulation by the EU in the Capital Requirement Regulation (CRR) and a Capital Requirement Directive IV. The CRR is binding for all EU member states and became effective per 1 January 2014. The CRR/CRD IV directs all EU member states to implement certain components of Basel III in their own law, in the Netherlands in the Wet Financieel Toezicht (WFT). Main objectives are: › Better alignment of risk taking and loss absorbing capacity of financial institutions through a narrower definition of CET1 and Tier 1 capital, back-stops on a bank’s leverage via a ratio that should become part of Pillar I of the Basel framework.
On 1 January 2014, the CRR/CRD IV officially entered into force with the Capital Requirement Directive currently being transposed into national law. Like other banks, ING Bank participated in semi-annual Basel III monitoring exercises in order to prepare for the functioning of all Basel III elements. Significant management actions have been undertaken to adjust the business model and exposure to certain asset classes to better meet the new Basel III requirements for both the liquidity and capital. Although not all definitions and parameters of the CRR/CRD IV have been finalised, the key principles of Basel III have been included in both the solvency and liquidity risk appetite framework that are continuously monitored by senior management.
After the publication of the CA, all participating Banks received a letter containing the ECB’s main observations following the AQR. ING has taken this feedback seriously and has assessed the impact on the 2014 financial statements. Based on this assessment no impact has been identified relating to emergence periods used in collective provisioning. The assessment did result in some adjustments relating to provisioning for a few credit files and fair value of certain derivatives. The 2014 profit before tax was impacted by less than EUR 15 million by the AQR.
ING Bank executed the work largely with internal staff as the required expertise is available in house. This strategy also assisted ING Bank in building the knowledge required for a much more data-driven regulatory climate. Both the AQR and the stress test were good preparation to meet these future demands.
In December 2014, the ECB shared some qualitative and quantitative observations with ING that resulted from the Comprehensive Assessment process. Some of these observations have already been addressed in 2014 and the remaining ones have been analysed and there is an agreed upon action plan. This approach was confirmed to ECB in January 2015. ING has an internal tracking process for regulatory items and will continue working with ECB to address the observations.
The ECB Comprehensive assessment was an intensive and time consuming project in which ING Bank participated in an effort to improve transparency and restore trust in the banking industry as a whole.
Bank Recovery and Resolution Directive Another important element of the regulatory reforms is the Bank Recovery and Resolution Directive (BRRD) that was adopted by the European Parliament on 15 April 2014. The aim of this directive – that applies per 1 January 2015 – is to make EU banks more resilient and to reduce the risk of having to bail out banks using public money. The new rules provide authorities with the means to intervene decisively both before problems occur and early on in the process if they do. If, despite these preventive measures, the financial situation of a bank deteriorates beyond repair, the new law ensures that shareholders and creditors of the banks have to pay their share, reflected via the bail-in requirements which will enter into force on 1 January 2016. To ensure the effectiveness of the bail-in tool, the BRRD requires banks to meet a Minimum Requirement for own funds and Eligible Liabilities (MREL). The implementation of MREL will also depend on the final Total Loss Absorption Capacity (TLAC) proposal for which the Financial Stability Board (FSB) has published a consultative document in November 2014. In 2015 FSB will based on the outcome of the Quantitative Impact Study and the feedback from its stakeholders prepare a final document for the November 2015 G20 meeting. ING supports the bail-in concepts as they are an important component of the new regulatory framework, aimed at reducing the possibility that tax payer money will be needed to bail-out institutions in future crises.
In January 2013, the Basel Committee published Principles for Effective Risk Data Aggregation and Risk Reporting (also referred to as PERDARR or BCBS239), following a recommendation made by the Financial Stability Board (FSB). The requirements aim to strengthen risk data aggregation and risk reporting practices at banks to improve their risk management practices. Banks indicated as global SIB – including ING Bank - are required to implement the principles by 2016. As a first step of the implementation, ING Bank performed a ‘stocktaking’ self-assessment survey in 2013 and another assessment in 2014 to monitor the progress made. The principles coincide with several projects and programs to strengthen risk data aggregation and risk reporting practices that were already underway before these new requirements were published.
For a further update on the ongoing changes in the regulatory environment, refer to the Financial and Regulatory Environment Chapter.
Impact of low interest rate environment Interest rates in the Eurozone but also in the other main home countries decreased from already low levels to unprecedented low levels. Central bank rates are still at very low and even negative levels, thereby negatively impacting short-term as well as long-term money market rates. The on-going Eurozone crisis in combination with uncertainty on the growth potential of the world economy and the geopolitical tensions are the main reasons for this development.
The typical interest rate position for ING Bank is that the duration of the assets is slightly higher than the duration of the liabilities. Given this mismatch, decreasing interest rates are under normal circumstances favourable for the interest income of ING Bank: liabilities reprice more quickly than assets, and therefore the average rate paid on liabilities would adapt more quickly to lower market interest rates. This would then support ING Bank’s net interest income.
However, given the current unusual situation with very low interest rates, the above may not fully apply anymore for the following reasons: › ING Bank could be confronted with higher than expected prepayments because of the significant difference between the rates of the existing mortgage portfolio and the prevailing market rates.
These factors could put ING Bank’s Net Interest Margin under pressure. This situation will remain until structural economic recovery.
CRM uses risk categories to differentiate between the different types of credit risk exposures. All products within ING Bank are aggregated to one of the following risk categories: › Pre-settlement risk: arises when a counterparty defaults on a transaction before settlement and ING Bank has to replace the contract by a trade with another counterparty at the then prevailing (possibly unfavourable) market price. The pre-settlement risk (potential or expected risk) is the cost of ING Bank replacing a trade in the market. This credit risk category is associated with dealing room products such as options, swaps, and securities financing transactions. Where there is a mutual exchange of value, the amount of credit risk outstanding is generally based on the replacement value (mark-to-market) plus a potential future volatility concept, using a 3-7 year historical time horizon and a 97.5% confidence level.
Within ING Bank, the ultimate authority approve or decline credit proposals resides with the Management Board Banking (MBB). The MBB has further delegated authorities, based on amounts and tenors to lower levels of the organisation. Transactions are approved via a dual signatory approval system that requires an individual sign off from both front office and credit risk management. For larger and higher risk credits a committee structure exists whereby the credit risk chair takes the final decision with support of the respective committee members, thereby ensuring accountability. Retail business units have delegated authority to decide within policies and mandates approved by CRM and any decisions outside those policies or above the delegated mandate require a specific credit risk approval.
Commercial Banking has specific delegated mandates. The approval process for Issuer and Corporate Credit Risk is based on mandates for approval signatories, except for the GCC. Each mandate is further broken down into categories, each representing a different Delegated Authority in amounts. For Counterparties the approval authorities and committees consists of GCC, Counterparty Credit Committee (CPCC) and mandates on (sub) regional or (local) unit level.
Communication New methods to improve communication are regularly created and implemented. For example, a network of news brokers has been established. These are dedicated employees, who are kept informed of activities and changes within CRM and are responsible for informing their teams. Additionally they provide bottom up information and carry information from the teams back to the Management Team. CRM also has its own dedicated intranet site, providing Credit Risk Alerts, the Basel III Newsletter and the Policy House while the internal ING networking site, “Buzz”, is also used for internal communication.
co n o m ic C a p ita l E
tr u ct u re : Li n e s o f
Scenarios and stress tests Stress testing is a valuable risk management tool. Stress testing evaluates the bank’s financial stability under severe but plausible stress scenarios and assists in decision-making that assures the bank to remain a financially-healthy on-going concern after a severe event occurs. In addition to the bank-wide stress test framework as described in the risk profile section of ING Bank, CRM performs stress
Next to the periodical pre-determined stress test related to CRWA-at-Risk, CRM performs ad-hoc stress tests based on severe but plausible scenarios. These stress tests can be for internal purposes or at the request of the regulators and are input for future Credit Risk Appetite setting. Stress testing is used as an additional safety net within CRM. Through stress tests the impact of severe but plausible downturn scenarios are determined, which might not be captured in the regular rating models (Probability of Default, Loss Given Default and Exposure at Default). Therefore, next to the Pillar I and Pillar II capital calculations, based on the results of various stress test, ING Bank ensures that adequate levels of capital (and liquidity) are available to sustain such severe but plausible scenarios.
The Retail risk portfolio program is defined as a set of policies and processes, which are laid down to manage a retail risk portfolio within a predefined risk appetite statement. A retail risk portfolio is defined as a group of sufficiently homogeneous credit assets, where: › A consistent set of credit policies and processes for approving a high volume of counterparties and transactions could be applied; › Exposures could be pooled and managed through a set of standard policies and procedures over its entire life cycle.
An important characteristic of the CRM infrastructure and framework is that models are built for several purposes, including EC, RC and Loan Loss Provision. These rating models are broadly used throughout the ING Bank organisation which is therefore compliant with the Basel Use Test requirement and ensures active feedback on the risk parameters by business units.
Conceptual differences between Regulatory Capital and Economic Capital Regulatory capital Economic capital
For portfolios which are reported on SA, the CRR/CRD IV compliant look-up tables are used to determine risk weights.
The CRR/CRDIV based confidence level of 99.90% is used. Linked to Risk Appetite, a confidence level of 99.95% is used. CRR/CRDIV compliant correlations are used. The Increased Correlations for FI’s was applied in 2014.
Under the RBA, the RWA are determined by multiplying the amount of the exposure by the appropriate regulatory risk weights, which depend on: › The external rating or an available inferred rating; › The seniority of the position; › The granularity of the position.
Pre-Settlement measurement models. For regulatory capital the Pre-Settlement (PS) exposure is calculated using a Marked to Market (MtM) plus regulatory-based add-on tables. For internal capital purposes ING Bank uses two methodologies to calculate its PS exposures. Ideally, all parts of ING Bank would apply identical methodologies at all times. However, it is recognised that the ability to implement risk measurement methodologies is highly dependent on systems capabilities, and in certain cases the benefits of implementing a methodology may not be justified by the costs. Therefore more than one methodology is presently in use at ING Bank.
› Securitisations include securitisation programs for which ING Bank acts as an investor, sponsor or originator.
› EAD models: Exposure at Default is the expected amount of ING’s exposure to a customer or counterpart at the time of default. Usually, this amount is higher than the amount of current outstanding. The EAD is facility-specific. EAD models estimate the expected amount of ING’s exposure to a borrower at the time of default based upon the current exposure and current limit. The methodology for EAD models divides the products into revolving and non-revolving products. Depending on the relationship between the limit and exposure at the moment of observation different calculations apply. A separate dimension is required for off-balance sheet exposures to estimate the fraction of off-balance sheet exposure that will be converted to an on-balance sheet exposure in the event of default. Important factors that determine the outcome of the EAD models are related to the portion of the unutilised amount of the limit that is expected to be utilised at the time of default and a factor that translates the (notional) exposure at default into a cash equivalent and is only relevant for off-balance sheet products. The models also make use of a factor that measures unauthorised excess, i.e. drawings beyond the approved Facility Limit, if any. In addition to product type, EAD is also influenced by the approach to risk management. ING Bank has a pro-active risk management approach with active Watch List management that can influence EAD.
Changes in 2014 to credit risk models The credit risk models are updated on a regular basis by taking into account more recent data, regulatory requirements and Model Validation recommendations. In 2014 model changes have been implemented to various important AIRB models across all exposure classes leading to a decrease in RWA of EUR 2.2 billion of which the major changes are: › Belgium Business and Consumer Lending: The LGD model for the Belgium Business and Consumer Lending portfolio was updated to better reflect current market circumstances, leading to an increase in RWA; › Governments: A new PD model was implemented for Central Governments to support a more efficient rating process. New LGD models were implemented for the Central and Local Government portfolio. These changes lead to a net decrease in RWA; › Germany Mortgages: the model was updated with more recent data and implemented in the central infrastructure. The net effect in RWA was neutral; › For the Small and Medium Sized entities updates have taken place in the Dutch LGD model, the Belgium LGD model and in the Central Eastern Europe PD and LGD models, leading to an increase in RWA.
The philosophy is to re-use the same data for all purposes, in an integrated approach that overlaps the three key areas of ING Bank policy, the regulatory environment in which we operate, and the daily processes which are active throughout the group. Overlapping these three areas is the essential requirement to ensure data quality standards and discipline remains high. The integrated approach is illustrated in the following diagram.
The customer-centric approach ensures that ING Bank can react quickly to changing regulations, business needs and best practices in our dealings with our clients and prospects.
GRID’s cross-reference functionality is essential. It enables the bank to link company information from different internal and external databases, with different local identification codes. Additionally, ING Bank automatically uploads credit ratings (from S&P, Fitch, and Moody’s) and any (new) security ID (CUSIP, SEDOL, Bloomberg ID, or ISIN) on a daily basis, based on this cross-reference structure.
ING Bank’s credit risk reporting principles The Basel Committee on Banking Supervision (BCBS) released a document in January 2013 on Principles for Effective Data Aggregation and Risk Reporting. The paper stems from a recommendation made by the Financial Stability Board (FSB) and outlines 11 key principles for global systemically important banks to follow. Credit risk has done a self-assessment and rates itself satisfactory or better on all reporting principles. Nonetheless, gaps have been identified in certain sub-portfolios and actions are being planned to further improve the credit information technology and reporting.
As mentioned above, it is ING philosophy to be involved at an early stage in a troubled process to help assist clients and ultimately reduce losses for all stakeholders. To signal the increased credit risk profile in these cases, ING distinguishes three marked categories: 5) Watch list: If at any time there is a (potential) deterioration in credit risk profile, which requires more than usual attention and/or investigation or monitoring, the account is put on a watch list. Accounts with a watch list status remain under responsibility of Front Office but in active co-operation with their respective Credit Risk Management executives. Exceptionally, extraordinary circumstances, instead of the probability of a financial loss, cause a client to be flagged Watch list. The watch list process functions well for early warning and there is very little corporate exposure that is transferred to a Restructuring Unit that has not been flagged under watch list status before such transfer.