ING Euro Stoxx Banks Stoxx Europe 600 Banks Stoxx 50 J F M A M J J A S O N D
Who we are 2015 highlights • Attracted over 1.4 million new retail customers; primary relationships increased by almost 7% to 8.9 million.
Our size Number four eurozone bank by market capitalisation (EUR 48 billion, year-end 2015).2
Consolidated balance sheet 105 Consolidated profit and loss account 106 Consolidated statement of comprehensive income 108 Consolidated statement of cash flows 109 Consolidated statement of changes in equity 111 Notes to the consolidated annual accounts 114 Risk management 260 Capital management 329
ING’s role in driving sustainable transitions for our corporate clients is ever more important. This includes financing for clients who contribute to a better and more sustainable world by developing solutions to broader social and environmental challenges. The value of sustainable transitions financed rose in 2015 to EUR 23.8 billion.
Faster pace of disruption While we are making good progress commercially and in implementing our strategy, we also see that the pace of disruption in the banking industry is accelerating. More and more, our competition is coming not just from other banks but from non-bank newcomers to the market. Changes in regulations are opening up markets such as Europe’s payments market to competition. New entrants are also competing in other areas like lending, online investment services and bank aggregation, putting a significant portion of bank revenues at risk.
We financially empower customers by striving to make banking clear and easy and available anytimeanywhere, and through our efforts to ensure they have the information and tools they need to make smart financial decisions. We also promote this in the communities where we operate through programmes to support the teaching of financial literacy in schools. And through our partnership with UNICEF we support life skills training, including financial literacy training, for adolescents in less developed countries.
Environmental capital Our activities impact the environment. This includes the direct impact we have from the operations of our buildings, from IT systems and from business travel. However, our indirect impact on the environment is much greater through our financing portfolio and our procurement supply chain. We are committed to reducing our own footprint by 20 percent in 2020 and to working closely with both customers and suppliers to help them adapt and take advantage of opportunities in the low-carbon economy of the future. This is demonstrated by our increased number of Sustainable Transitions financed and Sustainable Assets under Management in 2015.
Intellectual • Over 3,000 Economics and Financial Markets Research publications in 2015 • Strong knowledge of financial and non-financial risk management
Staying relevant for customers The success of our strategy will ultimately depend on how well it enables us to adapt to change and continue to deliver a superior experience for our customers.
Consumers are rapidly turning to digital services for an increasing number of needs. What they are experiencing with digital leaders is shaping their expectations. In ING’s case, nearly 90 percent of retail customers now use digital channels to contact us, and just under 70 percent use them exclusively. This makes it more and more important for that digital contact to be clear and easy for them, with for example digital on-boarding and endto -end mobile sales processes.
All these developments in the external environment confirm to us that we are on the right track with our strategy to create a differentiating customer experience based on digital leadership. We support that through the clear and easy approach embodied in our Customer Promise.
Our appeal to customers was demonstrated in 2015 by the growing number of primary relationships – customers with current accounts and at least one other product with us – and also in ING’s high NPS scores, with customers rating us number one compared to peer banks in seven of our leading markets.
Contributing to the sustainable development of society is also an integral part of the Think Forward strategy. Our sustainability direction focuses on two areas: enhancing the financial capabilities of clients and non-clients, and supporting companies to make the transition to more sustainable business models.
Our Chief Data Management Officer appointed in October 2015 will oversee the implementation of global data management together with local data officers.
Payconiq - Belgium Payconiq is a mobile, contactless and card-free payment app being piloted in Belgium. The only thing a customer needs is a smartphone and an IBAN, which can be from any European bank. The app facilitates both online and offline payments and reduces charges for the small-business owners.
Elements of our strategy Our Think Forward strategy was launched in March 2014 and guides everything we do. In this section we give you an overview of the strategy illustrated with concrete examples of how we are putting it into practice.
Orange Code In 2015, we introduced the Orange Code. It comprises ING’s new values and behaviours. Input from thousands of employees from more than 40 countries as to the values and behaviours needed to achieve our strategy went into developing the code. It was the basis for senior leaders’ performance management from 1 January 2015 and for all employees from 1 January 2016.
Strong performance in 2015 We made progress on many fronts during 2015 in building a bank able to support our customers and fulfil its obligations to other stakeholders in the future. We believe we are well positioned to continue to be successful.
Financial performance was strong in 2015. We achieved solid profitability and have already met most of our 2017 financial ambitions, including in the areas of capital, return on equity, leverage and dividend.
1. Simplify & streamline Simplify and streamline refers to ING’s efforts to become a more effective and agile organisation with increased decision-making speed to enable innovation and collaboration, and to lower cost.
For information on the progress and performance of our banking businesses, please see the “Retail banking” and “Wholesale Banking” chapters.
As of year-end 2015, we already met many Ambition 2017 targets, including in the areas of return on equity, leverage ratio and dividend. We exceeded our Ambition 2017 fully loaded CET1 ratio target for the Group of 12.5%. We will grow into a comfortable buffer over time above the prevailing fully-loaded requirements.
Report of the Executive Board developed favourably as well, helped by job creation and nominal wage growth. The French economy on the other hand appeared weaker, bogged down by falling house prices and rising unemployment. Italian domestic demand finally began to recover in 2015 – albeit cautiously, while Spain was an outperformer on both gross domestic product (GDP) and jobs growth, thanks in part to earlier structural reforms. In the Netherlands, the revival of the housing market was the most important driver behind the pick-up in both consumption and fixed capital formation.
Low interest rate environment The current situation with persistent low interest rates may put banks’ net interest income under pressure. On mortgages for instance, ING Bank could be confronted with higher than expected prepayment rates as the difference between rates on the existing mortgage portfolio and the prevailing market rate causes customers to refinance. On savings, the net interest income may decrease as possibilities for further reduction of client rates on savings deposits are limited. ING Bank actively manages its interest rate risk exposure and successfully maintained the net interest margin on its core lending franchise in 2015. To address the challenge of interest income erosion, containing costs remains an important goal. We are also putting more emphasis on generating fee-based income and are reassessing our product characteristics.
Eurozone developments In the eurozone, 2015 saw a policy of further monetary expansion, helping to bring about a broadening of the recovery. Exports and low oil prices supported the eurozone economy in the first half of the year, although the global slowdown started to weigh on exports towards the end of the year. The combination of low inflation and increasing employment boosted household purchasing power, fuelling consumer confidence and accelerating consumption growth.
With SSM and SRM, two of the three pillars of Banking Union have been established. Mutualisation of deposit guarantee schemes, the last remaining pillar, is progressing at a much slower pace. Lack of a common European deposit guarantee scheme leaves the eurozone potentially vulnerable to bank-sovereign interdependency, despite the existence of the SSM. For national sovereigns remain, explicitly or implicitly, a liquidity provider of last resort for the deposit insurance scheme. When sovereigns get into trouble, deposit holders will worry that the national deposit guarantee scheme will be unable to meet its commitments should domestic banks fail. Greece’s experience in 2015 made this clear. Capital controls had to be imposed to contain a bank run, and a euro deposited at a Greek bank was no longer de facto equal to a euro deposited at a bank in another member state.
Regulatory uncertainty The large number of new regulatory initiatives and consultations concerning banks’ capitalisation continued to be a source of uncertainty in 2015. Examples are the ongoing discussions on bail-in-able instruments (MREL/ TLAC), but also discussions in the Basel Committee
Opportunities • Regain trust by demonstrating care, especially towards customers and by explaining better why strategic choices are made (transparency).
Threats • Currently low/subdued economic growth in markets where ING has significant market positions.
Three topics that fell just outside the top 15 were also included because they were most important to ING or certain stakeholders: (C) Managing Risk, deemed important by ING; (N) Sustainable finance and investment policies, deemed important by NGOs; and (R) Remuneration, deemed important by society and government scrutiny.”
We have seen a shift in materiality results since 2014, with stakeholders rating financial performance less important. This reflects the more positive sentiment now that economic growth has returned. In 2015, topics such as IT systems and privacy were extremely important, and themes such as the prevention of corruption and anti-competitive behaviour have clearly grown more important.
Within these boundaries, we continuously look for ways to provide more transparency. We were the first major bank in the Netherlands to disclose which sectors we finance in combination with how our environmental and social risk policies apply to those sectors.
Materiality research is constantly evolving, and we updated our methodology in 2015. The way we compile the list of topics has not changed, but the way the matrix is made was adjusted slightly. In 2014, we worked with an external agency to create a preliminary matrix that we then fine-tuned based on the outcomes of the materiality survey. The 2015 matrix was completely based on the survey outcomes, which may have resulted in different outcomes than in the previous year.
Si gn ifi ca nc e fo r s ta ke ho ld er s
Environmental footprint less material to stakeholders Stakeholders attached less importance to ING’s direct environmental impact in the 2015 materiality assessment. This reflects the understanding that our impact is much greater in our financing choices, and that our efforts to restrict our environmental footprint are paying off and becoming a ”normal” part of doing business rather than a focus point.
There is a high volume of regulation that applies to banks. Therefore we expanded the scope of our Public and Government Affairs department, combining it with the Wholesale Banking International and Trade Affairs team as well as the Public Affairs team of
Sustainability and financing sensitive sectors Our comprehensive and detailed Environmental and Social Risk (ESR) framework sets out a clear checklist when deciding which companies or activities to finance.
ING is one of the most sustainable listed banks in the world. In September 2015, Sustainalytics named us the third best-performing bank in a group of 409 banks, and in November the non-profit CDP awarded us the highest possible score for our climate change reporting.
One step we took in 2015 was committing to procuring renewable energy for all ING buildings worldwide by 2020, as part of the RE100 initiative.
Keep moving forward The key outcomes from our materiality assessment coincide with our purpose, Customer Promise and strategic priorities, as presented in March 2014. You can read more about this in the “Strategy” chapter. We are pleased that we share the concerns and views as our stakeholders, but we are not complacent. We will continue to consult regularly with them about their expectations and work to improve our performance on the issues they say are most important.
Data protection and innovation Protecting our customers’ financial information is a priority. Our customers expect it, and it is our legal duty.
Advanced analytics supports our purpose of empowering customers. Through analysing their data, we help customers better understand their financial situation, anticipate their future needs, and make smarter decisions.
Read more in the “Risk and capital management” chapter on our Environmental and Social Risk framework.
A Financial performance Being a financially healthy and stable company is important to us and our stakeholders.
More information on both our financial and non-financial risks in the “Risk and capital management” chapter.
Balancing our responsibilities: Data protection vs. innovation section in “What matters most to stakeholders” chapter.
We want to help people make smarter financial decisions through transparent tools, tailored offers and expert advice. In 2015, more than 20 million people felt financially empowered by ING. We also had more than 90 million interactions with customers and non-customers through our financial empowerment initiatives.
Excellent service delivery and Standardising to win sections in the “Operational excellence and innovation” chapter.
We believe banking should be about clear products, plain language, fair prices and simple processes. In 2015 we introduced tone of voice initiatives to simplify communications with retail customers. In Wholesale Banking we worked on standardising our products and channels (TOM).
Having responsible lending activities and preventing customers from going into financial distress by for example helping customers to remain financially fit.
P Regaining trust We aim to regain and retain the confidence of our stakeholders by acting with professionalism and integrity and placing the customer at the heart of everything we do via our Customer Promise.
Common Equity Tier 1 ratio fully loaded ING Group >12.5% 12.7% 10.5% n/a Common Equity Tier 1 ratio fully loaded ING Bank >10% 11.6% 11.4% 10.0% Leverage ratio ING Bank 1 ~4% 4.5% 4.1% 3.9% Underlying cost/income ratio ING Bank 50-53% 55.9% 58.7% 56.8% Underlying return on equity ING Bank 10-13% 10.8% 9.9% 9.0% Dividend per share (in euros) 0.65 0.12 n/a
Addition to loan loss provision 1,347 1,594 2,288 Underlying result before taxation 5,959 4,724 4,323 Underlying net result Banking 4,219 3,424 3,155 Divestments/special items 309 -819 -124 Net result Banking 4,528 2,606 3,031 Legacy insurance businesses -518 -1,355 515 Net result attributable to ING Group's shareholders 4,010 1,251 3,545
Balance sheet in EUR billion, year-end 2015 2014 2013 Total assets ING Groep N.V. 842 993 1,081 Shareholders' equity ING Groep N.V. 48 51 46 Customer lending ING Bank N.V. 2 533 514 499 Customer deposits ING Bank N.V. 509 489 475
The strong increase was, in addition to the higher net result of ING Bank, caused by lower losses from the discontinued Insurance operations in 2015 compared with 2014, when the net result was negatively impacted by the deconsolidation of Voya and the held for sale classification of NN Group.
Risk costs declined to 44 bps of average RWA (which is within the range of 40-45 bps through the cycle), as economic conditions gradually improved, especially in the Netherlands. Nevertheless uncertainties remain, the most obvious one being the very low oil prices.
Our focus on sustainability driven business resulted in EUR 23.8 billion Sustainable Transitions Financed at year-end 2015. SAuM increased to EUR 2.57 billion, which underlies our client’s appetite for products and services that apply sustainability criteria.
We measure and report on our human capital investments to ensure we do the right things to support our employees’ performance. The Human Capital Return on Investment indicator helps us identify the influence of HR inputs on the organisation’s productivity. This ratio of profitability divided by employee costs was 2.48 in 2015, up from 2.30 in 2014.
Top Ranking 7 out of 13 countries 96 kilotonnes 23.8 bln Sustainable transitions financed 2.57 bln Sustainable assets under management (SAuM)
1 For an explanation on the measurement of these numbers, please refer to the non-financial data reporting protocol published on ing.com.
Who are we? ING’s Retail Banking business lines provide products and services to individuals, small and medium-sized enterprises (SMEs) and mid-corporates. Our purpose is to empower these customers to stay a step ahead in both their private and professional lives. We aim to do this by ensuring our products and services are clear and easy, fairly priced and available anytime, anywhere. Through transparent tools, tailored offers and expert advice, we strive to help customers make the right financial decisions at the important moments in their lives, be it buying a home, saving for retirement or expanding their business.
Read more in “Our strategy and progress” chapter on ING’s geographic presence and strategy per market.
In support of our customer promise, we strive to communicate in a clear, easy and fair way. Fair communication is a material topic, especially for retail customers. Our corporate tone of voice guidelines reflect a brand personality that is clear and easy, empathetic, positive and no-nonsense. Several of our retail units launched initiatives in 2015 to simplify communication and ensure that products and services are explained in plain, easy-to-understand language. In Poland, for example, customer communications have been comprehensively reviewed and many different types of correspondence (letters, contracts, messages, alerts, advertisements, etc.) have been simplified. To make sure we meet Polish customer expectations for fair communication, we ask them to help with prototyping, testing and assessing communications. In the Netherlands, we use roadshows and workshops to train employees in the new tone of voice. In Germany, the “Klartext” initiative uses workshops and special “text experts” to coach customer-facing employees in clear and easy communication.
ING’s strategic priorities work together towards the goal of offering a differentiating customer experience. Underpinning that experience is our Customer Promise: to be clear and easy, with an anytime, anywhere service offering that empowers customers to make smart decisions. We also promise to keep getting better by
We have taken up this challenge by launching the Think Forward Initiative, in partnership with Microsoft, the Institute for New Economic Thinking and IT services company EMC. Our aim is to better understand the behaviour behind financial decisionmaking and, based on these insights, come up with improvements and practical solutions to support people in making financial decisions that are better for them, and ultimately better for society. The Think Forward Summit in February 2016 brought together academics, European and national policy-makers, consumer organisations and leaders from the financial and technology sectors to discuss the latest developments around financial behaviour. The lessons learned will be a springboard for further action during this multi-year initiative. Please visit www.thinkforwardinitiative.com for more information.
Knowing our customers To earn the primary relationship, we need to understand customers’ needs and meet their expectations. Understanding customers and building a relationship with them in an increasingly digital world requires new skills in data collection and analysis. Once we have established a primary relationship, we can collect richer customer data which in turn allows us to provide more individually-tailored products and services. We understand the sensitivities around data collection and data privacy and comply with legal and regulatory requirements for data privacy. We strive to be transparent about ING’s handling of customer data and when customer consent is required for data handling, to allow them to withdraw such consent at any time.
Sustainable investment portfolios Sustainable structured products (incl. ING Liric SRI top 50) Sustainable investment funds (incl. CS ING SRI Index Fund)
2 The 2015 and 2014 figures include ING Belgium and ING Luxembourg. 2013 figures are based on ING Netherlands only.
A performance culture based on collaboration and our Orange Code values and behaviours will help us recruit and retain the talented people we need to deliver on our purpose. And we wish to broaden our lending capabilities to achieve better-balanced growth.
Growing our lending capabilities is a key element of our retail banking strategy. To achieve sustainable share in our Challengers markets, we need to grow consumer lending and SME lending. By using our digital banking expertise and offering innovative customer propositions, we are making good progress in consumer lending, but further development of our SME lending proposition is required. In 2015, consumer lending assets increased by EUR 1.3 billion. German consumer lending grew by EUR 1.5 billion in just two years. In Poland, customers can access pre-approved consumer loan offers on mobile devices. Turkish customers can apply for consumer loans via direct channels without having to go to a branch, and prospects can apply for a car loan at point-of-sale using SMS. In October we announced a strategic investment and partnership with Kabbage, a fintech that offers loans to small businesses. Together with Kabbage, we are piloting instant digital lending for SME customers in Spain using more advanced credit scoring.
Read more in the “Operational excellence and innovation” chapter about our approach to excellent service delivery.
Read more in the “Operational excellence and innovation” chapter on our approach to data privacy and security.
Total Retail Banking Retail Banking posted strong 2015 results. The underlying result before tax rose 17.3 percent to EUR 3,928 million, driven by higher income and lower risk costs.
Excluding the redundancy provisions in 2014, operating expenses increased 6.3 percent, mainly due to higher regulatory costs, investments in IT, some smaller restructuring provisions and a provision for potential compensation related to certain floating interest-rate loans and interest-rate derivatives that were sold in the Netherlands. This increase was partly offset by the benefits from ongoing cost-saving programmes. The costsaving programmes remain on track to realise EUR 675 million of annual cost savings by the end of 2017. Of this amount, EUR 438 million has been realised since 2011.
Underlying income declined 2.7 percent to EUR 2,546 million, from EUR 2,617 million in 2014. The interest result decreased 2.3 percent due to lower margins on lending products and current accounts, which was only partly compensated by higher volumes in most products. The net production in the customer lending portfolio (excluding Bank Treasury) was EUR 1.7 billion, of which EUR 1.1 billion in mortgages and EUR 0.6 billion in other lending. Net customer deposits grew by EUR 3.0 billion. Operating expenses increased 0.5 percent to
EUR 1,532 million, as higher regulatory expenses and some additional restructuring costs were largely offset by a decrease in staff expenses and a value-added tax refund. The cost-savings programme announced by ING Belgium in early 2013, with the aim of realising EUR 160 million cost savings by the end of 2017, was successfully concluded by the end of 2015.
Risk costs increased by EUR 27 million to EUR 169 million, or 59 basis points of average risk-weighted assets. The increase was mainly in business lending and consumer lending, while risk costs for mortgages declined.
Challengers & Growth Markets Retail Germany Retail Germany includes ING-DiBa Germany, ING-DiBa Austria and Interhyp.
Underlying income rose 18.3 percent to EUR 1,910 million. This increase mainly reflects higher interest results following continued business growth and improved margins on savings. Margins on lending and current accounts were somewhat lower. Net inflow in customer deposits (excluding Bank Treasury) was EUR 6.4 billion in 2015. The net production in customer lending (excluding Bank Treasury and movement in the mortgage hedge) was EUR 2.5 billion, of which EUR 1.6 billion was in mortgages and EUR 0.9 billion in consumer lending. Investment and other income was EUR 104 million, compared with a loss of EUR 27 million in 2014, mainly due to higher realised gains on the sale of bonds and a positive swing in hedge ineffectiveness results.
Retail Other Retail Other’s underlying result before tax decreased to EUR 577 million, from EUR 690 million in 2014. The decline was primarily attributable to lower income in Italy due to EUR 97 million of non-recurring charges related to increased prepayments and renegotiations of fixed-term mortgages, and a EUR 31 million one-off charge in regulatory expenses related to the bankruptcy of SK Bank in Poland. Excluding both items, the result before tax increased by 2.2 percent.
• ING Belgium was rated as Most Innovative Bank in Belgium by International Finance Magazine (IFM).
• The online banking website of ING Netherlands was voted “Most Popular Website” in the category “Banking & Investments” at the Dutch “Website of The Year 2015” awards. The website also won an “SEO Benchmark 2015” award as the most easy-tofind bank in the Netherlands.
Our focus on financially empowering people resulted in a number of new initiatives and tools to help customers make decisions that positively influence their financial situation. We also introduced innovative payment services and new functionality to our digital channels that contribute to a differentiating customer experience. In doing so, we build more primary relationships, which allows us to better understand customers and their needs, and provide them with a more-tailored service. Data gathered through our interactions with customers is treated as private, and is governed by binding Global Data Protection Policies.
Who are we? We are a European wholesale bank with global reach. We have an extensive international network of offices in more than 40 countries across Europe, Asia and the Americas. Our global franchises in Industry Lending, General Lending, Transaction Services and Financial Markets serve a range of organisations, including corporates, multinational corporations, financial institutions, governments and supranational bodies.
Our purpose is to empower customers to stay a step ahead in life and in business. In Wholesale Banking we help our wholesale banking clients meet their ambitions, either in a specific area of expertise or geography. We aim to provide a differentiating and seamless client experience through new technologies and services across the globe.
Our lending capabilities are at the heart of most of our client relationships. We continue to grow Industry Lending by supporting clients with sector expertise and in-depth knowledge of their business. Transaction Services extends our client offering with international payments and cash management, trade finance services and working capital solutions. Financial Markets, as the bank’s gateway to global professional markets, serves our clients from treasury through to capital markets, providing risk management and structured financial products.
The commercial launch of InsideBusiness in the Netherlands and Belgium was a key milestone in 2015. More countries will follow in 2016.
Our transformation programme supports a growing digital offering. In the area of payments and cash management, we also started rolling out our new common payments platform, beginning in Ireland. It offers consistency and simplicity – for example uniform billing and harmonised reporting for our clients – who are typically active in a number of countries.
In addition to the US, we are expanding and strengthening our network and presence to support clients in China, Colombia, Sweden, Kazakhstan and India. In Seoul, South Korea, we are planning to open a securities branch to expand our product and client coverage into capital markets.
At the same time, we are investing in our flow capabilities in Transaction Services and Financial Markets. In Transaction Services, Working Capital Solutions (WCS) is a growth area as treasurers seek ways to unlock funds trapped in their supply chains. We aim to increase both the number of clients and our share of their flow business. The exit of a major global competitor from transaction services in Europe in 2015 offered a unique chance to support those organisations seeking replacement services. To make this possible, we invested additional resources to speed up the introduction of new products and services.
Financial Markets (FM) remained profitable throughout the year despite the ongoing changes in the regulatory environment. In 2015, FM introduced its new strategic plan that adapts the business to challenging regulation, low interest rates and volatility by embedding it more in Wholesale Banking’s client business. It will help strengthen our client relationships by concentrating on core clients in selected markets and product categories.
Through our activities in this area, we have developed extensive knowledge of a number of key sustainability issues. We published several reports in 2015 that share our thinking on sustainability, including “Rethinking
Sustainable transitions We support clients to develop more sustainable business models. And we apply strict social, ethical and environmental criteria in our own financing and investment policies and practices. In 2015 we financed EUR 23.8 billion in sustainable transitions for our clients. At ING, we’re always looking for the next step ahead.
Transaction Services Transaction Services is made up of Payments & Cash Management, Trade Finance Services, Working Capital Solutions and Bank Mendes Gans. We seek to support our clients’ core processes and daily financial operations through tailor-made, integrated solutions and advice. These activities require a strong focus on operational processing. We are developing our business platforms by deploying new technologies and through increased standardisation across borders, products and services.
• Best Trade Bank in Metals and Mining (gold) • Best Bank in Structured Commodity Trade Finance
The Specialised Finance Group (SFG) coordinates global teams that primarily arrange, underwrite and lend against business cash flows. They are active in sectors such as telecommunications, media and technology, and healthcare, and provide specialised support for the insurance industry. The business has a good presence in providing bank lending in the US mid-market. In 2015, SFG continued its growth path in terms of assets and income, while maintaining profitability at high levels.
Wholesale Banking – continued franchise. It aims to service ING’s institutional, corporate and retail clients with relevant financial markets products.
Trade Finance Services (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.
Bank Mendes Gans (BMG) is a specialist bank, providing global liquidity management services, including multicurrency, multi-bank cash-pooling and netting solutions, to multinational corporations.
Transaction Services (TS) income remained relatively stable in 2015, although financials were under pressure following a strong performance in the previous year. Trade financing volumes decreased and income headwinds were expected due to pressure on margins, in particular from clients in China. WCS continued to grow and to focus on innovation and product development. Meanwhile in Payments & Cash Management (PCM), the roll-out of our common payments platform in Ireland was a major milestone. We expect our investments and efforts to capture flow business to help us improve our position in the market. And the exit of a major global competitor from TS services in Europe offers a unique opportunity to accelerate this growth ambition.
Industry Lending posted an underlying result before tax of EUR 1,464 million, up 11.0% compared with 2014. This increase was mainly caused by higher income in Structured Finance and Real Estate Finance due to strong volume growth, partly offset by a EUR 92 million impairment on an equity stake. The underlying result before tax from General Lending & Transaction Services declined 8.3% to EUR 467 million, due to higher expenses and risk costs, while income growth was limited due to some pressure on margins. Financial Markets recorded an underlying result before tax of EUR 483 million, up from EUR 133 million in 2014, mainly reflecting the aforementioned positive swing in CVA/DVA impacts. The underlying result of Bank Treasury, Real Estate & Other was EUR 146 million compared with EUR 25 million in 2014. The increase was mainly attributable to higher Bank Treasury income, while the results in the run-off businesses increased due to improved sales results in Real Estate Development and lower risk costs in Leasing.
As part of this new approach we aim to strengthen managers’ performance management skills so they are better equipped to carry out this core capability. The new approach comes into effect for senior leaders in 2016 and is planned be rolled out to all ING employees globally from 2017.
Developing a performance culture Achieving our purpose to empower customers to stay a step ahead in life and in business requires a strong culture to support it. In 2015, ING introduced the Orange Code. Inspired by the aim to put “integrity, above all”, the code is a manifesto that sets out who we are, how we work and helps to strengthen our relationship of trust with our customers.
Employees play a key role in delivering on our purpose and Customer Promise. We believe in empowering employees to develop themselves and the competencies they need to succeed. In 2015, ING took steps to strengthen its performance culture, an important enabler of our strategy. Central to this was the introduction of the Orange Code – our ING set of values and behaviours.
We aim to set up our teams so that we are best positioned to service clients in each of the markets that we operate in. ING Bank Netherlands recently transitioned to a new, agile way of working based on flexible teams that makes it possible to respond much more quickly to customer feedback and translate it into improvements in the customer experience. HR supported this with a new hiring process based on agile methodology. We set up hiring teams to select employees for the new organisation. They assessed 600 applicants in eight days. We also organised a large onboarding event in the Amsterdam Arena stadium for all 2,500 employees working in the new organisation. Inspiration, flexible working arrangements and the Orange Code values and behaviours were central to the programme.
Agile way of working ING Bank Netherlands has switched to an agile way of working. A system with flexible teams that can respond more quickly to feedback from customers and so further improve the customer experience. At ING, we’re always looking for the next step ahead.
The customer comes first. That’s the starting point as ING explores new ways of organising the workplace. What will working together look like in the future?
is to make sure we really understand what matters most to our employees and how we can make a genuine difference in our human capital investments.
It is increasingly important for us as an organisation to measure and report on our human capital investments to ensure we are doing the right things to support our employees’ performance. The Human Capital Return on Investment (HC ROI) indicator measures ING’s profitability in relation to total employee costs by removing non-employee costs from overall operating costs. The indicator is a ratio of profitability divided by employee costs. This indicator helps us identify the influence of HR inputs, such as performance management, training and development, automation and organisational structures, on the organisation’s productivity. The 2015, HC ROI Indicator was 2.48, up from 2.30 in 2014.
Attracting, retaining and motivating our employees We take a long-term view when it comes to developing and improving the skills of our employees. This includes looking at our future requirements in terms of skills and resources based on trends in the market.
Job rotation, international assignments and job swaps help us to optimise our talent management strategy and provide opportunities for staff to grow by being exposed to new challenges in different parts of our organisation.
Employees are encouraged to apply for any position or training that fits their skill and experience profile. We make all opportunities available via our internal job site, giving qualified internal employees preference over external candidates.
Changing organisational requirements will require periodic restructuring in our activities. This may result in changing roles or FTE reductions. This was the case in the Netherlands in 2015. We are fully committed to helping each of these employees find new roles and/
The focus on sustainable employability continued in 2015. We organised several Steer your Career activities in the Netherlands, including a very successful campaign to create awareness for personal development. For those employees who unfortunately lost their jobs, the ING Mobility Centre created a range of activities, not only to prepare them to find new jobs, but also to deal with the emotional aspects of losing a job and helping them to find new energy in their personal lives. Employees who were made redundant highly appreciated the service and guidance of the Mobility Centre, rating it with an average score of 8 out of 10.
During 2015 we conducted an Organisational Health Index (OHI) survey. This assesses the ability of our organisation to adapt and renew itself to be successful in the long run. We asked all employees to answer questions about our company, our customers and their role. Over 29,400 responded, highlighting the importance for employees of their voices being heard.
The results reveal that ING has a solid organisational health when comparing our overall score in a global database of external companies. This score can be used to help predict an organisation’s future performance.
New leadership training Additionally, a new leadership curriculum is currently under development. Its goal is to strengthen the overall adaptability of the organisation from the perspective of leadership, innovation and external orientation.
The programme seeks to build on participants’ existing strengths. Using experiential learning we are bringing together leaders from different parts of our business to build new connections, share experiences, learn from each other and nurture broader external visions on our business.
Managing talent To secure the development of our senior leaders and the continuity of key roles, ING runs an Annual Talent Review (ATR) process. The ATR process aims to ensure a healthy leadership pipeline with successors for key positions (Executive Board/Management Board Banking and the two hierarchical levels below). It introduces more consistency into our approach to career management for senior leaders. We track actions taken following the previous year’s ATR and employ advanced data analytics to look strategically at the strengths and risk factors in our leadership pipeline. ATR is helping us to make objective, well-informed decisions on talent development and succession.
However, as with many financial organisations, achieving this is challenging. Of our managers of managers, 29% were women at end-2015. We are doing well in some countries, but in key markets, such as the Benelux, we need to do more to make the gender balance more representative.
Our top leaders fully support this objective. They have introduced a range of initiatives to help increase the number of women in leadership roles. These include diverse interview and decision panels in the recruitment process, inclusion of female candidates on succession lists, and tracking and analysing the number of female appointments, promotions and leavers to gain more insight into problems and potential solutions. We also promote the mentoring of female future leaders and actively support flexible working.
We have a number of ING internal networks in place that foster diversity. These include: • Crossing – a network focused on cultural diversity • Lioness – a community of ING women who want to realise their personal ambitions. • Gala – a community focusing on an inclusive workplace where LGBT employees are visible, accepted and valued.
We uphold freedom of association for all our employees and recognise the right to collective bargaining as laid down by International Labour Organisation convention Nos. 87 and 98. We aim to judge our employees only on their merit and skills and it is our policy not to discriminate in areas including social origin, gender, age, background, sexual orientation, physical ability and religious beliefs.
This programme promotes diversity, selfdetermination and inclusion. It consists of four apprenticeship models targeting individuals who face difficulties when searching for a job and may therefore need assistance and support. This includes: • Apprenticeship 50+ offers new opportunities to people over 50 years old. It includes a fast-track apprenticeship to become a bank assistant.
• An apprenticeship for people with disabilities. This provides tailored support as well as training to help them become bankers or qualified IT specialists.
Operational Excellence throughout ING is necessary to consistently deliver on our Customer Promise in an efficient way. Similarly, we need to continuously innovate to deliver a differentiating experience that meets our customers’ evolving needs and expectations.
Bringing in the best from outside The emergence of financial technology (fintech) companies is seen by many as a disruptive competitive threat, but it also represents an opportunity. Fintechs often target the areas of financial services that are not subject to the same regulatory requirements and restrictions as full-service banks. Their agility and ability to move faster in developing new solutions that improve the customer experience is a source of inspiration for ING. Conversely, many fintechs do not have our strong and trusted brand, our large international customer base, our local market expertise nor our extensive cross-border distribution network. By partnering with selected fintechs, we can learn from each other, leverage each other’s strengths, and bring new customer-centric solutions to market much faster than we could do on our own.
We have appointed a Head of Fintech to develop our approach towards these innovative financial technology companies, exploring possible partnerships, investments and acquisitions. In Belgium we are already doing a lot in this area (see box “Partnering for success in Belgium”), and in the Netherlands we support Startup Bootcamp and StartupDelta, a Dutch government initiative aimed at increasing the number and quality of start-ups in the country. We have invested in Orange Growth Capital, a financial technology investment firm, and two promising platforms: US-based Kabbage and China-based WeLab, both of which specialise in instant lending. We have also set up the ING Innovation Studio, where we match internal teams with start-ups from around the world to accelerate the development of ideas into minimum viable products.
Good management of data helps to lower costs and improve the way we manage credit, market and operational risk. As a bank, we collect and store vast amounts of data: customer profiles, ATM and payment transactions, interest accruals, customer complaints, systems availability data and much more. To add value to this data, it has to be sorted, harmonised, measured for quality and given context. During the first half of 2015, subject matter experts from ten business units, Wholesale Banking, Finance, Risk and HR worked together to develop a data management strategy to govern and manage data consistently across the bank. We have appointed a Chief Data Management Officer to oversee the implementation of global data management throughout the bank, in close collaboration with the local data officers, our IT organisation and our process improvement initiatives.
We also have an Innovation Fund in place that provides implementation funding for concepts developed in ING’s various business units. Locally-developed innovations that can be shared and replicated in other countries are prioritised. To date, the fund has financed 12 implementation projects. These include innovative payment solutions that combine transactional capabilities with value-added services for shoppers in the pre- and post-purchase phases of their shopping experience. And it is not only financial support that is provided to these implementation projects: a centralised customer experience centre facilitates low-cost experimentation and manages key innovation projects on behalf of the business units.
New ways to pay will change the shopping experience of the future. What’s next?
What is PACE PACE, ING’s own innovation methodology, combines a set of common processes with the language and tools to encourage fast experimentation. Guiding principles and the right mindset support the PACE process.
Report of the Executive Board 1st line of defence Business lines 2nd line of defence Risk 3rd line of defence Audit
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 in our culture, people and behaviour.
The commercial departments, which have primary responsibility for the day-to-day risk management, form the first line of defence. They originate loans, deposits and other products within applicable frameworks and limits. They know our customers well and are best placed to act in both the customers’ and ING’s best interest.
For more information on the key risks, please refer to the section Risk profile of the risk management chapter, part of the consolidated annual accounts of this Annual Report.
Risk and capital management – continued a minimum requirement for own funds and eligible liabilities (MREL). In addition, ING as a Global Systemically Important Bank (G-SIB) needs to comply with the total loss absorption capacity (TLAC) proposal published by the Financial Stability Board (FSB) in November 2015.
The framework applies globally, but based on ING’s “simplified balance sheet”, it is the corporate segment (approx. 32 percent of ING Bank’s assets) where we focus our assessments and promote active ESR dialogue. For nearly 15 years we have been working with these corporate clients to support them in understanding and managing their environmental and social impacts.
The ESR Framework covers sectors such as mining and metals, chemicals, defence, energy, forestry and agro-commodities, and manufacturing. It also includes explicit restrictions for activities that are not in line with ING values (for example, companies involved in manufacturing cluster munitions). The ESR framework is regularly reviewed. The most recent update was in 2015.
In 2015, more than 3,326 corporate clients and 4,713 corporate lending transactions were assessed under the ESR Framework. Based on these figures, the overall ESR risk distribution of corporate client engagements is as follows: Under the ESR Framework, ESR high-risk engagements require a specific advice from the ESR Department. In 2015, it specified areas of attention and required improvements in 331 cases. These improvements play an important role in the transition towards a more sustainable economy.
• Follows mainstream credit approval process • For all corporate transactions on legal entity level • Checks on country, impacts on indiqenous peoples, alleged labour and human rights violotions, sensitive activities, media/NGO coverage
The risk appetite statements and targets are developed and communicated to the different businesses in line with capital allocation. Regular stress tests provide important inputs for the capital planning and management process. These focus on specific scenarios and assess the sensitivity of the Group’s capital position to the corresponding risks. These analyses also help to determine the Group’s strategic direction. Policies for recovery planning and resolution are a natural extension of ING’s capital management policies and are fully aligned with ING’s risk management framework.
ING is an Equator Principles (EP) financial institution. The Equator Principles are a risk management framework for assessing and managing environmental and social risks in project financing. ING is part of the EP Steering Committee and leads the newly formed EP Capacity Building and Training Working Group. The working group aims to offer a learning platform for the appropriate and consistent application of EP by the 81 adopting banks.
We continue our engagement in the Thun Group of Banks which specifically focuses on understanding and promoting good practices that apply the UN Guiding Principles on Business and Human Rights in the financial industry. In 2015, we were also invited to participate in the advisory group to the Organisation for Economic Co-operation and Development (OECD)-hosted project on Responsible Business Conduct in the Financial Sector. The Advisory Group includes representatives from OECD governments, industry players, market makers and NGOs among others. This project aims to develop guidance on how the OECD Guidelines for Multinational Enterprises (which includes chapters on human rights and environment) shall be applied in the financial industry. This project is expected to last throughout 2016.
A consistent approach to capital management ING Group’s overall approach to capital management is to make sure capital is adequate at all levels, but also to challenge these levels constantly to ensure optimal use of capital. ING Group optimises and manages capital at Group level as well as at Bank level. ING Bank manages its capital within its different entities to ensure all meet local capital requirements. ING’s subsidiaries are well capitalised. As a matter of policy, targets above the minimum local capital requirements are set for the individual businesses. This process aims for an equal distribution of capital and to avoid trapped capital. The
Capital development at ING Bank ING Bank’s capital position is primarily managed through its published Common Equity Tier 1 ratio and leverage ratio. These are ING Bank’s main constraining factors and the most widely used variables for assessing banks’ capitalisation.
ING Bank has a capital target based on our risk appetite, which compares well with the peer group. ING Bank’s 2017 Ambition is to have a fully loaded CET1 ratio of at least 10 percent with a comfortable buffer on top to absorb regulatory changes and potential volatility. The target for the leverage ratio based on the Delegated Act as adopted by the EC is approximately 4 percent.
ING Group’s fully-loaded CET1 ratio was 12.7% at the end of 2015. The proposed dividend, to be paid in May 2016, has already been excluded from ING Group’s capital base, in line with regulatory requirements.
ING Group continued to optimise its capital structure by successfully issuing CRD IV eligible Additional Tier 1 securities (AT1 securities) in April 2015. In total, USD 2.25 billion of securities were issued in two tranches: USD 1 billion in a non-callable five-year tranche with a coupon of 6% and USD 1.25 billion in a non-callable 10-year tranche with a 6.5% coupon. These securities were on-lent to ING Bank NV as CRR/CRD IV compliant instruments, partially replacing internal securities. In June, EUR 169 million 4.176% Group Tier 1 securities were called. In July USD 1.5 billion 7.375% Group Tier 1 securities were called. In addition, ING redeemed the outstanding amount of USD 364 million of the 5.775% ING Tier 1 securities on its first date call date in December 2015.
Price/book value ratio 1.01 0.81 0.85 1 Based on the share price at year-end and the earnings per ordinary share for the financial year.
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 Euronext Amsterdam Derivative Markets and the Chicago Board Options Exchange.
Main credit ratings of ING at 31 December 2015 Standard & Poor’s Moody’s Fitch Rating Outlook Rating Outlook Rating Outlook
FTSE4Good Index Series Position: Included Position: Included Position: Included Position: Included Transparantie Benchmark (NL)
Our approach to integrated reporting In our view a balanced integrated report contains information both on our economic performance and on the impact of our organisation on society and the environment. By disclosing and explaining our financial and non-financial results, strategy, governance, external developments and the risks and opportunities we face, we aim to enable our stakeholders to assess how we create value and how we earn our income.
Audiences This report is intended to serve the information needs of key stakeholder groups that affect, and are affected by our business: customers, employees, share- and bondholders, supervisors, regulators, civil society organisations, citizens and society at large. However, the information needs of stakeholders differ. Therefore we also publish a concise and accessible online overview of our results in 2015 in our Annual Review on ING.com. This aims to share our key results and impacts with customers and society in a clear and easy way. Sustainability rating agencies and analysts can find the content they need for an in-depth analysis of our performance on sustainability in this report and the accompanying Non-financial Appendix.
Responsibilities of the Executive Board for the Report The Executive Board of ING is responsible for the preparation of the Report in accordance with the “Sustainability Reporting Guidelines” G4 (option Comprehensive) of the Global Reporting Initiative (GRI) and the reporting criteria developed by ING as disclosed in the chapter “About this report” of the Report, including the identification of the stakeholders and the determination of material issues. The disclosures made by management with respect to the scope of the Report are included in the chapter “About this report” of the Report.
Procedures performed Our main procedures included the following: • Performing an external environment analysis and obtaining an understanding of the sector, relevant social issues, relevant laws and regulations and the characteristics of the organization; • Evaluating the acceptability of the reporting policies and their consistent application, such as assessment of the outcomes of the stakeholder dialogue and the reasonableness of assumptions made by management; • Evaluating the in accordance option with the Sustainability Reporting Guidelines G4 (option Comprehensive) of GRI; • Evaluating the design and implementation of the systems and processes for data gathering and processing of information as presented in the Report; • Interviewing management (or relevant staff) at corporate and business division level responsible for the sustainability strategy and policies; • Interviewing relevant staff responsible for providing the information in the Report, carrying out internal control procedures on the data and the consolidation of the data in the Report; • Evaluating internal and external documentation, in addition to interviews, to determine whether the information in the Report is reliable; • Analytical review of the data and trend explanations submitted for consolidation at group level.
In 2015, we also discussed whether we would continue with the current two-tier board structure or move to a one-tier structure. We have concluded that there are no compelling reasons to change the corporate structure. The Executive Board and Supervisory Board believe that the current two-tier board structure continues to serve ING well. We have had extensive discussions on the future corporate governance in preparation for the 2016 AGM. Another important focus area for the Supervisory Board is education. As Supervisory Board members, it is important that we have a good understanding of the latest developments in areas like the economy, regulation, technology and customer behaviour, and how these relate to ING. We do this through educational sessions and workshops and by visiting ING businesses to see how these developments affect us in practice.
There were also signs of resilience in 2015, for instance in the eurozone, where economic recovery became broader and led to more upbeat sentiment. Consumer confidence picked up and households became more confident about their own financial situation and unemployment gradually declined in most countries. This was all encouraging news.
ING’s people ING has come a long way in the past few years. Following a major restructuring and divestment process, ING is now one of Europe’s leading banks. The Think Forward strategy guides its future direction.
ING’s employees have put in a tremendous effort to position the bank well for the future. And they continue to work diligently to meet the needs of customers and stakeholders. I am sometimes disappointed when I hear comments about bankers not changing and claims that they still lack the right mindset for our changed times.
Although we can and have to be mindful of every opportunity to further improve our culture to put our customers at the centre of everything we do, I see a strong dedication among employees when it comes to putting customers first. This culture is at the heart of building a great bank for the future.
Sustainability An important part of ING’s strategy is driving sustainable progress. We on the Supervisory Board fully acknowledge the importance of sustainability and we recognise and support ING’s responsibility as a financial institution to contribute to the sustainable development of society by empowering people to stay a step ahead in life and in business.
In September 2015, the Supervisory Board visited ING Bank’s US offices in New York and Houston for three days, allowing the Supervisory Board to get a better understanding of the local business activities and how these relate and contribute to ING’s strategy. Presentations included the ING US strategy and the business in general and the Structured Finance and Natural Resources businesses in particular. In addition to the opportunity to discuss the US business and challenges with the local ING US teams, the Supervisory Board members also met with various clients. A number of other educational sessions on specific topics were organised for the Supervisory Board throughout the year, including ones addressing various developments in the regulatory and external supervision landscape, IFRS 9, ING’s interest rate hedging process, ING’s three lines of defense model and non-financial risk management, and measurement.
The Supervisory Board held nine meetings in 2015. Important topics on the agenda were the execution of the bank’s Think Forward strategy, the further divestment of Voya Financial and NN Group and developments in the regulatory and external supervision landscape.
The future composition of the Supervisory Board, its committees and potential candidates were also a topic of discussion, including in connection with the departure of Carin Gorter in September 2015.
Audit Committee meetings In 2015, the Audit Committee met five times. On average, 95 percent of the members were present at the scheduled meetings.
The Supervisory Board approved the annual review of the risk appetite framework that was updated to reflect recent regulatory changes. Throughout the year, the Supervisory Board was informed in detail on the potential risks for ING relating to the political and economic situation in various countries such as Russia, Ukraine, Greece, Turkey and China.
Internal Supervisory Board meetings During the internal meetings of the Supervisory Board (which were joined by the CEO, except when the annual self-evaluation of the Supervisory Board or matters concerning the CEO were discussed), the Executive and Management Board Banking 2014 performance assessments were discussed and approved. Also the variable remuneration proposals for the employees in scope relating to 2014 were discussed and decided on. Furthermore the Executive and Management Board Banking 2015 performance targets were approved and
In each Risk Committee meeting both the financial and non-financial risk reports were discussed in detail including the status of ING’s metrics with regard to solvency, liquidity, capital, credit risk, country risk and market risk.
As a standard practice, the annual risk appetite statements were reviewed and supported. The Risk Committee ratified the reviewed ING Bank Recovery Plan.
Read more in the “Risk and capital management” chapter and the Risk section in the Annual Accounts.
Specific attention was paid to a variety of other, related topics as well, such as the divestment of NN Group (including the accounting for the anchor investors), fair values and hedge accounting, IFRS 9, the outcome of and ING’s follow-up to the ECB Comprehensive Assessment process and Asset Quality Review (AQR), IT risk, regulatory risk (including its operational and anticipated financial impact), loan loss provisioning, CDD, FATCA, the CRR remuneration disclosures and sectorwide reviews on market conduct.
Corporate Governance Committee meetings In 2015, the Corporate Governance Committee met five times with no absentees.
Following the 2015 Annual General Meeting, the Committee had extensive discussions on the future corporate governance of ING Groep N.V. in preparation for the 2016 Annual General Meeting. Elements that were considered were among others the depositary receipt structure as well as the cumulative preference share structure. External stakeholders were consulted on various aspects of the corporate governance of ING Groep N.V.
Specific approval by the General Meeting is required for any share issuances exceeding these limits.
The rights of a depositary receipt holder to participate in the discussions and decision-making of the General Meeting are described on page 84.
The Board of ING Trust Office currently comprises five members who are independent of 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.
Issuance of shares ING Group’s authorised capital is the maximum amount of capital allowed to be issued under the terms of the Articles of Association. New shares in excess of this amount can only be issued if the Articles of Association are amended. For reasons of flexibility and to meet the requirement of the BRRD that the amount of authorised share capital should at all times be sufficient to permit the issue of as many ordinary shares as are required for a potential future bail-in, ING Group seeks to set the authorised capital in the Articles of Association at the highest level permitted by law, which is five times the actually issued share capital.
• In terms of control: resolutions by the Executive Board to issue shares require the approval of the Supervisory Board.
Investor Relations and bilateral contacts with investors ING Group encourages and recognises the importance of bilateral communication with the investment community. The Investor Relations department actively manages communications with current and potential shareholders, holders of depositary receipts, bondholders, and industry analysts.
ING Group strives to provide clear, accurate and timely financial information that is in strict compliance with 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.
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.
Attending General Meetings For logistical reasons, attendance at the General Meeting by shareholders and holders of depositary receipts, either in person or by proxy, is subject to the requirement that ING Group is notified in advance. Instructions to that effect are included in the notice for the General Meeting.
• The relevant holder of depositary receipts may delegate the powers conferred upon him or her by means of the voting proxy, provided that the relevant holder of depositary receipts has announced his or her intention to do so to ING Trust Office observing a term before the commencement of the General Meeting, which term will be determined by ING Trust Office.
For an overview of loans granted to members of the Executive Board, see page 97.
Ancillary positions pursuant to CRD IV: Chairman of the Executive Board of ING Groep N.V. Chairman of the Management Board of ING Bank N.V. Other relevant ancillary position: Member of the Management Board of the Nederlandse Vereniging van Banken (NVB).
P.G. (Patrick) Flynn, chief financial officer (Born 1960, Irish nationality, male; appointed in 2009, term expires in 2017) Patrick Flynn is a member of the Executive Board of ING Group since 27 April 2009. He also serves as a member and CFO on the Management Board Banking. He is responsible for ING’s finance departments, including ING Tax, Capital Management, Investor Relations and Group Acquisitions & Divestments. He is a Chartered Accountant, a member of the Institute of Chartered Accountants Ireland, and a member of the Association of Corporate Treasurers in the UK. He holds a Bachelor’s degree in Business Studies from Trinity College Dublin.
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 above- mentioned gender balance in 2015 (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.
Annually, the Nomination Committee assesses the composition of the Supervisory Board. In the context of such assessment, ING Group aims to have a gender balance by having at least 30% men and at least 30% women amongst its Supervisory Board members. After the appointment of Mariana Gheorghe at the Annual General Meeting in May 2015, the composition of the Supervisory Board met the above-mentioned gender balance (33% women). However, after Carin Gorter stepped down in September 2015, the gender balance was no longer met.
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 competitionsensitive 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.
Composition of the Supervisory Board Committees can be found at ING Group’s website (www.ing.com) which is updated on a regular basis.
The Remuneration Committee’s tasks include advising the Supervisory Board 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 2015, the members of the Remuneration Committee were: Henk Breukink (chairman), Joost Kuiper and Jeroen van der Veer.
On 31 December 2015, the members of the Corporate Governance Committee were: Henk Breukink (chairman) and Jeroen van der Veer.
Other relevant ancillary positions: member of the Board of Directors in the Foreign Investors Council (FIC) (Romania), Vice-President Aspen Institute (Romania), President of the Institute for Corporate Governance (ICG) (Romania), board member of the World Energy Council (WEC) (Romania), member of the Romanian Association for the Club of Rome.
Ancillary position pursuant to CRD IV: member of the Supervisory Board of ING Groep N.V., member of the Supervisory Board of ING Bank N.V., member of the Supervisory Board of IMC B.V.
Ancillary positions pursuant to CRD IV: member of the Supervisory Board of ING Groep N.V., member of the Supervisory Board of ING Bank N.V., Chairman of the Supervisory Board of NSI N.V. (real estate fund), non-executive director of Brink Groep B.V.
I. (Isabel) Martín Castellá (Born 1947, Spanish nationality, female; appointed in 2013, term expires in 2017) Former Vice-President and member of the Management Committee of the European Investment Bank.
Amendment of the Articles of Association The General Meeting may resolve to amend the Articles of Association, provided that the resolution is adopted on a proposal of the Executive Board, which has been approved by the Supervisory Board. Such a resolution of the General Meeting requires a majority of at least two-thirds of the votes cast at a General Meeting, whereby at least two-thirds of the issued share capital is represented. An amendment of the Articles of Association has to be passed by notarial deed.
The external auditor may be questioned at the Annual General Meeting in relation to its audit opinion on the financial statements. The external auditor will therefore attend and be entitled to address this meeting. The external auditor attended the meetings of the Audit Committee and of the Risk Committee and attended and addressed the 2015 Annual General Meeting, at which the external auditor was questioned on the audit opinion.
Annual General Meeting ING Group 2015, votes cast and voting behaviour ING Trust Office attended the AGM 2015 and during this meeting ING Trust Office gave an explanation of voting with respect to the agenda item of the remuneration policy. The explanation of voting is included in the adopted minutes of the AGM 2015, available on the website of ING Group (www.ing.com).
Outstanding depositary receipts On 31 December 2015, the nominal value of administered ordinary shares amounted to EUR 928,745,963.50 for which 3,869,774,848 depositary receipts were issued, each with a nominal value of EUR 0.24. During the reporting year, the net number of depositary receipts increased by 11,436,035.
The increase came about as follows: add: conversion of shares into depositary receipts 11,436,035. less: conversion of depositary receipts into shares
Composition and remuneration board The members of the Board are appointed by the Board itself for a maximum term of four years and may be reappointed two times. Holders of depositary receipts may make recommendations to the Board on persons to be appointed as members of the Board. In connection with this, the Board informs them in a timely manner regarding the reason why, and according to which profile, a vacancy must be filled, and also in which manner a recommendation should take place.
Contact details The contact details of ING Trust Office are: Email: jet.rutgers@ing.nl Website: www.ingtrustoffice.com
A call-option agreement concluded between ING Continuity Foundation and ING Groep N.V. (“ING Group”) vests ING Continuity Foundation with the right to acquire cumulative preference shares in the share capital of ING Group up to a maximum of 4.5 billion cumulative preference shares. The acquisition of cumulative preference shares by ING Continuity Foundation is subject to the restriction that, immediately after the issue of cumulative preference shares, the total amount of cumulative preference shares may not exceed onethird of the total issued share capital of ING Group. If new shares other than cumulative preference shares are subsequently issued, ING Continuity Foundation may again exercise its right, subject to the provisions of the preceding sentence. On acquisition of cumulative preference shares, at least 25 percent of the nominal value must be paid on said shares.
The composition of the Board is currently as follows: Sebastian Kortmann, chairman of the Board, Rob van den Bergh, Allard Metzelaar, and Wim van Vonno, who was reappointed as of 1 July 2015.
These regulations require that the CEO (the chairman of the Executive Board) and the CFO of ING Group report and certify on an annual basis on the effectiveness of ING Group’s internal controls over financial reporting. ING Group has long-established Business Principles and a strong internal control culture, to which all staff must adhere to. SOX 404 activities are organised along the lines of the company´s governance structure, and involve the participation of senior management across ING.
Furthermore, the external auditors are required to provide an opinion on the effectiveness of ING Group’s internal controls over financial reporting.
The SOX 404 statement by the Executive Board is included on this page, followed by the report of the external auditor as issued on Form 20-F.
Remediation Plan Management has made significant progress in the remediation of this material weakness by revising and clarifying its accounting policy controls related to complex divestiture transactions. With regards to future material transactions with a high degree of accounting complexity, including divestitures, the Company will enhance the identification, evaluation and documentation of alternative accounting considerations and policy judgements, including the communication and dialogue throughout the chain of management and with the Audit Committee. Furthermore, based upon self-assessment of in-house accounting skills against future transactions, management will apply additional technical skills or resources to such transactions, as appropriate.
Remuneration policy ING ING is a European bank with a global presence. Its more than 54,000 employees are serving 34 million customers across the more than 40 countries in which ING operates. At least 70% of ING’s employees work outside the Netherlands, approximately 70% of total income is earned outside of the Netherlands and more than 95% of the investor base is non-Dutch. This forms the backdrop against which ING needs to set its remuneration policy and practices for its Executive and Supervisory Board.
Reduced emphasis on variable remuneration Variable remuneration for the members of the Executive Board will not exceed 20% of base salary at the time of allocation. The policy provides for an at-target variable remuneration of 16% of base salary if performance criteria are met, paid fully in shares. Hence there is no cash bonus. If performance criteria are exceeded, the variable component can be increased by the Supervisory Board from target to maximum, but may not exceed 20% of base salary at the time of allocation. If performance is below target, the variable component will be decreased, potentially down to zero.
Performance measurement accounts for risk requirements, costs of capital and liquidity and timing of earnings.
Increased emphasis on long-term value creation The Executive Board remuneration policy combines the short- and long-term variable components into one structure. This structure aims to support both long-term value creation and short-term company objectives. The emphasis on long-term performance indicators within the variable component of the compensation package is increased by means of deferral, retention, holdback and clawback mechanisms.
As of 1 January 2015, all members of the Executive Board are participating in the Collective Defined Contribution (CDC) pension plan. Following the introduction of the new legislation, pursuant to which pension premiums on salaries in excess of EUR 100,000 are no longer exempt or deductible from wage tax, the Executive Board members are compensated for the resulting loss of pension accrual by means of a savings allowance to be annually determined (see Benefits on page 96).
Benefits Executive Board members are eligible for additional benefits (e.g. the use of company cars, contributions to company savings plans and, if applicable, expatriate allowances). Executive Board members are eligible for banking and insurance services from ING in the ordinary course of their business and on the same terms as apply to other employees of ING in the Netherlands. In addition, tax and financial planning services will be provided to ensure compliance with the relevant legislative requirements.
Tenure Members of the Executive Board who were appointed prior to 2013 have an employment agreement with ING Groep N.V.. Members who have been appointed as of 2013 have a commission contract. The employment agreement and the commission contract for Executive Board members provide for an appointment for a period of four years and allow reappointment by the Annual General Meeting of Shareholders (AGM). In the case of an involuntary exit, Executive Board members are eligible for an exit-arrangement limited to a maximum of one year base salary.
Other items for Supervisory Board discretion: holdback, clawback and adjustments The Supervisory Board has the authority to impose holdback and/or clawback on variable remuneration awarded to a member of the Executive Board based on reasons that apply to all staff within ING (including inaccurate data and/ or behaviour that led to significant harm to ING). The Supervisory Board also has the authority to adjust variable remuneration if application of the predetermined performance criteria results in undesired outcomes. The Supervisory Board has decision making authority in situations not addressed in the policy.
2015 Remuneration Executive Board The Executive Board remuneration for 2015 is in accordance with the Executive Board remuneration policy, with the exception of the alignment to the benchmark. The policy as approved by the AGM, specifies that total direct compensation should be slightly below the median of comparable positions in the chosen peer group. However, the actual total direct compensation for the Executive Board is significantly below the median.
• Divested Voya and significantly reduced ING’s stake in NN Group, thereby ensuring ING edges closer to completing its restructuring process.
• Launched the Orange Code and the requisite behaviours and rolled out to all staff. In addition fully embedded these in the performance management process of all Identified Staff.
• Enhanced overall organisation of the Finance and Risk functions in part through targeted rotations and international assignments throughout the network.
• ING Bank Return on equity has grown to a healthy 10.8%, up from 9.9% in 2014.
In 2015 no holdback or clawback was applied to paid or vested variable remuneration of any of the Executive Board members. The total direct compensation of former members of the Executive Board amounted to nil for 2015, nil for 2014 and EUR 1,015,000 for 2013.
Wilfred Nagel 3 LSPP Deferred shares 28 Mar 2012 28 Mar 2015 3,399 3,399 € 13,46 1 Shares granted to Ralph Hamers in March 2013 and 2014 were awarded for his performance in position previous to his appointment to the Executive Board.
In this context, the Supervisory Board has decided to slightly increase the total (at target) remuneration of all Executive Board members by 2% with effect from 1 January 2016.
Supervisory Board members receive an additional fee of EUR 2,000 per attended Supervisory Board or committee meeting in the event the meeting is held outside the country of residence of the Supervisory Board member, or an additional amount of EUR 7,500 per attended Supervisory Board or committee meeting if intercontinental travel is required for attending the meeting.
ING shares and options held by Supervisory Board members Supervisory Board members are permitted to hold ING shares as a long-term investment. The table below shows the holdings by members of the Supervisory Board at 31 December 2015, 2014 and 2013.
2 Mariana Gheorghe is a member of the Supervisory Board as of May 2015. The remuneration figures for 2015 reflect a partial year as a member of the Supervisory Board.
3 Carin Gorter stepped down in September 2015. The remuneration figures for 2015 reflect a partial year as a member of the Supervisory Board.
Stock options on ING Groep N.V. shares held by members of the Supervisory Board at 31 December 2015 Outstanding as at 31 December 2015
As announced in the 2014 Annual Report, the remuneration policy and the respective levels for Supervisory Board members was reviewed in 2015. The starting points for the review were the following: • Move to a simpler and more transparent structure • Bring remuneration levels more in line with peers and with levels adequate to attract qualified (international)
As part of the review, the remuneration levels of the members of the Supervisory Board were benchmarked against relevant peer groups, including companies in the Euro Stoxx 50 with a two-tier board structure. This exercise showed that the current compensation levels of the members of the Supervisory Board are below median level of the reviewed peer groups. In line with ING´s actual experience over the past years, the gap between this market level and ING’s current Supervisory Board remuneration level has a negative influence on the ability of ING to attract candidates for the Supervisory Board with an appropriate level of experience, capability, competence and affinity, also in the context of increased regulatory scrutiny of Supervisory Board nominees. The Supervisory Board is appreciative of the negative feelings in society regarding any increase in remuneration but needs to strike a balance between the interests of various stakeholders.
Expense allowances (annual amounts) Fixed expense allowance Chairman and Vice-chairman Fixed expense allowance Supervisory Board member members were reviewed in 2015. The starting points for the review were the following:
Focus on long-term value creation and nonfinancial performance Variable remuneration is linked to long-term value creation and performance. It is based on individual, business line and company performance criteria. ING’s performance management process is reflected in remuneration to prevent reward for failure and ensure that we are fully focused on the long term profitability of the organisation.
Essentially, it endorses a pay-for-performance culture. Performance is assessed against financial and nonfinancial indicators. Non-financial indicators aim to further improve sustainable business practices and include for example customer satisfaction, workforce diversity, stakeholder engagement and sustainable business practices. Any variable remuneration is based for at least 50% on non-financial performance.
Regulatory requirements variable remuneration ING is compliant with the regulatory requirements relating to the pay-out of variable remuneration for different categories of staff. A distinction is made between Identified Staff (selected on the basis of the Regulatory Technical Standards issued by the EBA) and non-Identified Staff. For Identified Staff a maximum of 60% of total variable remuneration is awarded upfront. The remaining part of the total variable remuneration (a minimum of 40%) is deferred. It is subject to a tiered vesting schedule over a period of three years. Both the upfront part and the deferred part are delivered at a maximum of 50% in cash and a minimum of 50% in shares (or other equity-linked instruments). For non-Identified Staff the variable remuneration is paid fully upfront and entirely in cash. If the variable remuneration exceeds EUR 100,000 a deferral plan in shares is applicable. ING applies maximum ratios of variable remuneration in relation to fixed remuneration for different categories of staff in line with CRD IV and the Wbfo.
Additional notes to the Consolidated annual accounts 38 Pension and other post-employment benefits 200 39 Taxation 205 40 Fair value of assets and liabilities 209 41 Derivatives and hedge accounting 224 42 Assets by contractual maturity 227 43 Liabilities by maturity 229 44 Assets not freely disposable 230 45 Transfer of financial assets 231 46 Offsetting financial assets and liabilities 232 47 Contingent liabilities and commitments 237 48 Legal proceedings 238 49 Companies and businesses acquired and divested 240 50 Principal subsidiaries 243 51 Structured entities 244 52 Related parties 246 53 Transactions with the Dutch State and the European Commission
Parent company annual accounts Parent company balance sheet 336 Parent company profit and loss account 337 Parent company statement of changes in equity 338 Accounting policies for the parent company annual accounts 340 Notes to the parent company annual accounts 341
Net result (before minority interests) 4,413 1,440 3,810 Net result attributable to Minority interests 403 189 265
Reference is made to Note 1 ‘Accounting policies’ for information on Changes in presentation of the Consolidated annual accounts and related notes.
Items that may subsequently be reclassified to the profit and loss account: Unrealised revaluations available-for-sale investments and other –414 6,981 –6,159
Changes in: – amounts due from banks, not available on demand 6,766 3,360 –9,400
Disposals and redemptions: – group companies (including cash in company disposed)2 –6,926 –1,216 –4,638
Net cash flow from/(used in) operating activities 10,577 12,019 –8,418 Net cash flow from/(used in) investing activities 33 4,196 –7,419 9,269
Cash and cash equivalents at end of year 35 20,379 17,113 17,180 1 Result before tax includes results from continuing operations of EUR 6,172 million (2014: EUR 3,707 million; 2013: EUR 4,167 million) as well as results from discontinued operations of EUR 21 million (2014: EUR –1,025 million; 2013: EUR 732 million). 2 Disposals and redemptions – group companies includes EUR -7,975 million and EUR 997 million related to cash and cash equivalents of NN Group and proceeds from the sale of shares of NN Group resulting in loss of control at the end of May 2015 respectively. (2014: EUR 950 million proceeds from the sale of shares of Voya which resulted in loss of control in the first quarter of 2014).
3 Disposals and redemptions – associates and joint ventures includes EUR 995 million proceeds on the further sale of NN Group shares in September 2015 (2014: EUR 1,940 million proceeds from the sale of Voya shares in September and November 2014).
Total amount recognised directly in equity (other comprehensive income) 8,086 8,086 1,102 9,188 Net result from continuing and discontinued operations 1,251 1,251 189 1,440
Reference is made to Note 1 ‘Accounting policies’ for information on Changes in the composition of ING Group.
Total amount recognised directly in equity (other comprehensive income) –7,295 –7,295 –237 –7,532 Net result from continuing and discontinued operations 3,545 3,545 265 3,810
b) Changes in IFRS-EU New and/or amended IFRS-EU standards under the Annual Improvements Cycle: 2011 – 2013, effective 1 January 2015, were adopted by ING Group. The implementation of these amendments had no or no material effect on the Consolidated annual accounts of ING Group.
c) Changes in presentation of the Consolidated annual accounts and related notes In 2015, ING Group made changes to the presentation of the Consolidated annual accounts and related notes. The changes are largely driven by the further restructuring and deconsolidation of the NN Group insurance business, but also include changes in layout to more clearly present the results of ING Group and other minor improvements. Where relevant, the comparative amounts are adjusted accordingly.
In June 2015, ING exchanged the second tranche of mandatorily exchangeable subordinated notes of Anchor investors into NN Group ordinary shares. Accrued interest on these notes was settled in NN Group ordinary shares. The transaction resulted in a further decrease in the ownership of ING Group in NN Group to 38.23%. The transaction did not have a material impact on the profit and loss account of ING Group.
In September 2015, ING Group sold 40 million ordinary shares in NN Group. As part of the transaction, NN Group repurchased 6 million ordinary shares. The transaction reduced ING Group’s interest in NN Group to 25.76%. The transaction resulted in a loss of EUR 17 million and is recognised in the profit and loss account in the line ‘Net result from disposal of discontinued operations’. The transaction was settled on 5 October 2015.
Following discussions with the AFM, ING Group decided to adjust the accounting approach as described above. Based on IFRS 10 (‘Consolidated Financial Statements’), IAS 1 (‘Presentation of Financial Statements’) and IAS 8 (‘Accounting Policies, Changes in Accounting Estimates and Errors’), the accounting for the impact of the Anchor investment transaction and disclosure of the quantitative impact of the divestment of NN Group in the 2014 ING Group Annual Report was not in accordance with paragraphs IFRS 10.23, IFRS 10.B96 and IAS 1.17(c), nor can the accounting of the Anchor investment transaction be based on IAS 8.10 and IAS 8.11. IFRS 10.23 and IFRS 10.B96 do not allow for changes recognised directly in shareholders’ equity without an actual change in ownership.
IFRS 9 Program In 2015, ING focused on establishing the IFRS 9 program, the interpretation of key IFRS 9 concepts and the initiation of the impact assessment. In 2016, ING Group will start with the implementation of the IFRS 9 requirements in its models, systems, processes and governance and will prepare for the parallel run in 2017.
In 2015, ING Group has started the Business Model test and identified and described homogeneous portfolios across the business of ING Group. The implementation of the SPPI text will start in 2016.
Reference is made to Note 40 ‘Fair value of assets and liabilities’ and the section ‘Risk management – Market risk’ for the basis of the determination of the fair value of financial instruments and related sensitivities.
Upon classification as held for sale, the carrying amount of the disposal group (or group of assets) is compared to it's fair value less cost to sell. If the fair value less cost to sell is lower than the carrying value, this expected loss is recognised through a reduction of the carrying value of any goodwill related to the disposal group and the carrying value of certain other non-current non-financial assets. Any excess of the expected loss over the reduction of the carrying amount of these relevant assets is not recognised upon classification as held for sale, but is recognised as part of the result on disposal if and when a divestment transaction occurs.
Investments in associates held for sale and discontinued operations Associates held for sale, which are classified as discontinued operations are measured at the lower of the carrying value and fair value less costs to sell. Any subsequent decrease in fair value less costs to sell below this carrying amount will be recognised in the profit and loss account as part of the ‘Net result from disposal of discontinued operations’. Subsequent increases in fair value will only be recognised to the extent that these are a reversal of previously recognised decreases in fair value less costs to sell. Changes in fair value include both changes in market value of the listed shares and the related foreign currency impact. Any subsequent dividend received from the associate is recognised as income in the profit and loss account, in the line ‘Net result from discontinued operations’ as and when declared.
Exchange rate differences on non-monetary items, measured at fair value through profit and loss, are reported as part of the fair value gain or loss. Non-monetary items are retranslated at the date fair value is determined. Exchange rate differences on nonmonetary items measured at fair value through the revaluation reserve are included in the revaluation reserve in equity.
The fair value of financial instruments that are not traded in an active market are determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date.
Dividend income from equity instruments classified as at fair value through profit and loss is generally recognised in Investment income in the profit and loss account when dividend has been declared. For derivatives reference is made to the ‘Derivatives and hedge accounting’ section. For all other financial assets classified as at fair value through profit and loss changes in fair value are recognised in Net trading income.
Derivatives and hedge accounting Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently measured at fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions and valuation techniques (such as discounted cash flow models and option pricing models), as appropriate. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair values are negative.
Non-trading derivatives that do not qualify for hedge accounting Derivative instruments that are used by the Group as part of its risk management strategies, but which do not qualify for hedge accounting under ING Group’s accounting policies, are presented as non-trading derivatives. Non-trading derivatives are measured at fair value with changes in the fair value taken to the profit and loss account.
In certain circumstances ING grants borrowers postponement and/or reduction of loan principal and/or interest payments for a temporary period of time to maximise collection opportunities and, if possible, avoid default, foreclosure or repossession. When such postponement and/or reduction of loan principal and/or interest payments is executed based on credit concerns it is also referred to as ‘forbearance’. In general, forbearance represents an impairment trigger under IFRS-EU. In such cases, the net present value of the postponement and/or reduction of loan and/or interest payments is taken into account in the determination of the appropriate level of Loan loss provisioning as described below. If the forbearance results in a substantial modification of the terms of the loan, the original loan is derecognised and a new loan is recognised at its fair value at the modification date.
Reference is made to Note 40 ‘Fair value of assets and liabilities’ for more disclosure on fair values of real estate investments.
Disposals The difference between the proceeds on disposal and net carrying value is recognised in the profit and loss account under Other income.
Changes in plan assets that effect Shareholders’ equity and/or Net result, include mainly: • return on plan assets using a high quality corporate bond rate at the start of the reporting period which are recognised as staff costs in the profit and loss account; and • remeasurements which are recognised in Other comprehensive income (equity).
Statement of cash flows The statement of cash flows is prepared in accordance with the indirect method, classifying cash flows as cash flows from operating, investing and financing activities. In the net cash flow from operating activities, the result before tax is adjusted for those items in the profit and loss account and changes in balance sheet items, which do not result in actual cash flows during the year.
For the purposes of the statement of cash flows, Cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash and balances with central banks, treasury bills and other eligible bills, amounts due from other banks and amounts due to banks. Investments qualify as a cash equivalent if they are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
h) Parent company accounts The parent company accounts of ING Groep N.V. are prepared in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code.
As at 31 December 2015, Amounts due from banks includes receivables with regard to securities which have been acquired in reverse repurchase transactions amounting to EUR 1,092 million (2014: EUR 4,162 million) and receivables related to finance lease contracts amounting to EUR 114 million (2014: EUR 59 million). Reference is made to Note 45 ‘Transfer of financial assets’ for information on securities lending as well as sale and repurchase transactions. Reference is made to Note 6 ‘Loans and advances to customers’ for information on finance lease receivables.
As at 31 December 2015, the non-subordinated receivables amount to EUR 29,924 million (2014: EUR 37,059 million) and the subordinated receivables amount to EUR 64 million (2014: EUR 60 million).
Reference is made to Note 44 ‘Assets not freely disposable’ for restrictions on Amounts due from banks.
Notes to the Consolidated annual accounts of ING Group - continued 4 Financial assets at fair value through profit and loss
In 2015, the decrease in trading debt securities is mainly due to a decrease in government bonds. The decrease in the trading derivatives is mainly due to changes in fair value resulting from market interest rates. These decreases are partly mitigated by an increase in Loans and receivables driven by increased reverse repurchase activities.
As at 31 December 2015, Non-trading derivatives includes EUR 103 million (2014: EUR 180 million ) and EUR 58 million (2014: nil) related to warrants on the shares of Voya and NN Group respectively. Reference is made to Note 11 ‘Assets and liabilities held for sale’, Note 25 ‘Valuation results on non-trading derivatives’ and Note 54 ‘Other events’.
The notional value of the related credit derivatives is EUR 215 million (2014: EUR 83 million). The change in fair value of the credit derivatives attributable to changes in credit risk since the loans were first designated, amounts to EUR –9 million (2014: EUR –10 million) and the change for the current year amounts to nil (2014: EUR –6 million).
Included in Available-for sale equity securities, as at 31 December 2015, are shares held in VISA Europe Limited amounting to EUR 154 million (2014: nil). Reference is made to Note 13 ‘Equity’, Note 40 ‘Fair value of assets and liabilities’ and Note 54 ‘Other events’.
Investments held-to-maturity increased by EUR 5.6 billion. The increase is attributable to the reclassification from Investments Available-for-sale as mentioned above and additional investments in Government bonds.
Financial assets at fair value through profit and loss 15,396 22,708 1 Excludes exposure to debt securities classified as held for sale.
Changes in the composition of the group and other changes –5,962 –15 –64,943 –15 –70,905
Recognised impairment (before tax) between the beginning of the year in which the reclassification took place and the reclassification nil nil
Recognised impairments (before tax) for the period/year nil nil nil nil nil nil nil
Reclassifications to Loans and advances to customers and Amounts due from banks - Q1 2009
Effect on result (before tax) for the period/year if reclassification had not been made nil nil nil nil nil nil nil nil
Recognised impairments (before tax) for the period/year nil nil nil nil nil nil nil nil
No individual loan or advance has terms and conditions that significantly affect the amount, timing or certainty of the consolidated cash flows of the Group. For details on significant concentrations, refer to the section ‘Risk management – Credit risk’.
ING Group does not hold any interests in Investments in Associates and joint ventures that are individually significant to ING Group. Other investments in associates and joint ventures represents a large number of associates and joint ventures with an individual balance sheet value of less than EUR 25 million.
In 2014, Share of results included EUR 17 million related to ING Vysya, EUR 56 million related to TMB and EUR 56 million related to a gain on further sale of SulAmérica S.A. for Insurance operations.
Furthermore, the exposure is impacted by third party interests, leverage in funds and off-balance sheet commitments, resulting in an overall exposure of EUR 1.3 billion (2014: EUR 1.7 billion). Reference is made to the section ‘Risk management – Market risk’.
In 2014, Changes in the composition of the group and other changes included EUR –88 million related to the classification of NN Group as held for sale and EUR –40 million related to the deconsolidation of ING Vysya. Reference is made to Note 54 ‘Other events’.
Gross carrying amount as at 31 December 985 1,061 1,706 1,579 29 24 2,720 2,664
Net carrying value as at 31 December – – 985 1,061 567 574 15 20 1,567 1,655
In 2014, Changes in the composition of the group and other changes included EUR –198 million related to the classification of NN Group as held for sale. Reference is made to Note 30 ‘Discontinued operations’ and Note 54 ‘Other events’.
Goodwill Changes in Goodwill In addition to exchange rate differences, changes in goodwill relate to impairments and changes in composition of the group.
The decrease is attributable to: • divestment of Voya in March 2015, reducing ING Group’s stake from 18.9% at 31 December 2014 to zero; • completion of the merger of ING Vysya and Kotak in April 2015, resulting in derecognition of the share held in ING Vysya and recognition of the investment in Kotak as an available-for-sale equity investment; and • further divestment of ING Group’s stake in NN Group, resulting in loss of control of and deconsolidation of NN Group in May 2015, after which the retained stake in NN Group is accounted for as an Investment in associate held for sale and measured at the lower of the carrying amount and the fair value less cost to sell.
As per 31 December 2014, Total assets and Total liabilities of NN Group as presented above, to which the minority interest in NN Group related, are all presented in the Consolidated balance sheet in Assets held for sale and Liabilities held for sale respectively. Total income and Total expenses of NN Group, to which the minority interest in NN Group related, are all presented in the Consolidated profit and loss account in ‘Net result from discontinued operations’.
Gross premium income Premiums from life insurance policies are recognised as income when due from the policyholder. For non-life insurance policies, gross premium income is recognised on a pro-rata basis over the term of the related policy coverage. Receipts under investment contracts are not recognised as gross premium income.
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 were presented as Assets and liabilities held for sale.
To the extent that the assuming reinsurers were unable to meet their obligations, the Group was liable to its policyholders for the portion reinsured. Consequently, provisions were made for receivables on reinsurance contracts which were deemed uncollectable. The life reinsurance market is highly concentrated and, therefore, diversification of exposure is inherently difficult. To minimise its exposure to significant losses from reinsurer insolvencies, the Group evaluated the financial condition of its reinsurers, monitored concentrations of credit risk arising from similar geographical regions, activities or economic characteristics of the reinsurer and maintained collateral.
Where discounting was used in the calculation of Life insurance provisions, the rate was within the range 2.0% to 3.7% in 2014 based on weighted averages.
Where discounting was used in the calculation of the Claims provision the rate was within the range 2.3% to 4.0% in 2014 based on weighted averages.
Legal proceedings As at 31 December 2014, insurance provisions included a provision for the estimated cost of the agreement with regard to unit-linked policies.
Financial assets designated as at fair value through profit and loss 454 38 492
Financial assets in Level 3 included both assets for which the fair value was determined using valuation techniques that incorporate unobservable inputs and assets for which the fair value was determined using quoted prices, but for which the market was not actively trading at or around the balance sheet date. Unobservable inputs are inputs which were based on NN Group’s own assumptions about the factors that market participants would have used in pricing an asset, developed based on the best information available in the circumstances. Unobservable inputs may have included volatility, correlation, spreads to discount rates, default rates and recovery rates, prepayment rates and certain credit spreads. Fair values that were determined using valuation techniques using unobservable inputs were sensitive to the inputs used. Fair values that were determined using quoted prices were not sensitive to unobservable inputs, as the valuation was based on unadjusted external price quotes. These were classified in Level 3 as a result of the illiquidity in the relevant market, but were not significantly sensitive to NN Group’s own unobservable inputs.
• Adjustments: A marketability or liquidity discount was applied based on factors such as alignment with management and other investors and NN Group’s investment rights in the deal structure.
Key assumptions Key assumptions in the valuation of private equity investments were the Earnings multiples and the Marketability/liquidity adjustments. The marketability/liquidity adjustment is typically in the range of 10% to 20%. Earnings multiples used ranges from 2.8x to 8.8x after Marketability/liquidity adjustment (net).
Effect on result (before tax) if reclassification had not been made nil nil nil nil nil nil
Effect on result (before tax) after the reclassification (mainly interest income) n.a n.a n.a n.a n.a 121
The proportional interests held and key information on Voya are included in the tables below.
The total amount of borrowing costs relating to Property development and obtained from foreclosures, capitalised in 2015 is nil (2014: nil).
Issued share capital as at 31 December 2014 3,858,862 925 Issue of shares 11,321 3
In 2015, ING Groep N.V. issued 11.3 million (depositary receipts for) ordinary shares at par value (2014: 18.0 million; 2013: 9.3 million) in order to fund obligations arising from share-based employee incentive programmes.
Transfer to insurance liabilities/DAC comprises the change in insurance liabilities related to NN Group, until deconsolidation at the end of May 2015.
Included in Unrealised revaluations is a revaluation of EUR 154 million on Available-for-sale equity securities, related to shares held in VISA Europe Limited. Reference is made to Note 5 ‘Investments’, Note 40 ‘Fair value of assets and liabilities’ and Note 54 ‘Other events.
In 2014, the change in the Net defined benefit asset/liability remeasurement reserve related mainly to the transfer of all future funding and indexation obligations under ING’s closed defined benefit plan in the Netherlands to the Dutch ING Pension Fund.
The coupon on Undated subordinated notes comprises coupon payments for the five months, until deconsolidation of NN Group at the end of May 2015.
Reference is made to Note 32 ‘Dividends per ordinary share’ and Note 54 ‘Other events’.
Changes in composition of the group and other changes1 –3,754 –83 –3,837 1 Impact of IPO NN Group and Changes in the composition of the group and other changes are adjusted as a result of the change in the accounting approach for the
Impact of Voya relates to the IPO and second tranche sale of Voya. Reference is made to Note 54 ‘Other events’.
In June 2015, EUR 169 million 4.176% Tier 1 securities were called. In July 2015, USD 1.5 billion 7.375% Perpetual Hybrid Capital Tier 1 Securities were called. In addition, ING Group redeemed the outstanding amount of USD 364 million of the 5.775% ING Fixed/Floating Tier 1 securities, on its first call date in December 2015.
In July 2014, a first tranche of EUR 450 million of the mandatorily exchangeable subordinated notes was exchanged into NN Group shares.
15 Debt securities in issue Debt securities in issue relate to debentures and other issued debt securities with either fixed interest rates or interest rates based on floating interest rate levels, such as certificates of deposit and accepted bills issued by ING Group, except for subordinated items. Debt securities in issue do not include debt securities presented as Financial liabilities at fair value through profit and loss. ING Group does not have debt securities that are issued on terms other than those available in the normal course of business. The maturities of the debt securities are as follows: Fixed rate debt securities
Subordinated loans provided by ING Groep N.V. to ING Bank N.V. and NN Group N.V.
In 2015, Other borrowed funds decreased by EUR 2,150 million mainly due to matured loans.
In 2014, the Tier 1 hybrid as mentioned in Note 14 ‘Subordinated loans’ was replaced by the EUR 1.5 billion 3.625% CRD-IV eligible Tier 2 securities that were successfully issued by ING Bank in February 2014 and were recognised in Other borrowed funds.
The amount that ING Group is contractually required to pay at maturity to the holders of financial liabilities designated as at fair value through profit and loss is EUR 12,220 million (2014: EUR 12,568 million).
Amounts to be settled 2,390 2,475 1 Other liabilities – Other, as at 31 December 2014, is adjusted as a result of the change in the accounting approach for the NN Group Anchor investment transaction
In 2015, Additions to reorganisation provisions is mainly attributable to existing reorganisation initiatives in Retail Netherlands and Belgium.
In 2015, the increase in total average assets (excluding Assets held for sale), partly attributable to an increase is customer lending, lead to an increase of EUR 618 million in the interest result. In addition, a decline of the interest margin of 5 basis points led to a EUR 361 million decrease in the interest result.
In 2015, total interest income and total interest expense for items not valued at fair value through profit and loss amounts to EUR 27,628 million and EUR 15,167 million respectively (2014: EUR 28,270 million and EUR 16,569 million; 2013: EUR 30,268 million and EUR 18,810 million).
As of 2015, ING presents interest resulting from a negative effective interest rate on a financial asset as interest expense, rather than a decrease against interest income. Similarly, negative interest in relation to a financial liability is presented as interest income. Negative interest on financial assets and liabilities are not material to ING Group. Comparative amounts are adjusted accordingly.
In 2014, the decrease in total average assets, partly attributable to the deconsolidation of ING Vysya and the additional transfers of assets of WestlandUtrecht Bank to NN Group, led to a decrease of EUR 152 million in the interest result. In addition, an improvement of the interest margin of 9 basis points led to a EUR 755 million increase in the interest result.
Notes to the Consolidated annual accounts of ING Group - continued 22 Investment income
In 2015, investment income includes impairments of EUR –134 million, of which EUR –129 million related to segment Wholesale Banking (2014: EUR –14 million; 2013: EUR –3 million), EUR –5 million to Retail Belgium (2014 and 2013: nil) and nil to Corporate Line Banking (2014: nil; 2013: EUR –1 million). In 2015, Reversals of impairments comprise nil (2014: EUR 1 million; 2013: EUR 2 million). The Reversal of impairments in 2014 and 2013 related to Wholesale Banking.
In 2014, Realised gains/losses on disposal of equity securities included EUR 29 million related to Legacy insurance and was mainly attributable to the divestment of the remaining stake of 10.3% in SulAmérica S.A. Reference is made to Note 5 ‘Investments’.
In 2015, Valuation results on non-trading derivatives includes EUR –63 million related to warrants on the shares of Voya and NN Group (2014: EUR 98 million on Voya; 2013: nil). Reference is made to Note 4 ‘Financial assets at fair value through profit and loss’ and Note 54 ‘Other events’.
In 2015, Other income – Other is mainly impacted by positive results on the sale of loans and property, partly offset by non-recurring charges related to increased prepayments and renegotiations of mortgages.
In 2015, there is a new collective labour agreement in the Netherlands resulting in reduced rights to future benefits. The impact of this is included in Pension and other staff-related benefits costs.
In 2013, the Dutch Government imposed an additional tax charge of 16% on the income in excess of EUR 150,000 of each employee who is subject to Dutch income tax. The tax was charged to the company and did not affect the remuneration of involved staff. The tax imposed on ING for relevant employees amounts to nil in 2015 (2014: nil; 2013: EUR 15.7 million), which is included in the table above.
Continuing operations - average number of employees at full time equivalent basis 14,586 15,209 16,155 38,134 40,736 48,218 52,720 55,945 64,373
Discontinued operations - average number of employees at full time equivalent basis 2,652 6,851 7,202 2,181 5,635 12,309 4,833 12,486 19,511
Total average number of employees at full time equivalent basis 17,238 22,060 23,357 40,315 46,371 60,527 57,553 68,431 83,884 1 The average number of employees comprises, on an average basis, employees of the discontinued operations of NN Group. NN Group is deconsolidated from
Share-based compensation arrangements include EUR 63 million (2014: EUR 57 million; 2013: EUR 61 million) relating to equity-settled share-based payment arrangements and EUR 13 million (2014: EUR 3 million; 2013: EUR 17 million) relating to cash-settled sharebased payment arrangements.
Remuneration of senior management, Executive Board and Supervisory Board Reference is made to Note 52 ‘Related parties’.
ING grants three types of share awards, deferred shares, performance shares and upfront shares. The entitlement to the share awards is granted conditionally. If the participant remains in employment for an uninterrupted period between the grant date and the vesting date, the entitlement becomes unconditional. In addition to the employment condition, the performance shares contain a performance condition. The number of ING depositary receipts that would ultimately be granted at the end of a performance period is dependent on ING’s performance over that period. Upfront and deferred shares, with retention periods as soon as it becomes unconditional, were awarded to the Management Board members of ING Bank and NN Group (in periods prior to 2015), as well as Identified staff. ING has the authority to apply a hold back to awarded but unvested shares and a claw-back to vested shares.
The information presented below on stock options and share plans on ING Groep N.V. shares includes personnel employed by entities that are presented as continuing operations as well as held for sale and discontinued operations.
The weighted average share price at the date of exercise for options exercised during 2015 is EUR 13.62 (2014: 10.60; 2013: EUR 8.24).
The fair value of options granted is recognised as an expense under staff expenses and is allocated over the vesting period of the options. The fair values of the option awards have been determined using a European Black Scholes formula. This model takes the risk free interest rate into account (2.0% to 4.6%), as well as the lifetime of the options granted (5 to 9 years), the exercise price, the current share price (EUR 2.90 – EUR 26.05), the expected volatility of the certificates of ING Groep N.V. shares (25% – 84%) and the expected dividend yield (0.94% to 8.99%). The source for implied volatilities used for the valuation of the stock options is ING’s trading system. The implied volatilities in this system are determined by ING’s traders and are based on market data implied volatilities not on historical volatilities.
Other operating expenses include lease and sublease payments in respect of operating leases of EUR 281 million (2014: EUR 239 million; 2013: EUR 206 million) in which ING Group is the lessee. No individual operating lease has terms and conditions that significantly affect the amount, timing and certainty of the consolidated cash flows of the Group.
In 2015, EUR 9 million (2014: EUR 36 million) impairments are recognised on Property development in the Wholesale Banking segment relating to real estate development projects and properties obtained from foreclosures, due to unfavourable market conditions.
Software and other intangible assets were impaired in 2015 for an amount of EUR 15 million. EUR 9 million is recognised in the segment Retail Belgium, EUR 3 million in the segment Retail Other and EUR 3 million in the segment Wholesale Banking. The impairment relates to internally developed software.
In 2013, EUR 78 million impairments are recognised on Property development (Wholesale Banking segment) relating to various real estate development projects (especially Europe and Australia). The unfavourable economic circumstances in these regions and projects resulted in lower expected sales prices.
In 2013, Net result from disposal of discontinued operations included mainly the tax exempt divestment gain on the sale of the Insurance businesses in Hong Kong, Macau and Thailand of EUR 945 million and the divestment loss of EUR 989 million on the sale of ING Life Korea.
Net cash flows from discontinued operations The net cash flow from discontinued operations was as follows: Operating cash flow –1,409 –4,006 –7,906
Financing cash flow 526 3,834 –1,780 1 NN Group. 2 NN Group and Voya.
Sales proceeds of 2014 were not included in the table above, but were included in the Consolidated statement of cash flows as follows: • EUR 950 million from the sale of Voya shares which resulted in the loss of control in March 2014 was included in ‘Net cash flow from investing activities – Disposals and redemptions: group companies’; • EUR 1,747 million related to the IPO of NN Group in July 2014 was included in ‘Net cash flow from financing activities – Proceeds of
In 2013, sales proceeds in cash of EUR 1.4 billion is presented in the consolidated statement of cash flows under ‘Net cash flow from investment activities – Disposals and redemptions: group companies’ and is not included in the table above.
The potential conversion of the non-voting equity securities had an anti-dilutive effect on the earnings per share calculation in 2015, 2014 and 2013 (the diluted earnings per share becoming higher or less negative than the basic earnings per share). Therefore, the potential conversion was not taken into account in the calculation of diluted earnings per share for these years.
Reference is made to Note 53 ‘Transactions with the Dutch State and the European Commission Restructuring Plan’.
Diluted earnings from continuing operations 4,466 1,907 2,524 3,870.3 3,856.0 3,833.5 1.15 0.49 0.66
Diluted earnings from discontinued operations –456 –1,406 495 3,870.3 3,856.0 3,833.5 –0.12 –0.36 0.13
Notes to the consolidated statement of cash flows 33 Net cash flow from investing activities Information on the impact of companies acquired or disposed is presented in Note 49 ‘Companies and businesses acquired and divested’.
Included in cash and cash equivalents: – amounts due to banks –10,312 –11,825 –11,451
Income from retail and private banking activities in Belgium, including the SME and mid-corporate segments. The main products offered are similar to those in the Netherlands.
Wholesale Banking1 Income from wholesale banking activities (a full range of products is offered from cash management to corporate finance), real estate and lease.
Geographical segments Main countries Netherlands Belgium Including Luxembourg Germany Including Austria Other Challengers Australia, France, Italy, Spain and UK Legacy run-off portfolio Growth Markets Poland, Romania, Turkey and Asian bank stakes Wholesale Banking Rest of World1 UK, Americas, Asia and other countries in Central and Eastern Europe
The Executive Board of ING Group and 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.
ING Group evaluates the results of its banking segments using a financial performance measure called underlying result. Underlying result is derived by excluding from IFRS-EU the following: special items; the impact of divestments and Legacy Insurance.
Notes to the Consolidated annual accounts of ING Group - continued b. ING Group
Net result IFRS-EU attributable to equity holder of the parent 4,659 –131 4,528 –518 4,010 1 Comprises for the most part the funding charges of ING Groep N.V. (Holding). 2 Intercompany eliminations between ING Bank and NN Group until deconsolidation at the end of May 2015. 3 Insurance Other comprises mainly the net result relating to warrants on the shares of Voya Financial and NN Group.
Divestments in 2015 reflect the result from the merger between ING Vysya and Kotak. Reference is made to Note 54 ‘Other events.
Notes to the Consolidated annual accounts of ING Group - continued c. Banking activities
Underlying result before taxation 1,744 1,108 1,152 469 506 1,430 –451 5,959 Taxation 469 315 382 166 79 374 –117 1,668
Notes to the Consolidated annual accounts of ING Group - continued 2014 Netherlands Belgium Germany
– Total investment and other income 164 288 –17 44 266 123 –238 630
– Total investment and other income 400 373 –24 58 320 437 –307 1,257
Underlying result before taxation 1,374 947 634 97 517 1,331 –577 4,323 Taxation 357 248 217 97 60 295 –196 1,078
Eliminations Total 1 Total income from continuing businesses only. 2 Geographical area Netherlands includes Corporate Line Banking.
Netherlands Netherlands2 ING Bank N.V. Wholesale banking/ Retail banking 14,586 5,185 308,081 818 365
Belgium Belgium ING België N.V. Wholesale banking/ Retail banking 9,645 3,123 130,916 1,142 341
Romania Branch of ING Bank N.V. Wholesale banking/ Retail banking 1,596 221 4,685 78 13
Czech Republic Branch of ING Bank N.V. Wholesale banking 211 75 2,519 41 8
Additional notes to the Consolidated annual accounts 38 Pension and other post-employment benefits ING Group maintains defined contribution and defined benefit plans. In 2015, the remaining defined benefit plans of the Group are mainly within the United Kingdom and Belgium.
Changes in composition of the group and other changes In 2014, Changes in the composition of the group and other changes included 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 54 ‘Other events’.
The accumulated amount of remeasurements recognised directly in Other comprehensive income (equity) is EUR –507 million (EUR –306 million after tax) as at 31 December 2015 (2014: EUR –753 million, EUR –515 million after tax).
The key elements of the agreement are: • Responsibility for future indexation and funding thereof is transferred to the Dutch ING Pension Fund; • ING's obligation to restore the coverage ratio of the Dutch ING Pension Fund ceased; • The cross guarantees between ING Bank and NN Group to jointly and severally fund the obligations of the Dutch ING Pension Fund are terminated; • ING paid EUR 549 million (before tax) to the Dutch ING Pension Fund for the removal of these obligations; and • ING will reduce the employees' own contribution to the pension premium under the new defined contribution plan by approximately EUR 80 million over a 6 year period.
Net defined benefit asset/liability Other post-employment benefits Other Total 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013
Financial assets and liabilities at fair value through profit and loss 1,112 –373 739
In 2014, Changes in the composition of the group and other changes included EUR 1,647 million as a result of the classification of NN Group as held for sale and EUR –61 million as a result of the deconsolidation of ING Vysya. Reference is made to Note 54 ‘Other events’.
Unused tax losses carried forward not recognised as a deferred tax asset 969 1,127
As at 31 December 2015 and 31 December 2014, ING Group had no significant temporary differences associated with the parent company’s investments in subsidiaries as any economic benefit from those investments will not be taxable at parent company level.
Total income tax related to components of other comprehensive income 115 –1,799 1,529 40 Fair value of assets and liabilities a) FinanciaI 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.
– designated as at fair value through profit and loss 3,234 2,756 3,234 2,756
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 in nature and involve various assumptions about the relevant pricing factors, especially for inputs that are not readily available in the market (such as credit spreads for own-originated loans and advances to customers). Changes in these assumptions could significantly affect the estimated fair values. Consequently, the fair values presented may not be indicative of the net realisable value. In addition, the calculation of the estimated fair value is based on market conditions at a specific point in time and may not be indicative of future fair values. Where exposures of a group of financial assets and financial liabilities are managed on a net basis ING applies the IFRS-EU exception that allows ING to measure the fair value of the group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position or settle a net short position.
Financial liabilities designated as at fair value through profit and loss 1,578 10,840 198 12,616
Main changes in fair value hierarchy in 2015 In 2015, the decrease in Available-for-sale investments (Level 1) is mainly as a result of the reclassification of Government bonds (EUR 3.5 billion) to Investments–Held-to-maturity. Reference is made to Note 5 ‘Investments’.
Financial liabilities designated as at fair value through profit and loss 1,719 11,509 323 13,551
Main changes in fair value hierarchy in 2014 In 2014, the change in Available-for-sale investments (Level 1) mainly reflected the presentation of NN Group as held for sale. This change was 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) were re-invested in Government bonds (Level 1).
Changes in the composition of the group and other changes –609 –246 –2,090 –2,945
In 2015, financial liabilities of EUR 182 million were transferred out of Level 3 mainly due to the valuation not being significantly impacted by unobservable inputs.
Amounts recognised in the profit and loss account during the year –54 14 –81 –121
Furthermore, Level 3 financial assets includes approximately EUR 0.3 billion (31 December 2014: EUR 0.1 billion) which relates to financial assets that are part of structures that are designed to be fully neutral in terms of market risk. Such structures include various financial assets and liabilities for which the overall sensitivity to market risk is insignificant. Whereas the fair value of individual components of these structures may be determined using different techniques and the fair value of each of the components of these structures may be sensitive to unobservable inputs, the overall sensitivity is by design not significant.
Of the total amount of financial liabilities classified as Level 3 as at 31 December 2015 of EUR 1.4 billion (31 December 2014: EUR 1.3 billion), an amount of EUR 0.7 billion (50%) (31 December 2014: EUR 0.7 billion, being 54%) is based on unadjusted quoted prices in inactive markets. As ING does not generally adjust quoted prices using its own inputs, there is no significant sensitivity to ING’s own unobservable inputs.
The table below provides a summary of the valuation techniques, key unobservable inputs and the lower and upper range of such unobservable inputs, by type of Level 3 asset/liability. The lower and upper range mentioned in the overview represent the lowest and highest variance of the respective valuation input as actually used in the valuation of the different financial instruments. Amounts and percentages stated are unweighted. The range could change from period to period subject to market movements and change in Level 3 position. Lower and upper bounds reflect the variability of Level 3 positions and their underlying valuation inputs in the portfolio, but do not adequately reflect their level of valuation uncertainty. For valuation uncertainty assessment, please refer to section below ‘Sensitivity analysis of unobservable inputs (Level 3)’.
Included in the table above, are EUR 180 million Voya warrants which are classified as Level 3 instruments. Reference is made to Note 4 ‘Financial assets at fair value through profit and loss’.
Amounts recognised in the profit and loss account during the year 3 –80 –77
Gains and losses on the effective portions of derivatives designated under cash flow hedge accounting are recognised in Shareholders’ equity. Interest cash flows on these derivatives are recognised in the profit and loss account in interest result consistent with the manner in which the forecast cash flows affect net result. The gains and losses on ineffective portions of such derivatives are recognised immediately in the profit and loss account.
As at 31 December 2015, the fair value of outstanding derivatives designated under cash flow hedge accounting was EUR –250 million (2014: EUR –409 million), presented in the balance sheet as EUR 917 million (2014: EUR 1,254 million) positive fair values under assets and EUR 1,167 million (2014: EUR 1,663 million) negative fair values under liabilities.
Included in Interest income and interest expense on non-trading derivatives is EUR 2,876 million (2014: EUR 2,644 million) and EUR 2,475 million (2014: EUR 2,261 million), respectively, relating to derivatives used in cash flow hedges.
As at 31 December 2015, the fair value of outstanding derivatives designated under net investment hedge accounting was EUR 20 million (2014: EUR 11 million), presented in the balance sheet as EUR 72 million (2014: EUR 111 million) positive fair values under assets and EUR 52 million (2014: EUR 100 million) negative fair values under liabilities.
As at 31 December 2015, the fair value of outstanding non-derivatives designated under net investment hedge accounting was EUR 1,288 million (2014: EUR 1,306 million).
Notes to the Consolidated annual accounts of ING Group - continued 43 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.
Non-financial liabilities are included based on a breakdown of the balance sheet amounts by expected maturity. Reference is made to the liquidity risk paragraph in the section ‘Risk Management – Funding and liquidity risk’ for a description on how liquidity risk is managed.
5 As of 2015, Coupon interest due on financial liabilities no longer includes coupon interest due on perpetual loans. Comparative amounts are adjusted accordingly.
In some jurisdictions ING Bank N.V. has an obligation to maintain a reserve with central banks. As at 31 December 2015, the minimum mandatory reserve deposits with various central banks amount to EUR 8,922 million (2014: EUR 8,185 million).
The table above includes the associated liabilities which are reported after offsetting, compared to the gross positions of the encumbered assets.
Other items where offsetting is applied in the balance sheet 3,576 –3,477 99 4 95
Other items where offsetting is applied in the balance sheet 4,230 –4,002 228 52 176
Other items where offsetting is applied in the balance sheet 2,201 –2,174 27 25 2
Other items where offsetting is applied in the balance sheet 1,501 –1,350 151 113 38
Guarantees issued by ING Groep N.V. 417 417 1 Excludes commitments and contingent liabilities related to businesses classified as held for sale, mainly NN Group with remainder related to Voya and ING Vysya.
Reference is made to Parent company annual accounts – Notes to the parent company annual accounts, Note 7 ‘Other’ for further information on Guarantees issued by ING Groep N.V.
In the state aid related proceedings between the EC, the Dutch State and ING before the European Union Courts, the Court of Justice rendered a final judgement on 3 April 2014 and dismissed the EC’s appeal against the General Court ruling of March 2012. As earlier agreed in November 2012 between ING, the Dutch State and the EC, the outcome of this appeal will not affect the EC approval of ING’s Amended Restructuring Plan. However, if ING does not fulfill any divestment commitment or does not meet any of the so called ‘2015 NN Bank-related commitments’, or in case of other material non-compliance with the Restructuring Plan, the Dutch State will re-notify the recapitalisation measure to the EC. In such event the EC may open a (legal) procedure against ING, require additional restructuring measures and/or take enforcement actions.
Notes to the Consolidated annual accounts of ING Group - continued 49 Companies and business acquired and divested Acquisitions effective in 2015 There were no significant acquisitions in 2015.
Divestments effective in 2015 NN Group A number of divestment transactions resulted in a further decrease in the ownership of ING Group in NN Group to 25.75% from 68.14% at 31 December 2014. NN Group was deconsolidated and accounted for as an Investment in associate held for sale. Reference is made to Note 11 ‘Assets and liabilities held for sale’, Note 30 ‘Discontinued operations and Note 54 ‘Other events’.
Voya In 2014, ING Group reduced its’ stake in Voya from 56.5% at 31 December 2013 to 18.9% at 31 December 2014 through a number of transactions during the year. Voya was deconsolidated at the end of March 2014 and was accounted for as an available-for-sale investment held for sale as at 31 December 2014. Reference is made to Note 54 ‘Other events’.
Other For details on the transactions in 2014 with regard to ING’s interest in ING Vysya reference is made to Note 54 ‘Other events’.
Asia - Joint venture China Merchants Fund In October 2012, ING reached an agreement to sell its 33.3% stake in China Merchants Fund, an investment management joint venture, to its joint venture partners China Merchants Bank Co. Ltd. and China Merchants Securities Co. Ltd. Under the terms agreed, ING received a total cash consideration of EUR 98 million. The transaction realised a net gain of EUR 59 million which was recognised in 2013. The transaction closed on 3 December 2013.
51 Structured entities ING Group’s activities involve transactions with various structured entities (‘SE’) in the normal course of its business. A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. ING Group’s involvement in these entities varies and includes both debt financing and equity financing of these entities as well as other relationships. Based on its accounting policies, as disclosed in the section ‘Principles of valuation and determination of results’ of these financial statements, ING establishes whether these involvements result in no significant influence, significant influence, joint control or control over the structured entity.
ING Bank originated various securitisations with, at 31 December 2015 approximately EUR 78.5 billion (2014: EUR 74 billion) of AAA rated notes and subordinated notes, of which approximately EUR 7.4 billion (2014: EUR 5.6 billion) are held by third parties. The underlying exposures are residential mortgages and SME loans. Apart from the third party funding, these securitisations did not impact ING Bank’s consolidated balance sheet and profit and loss.
Transactions between ING Groep N.V. and its subsidiaries are eliminated on consolidation. Reference is made to Note 50 ‘Principal subsidiaries’ for a list of principal subsidiaries and their statutory place of incorporation. Disclosed in the table above, are transactions with ING’s main subsidiaries, ING Bank N.V. and NN Group N.V.
During 2013, due to the partial transfer of WestlandUtrecht Bank, certain assets and liabilities were transferred from ING Bank to NN Group. Reference is made to Note 53 ‘Transaction with the Dutch State and the European Commission Restructuring Plan’. In addition, during 2015, 2014 and 2013 a further EUR 1.7 billion, EUR 1.2 billion and EUR 4.2 billion respectively Dutch mortgages were transferred from WestlandUtrecht Bank to NN Group. The transfers were made at an arm’s length price.
Variable compensation 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’ which consisted 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.
Management Board members of ING Bank and NN Group1 532 1,075 2.6% 4.1% 68 130
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 116,146 as at 31 December 2015 (2014: 165,506) and total number of stock options on ING Groep N.V. shares held by Management Board members of ING Bank amounted to 216,568 as at 31 December 2015 (2014: 587,786 held by Management Board members of ING Bank and NN Group). As at 31 December 2015, members of the Supervisory Board held 319,848 stock options on ING Groep N.V. shares (2014: 389,390). As at 31 December 2015, members of the Executive Board held 244,973 ING Groep N.V. shares (2014: 210,551) and members of the Management Boards of ING Bank held 216,211 ING Groep N.V. shares (2014: 442,906 held by Management Board members of ING Bank and NN Group). As at 31 December 2015, members of the Supervisory Board held 172,734 ING Groep N.V. shares (2014: 168,263).
Remuneration of the Executive Board and Management Board Bank is recognised in the profit and loss account in Staff expenses as part of Total expenses. Remuneration in respect of NN Group is reflected in Net result from discontinued operations and does not impact the Total expenses. The total remuneration of the Executive Board and Management Board Bank as disclosed in the table above includes all variable remuneration related to the performance year 2015. Under IFRS-EU, certain components of variable remuneration are not recognised in the profit and loss account directly, but are allocated over the vesting period of the award. The comparable amount recognised in Staff expenses in 2015 and included in Total expenses in 2015, relating to the fixed expenses of 2015 and the vesting of variable remuneration of earlier performance years, is EUR 11.6 million. Total compensation of the Supervisory- and Management Boards of NN Group, for the period until deconsolidation at the end of May 2015, amounted to EUR 3.0 million. These amounts are included in the profit and loss account of ING Group in the line item ‘Net result from discontinued operations’.
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 and were in place until the Illiquid Assets Back-up Facility was unwound. The last State Nominee remained in office until 12 May 2014.
In connection with the sale of ING Direct USA, ING reached an agreement with the Dutch State to adjust the structure of the IABF. This adjustment served to de-link the IABF from ING Direct USA by putting ING Bank in its place as counterparty for the Dutch State and became effective at the closing of the sale in February 2012. Under the terms of the original transaction ING Direct USA held on its balance the remaining 20% of the Alt-A portfolio, ensuring an alignment of interests between ING and the Dutch State regarding the performance of the portfolio.
Repayment non-voting equity shares On 7 November 2014, ING Group made the final repayment on the core Tier 1 securities of EUR 1.025 billion to the Dutch State. Including this final payment, the total amount paid to the Dutch State was EUR 13.5 billion and resulted in an annualised return of 12.7% for the Dutch State. Information on the repayments is included in the table below.
The amendments to the 2009 Restructuring Plan as announced in November 2012 extended the time horizon and increased the flexibility for the completion of divestments and have adjusted other commitments in light of the market circumstances, economic climate and more stringent regulatory requirements.
Under the amendments announced in 2012, the ultimate dates for divesting the insurance and investment management businesses changed as follows: • The divestment of more than 50% of ING's interest in its Asian insurance and investment management operations had to be completed by year-end 2013, with the remaining interest divested by year-end 2016; • The divestment of at least 25% of ING's interest in Voya had to be completed by year-end 2013, more than 50% had to be divested by year-end 2014, with the remaining interest to be divested by year-end 2016; and • The divestment of more than 50% of ING’s interest in its European insurance and investment management activities had to be completed by year-end 2015, with the remaining interest divested by year-end 2018; and as ING has committed to eliminate double leverage, proceeds from the divestments were to be used to that end while ensuring adequate leverage ratios of the insurance holding companies.
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 was to be divested as part of ING’s insurance and investment management operations in Europe. The result had 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 needed to ring-fence Nationale-Nederlanden Bank up to the divestment of more than 50% of NN Group. ING committed, amongst others, that NationaleNederlanden Bank would reach certain targets for mortgage production and consumer credit until year-end 2015. Furthermore, ING agreed to a maximum ratio for mortgage production at ING Retail Banking Netherlands in relation to mortgage production of Nationale-Nederlanden Bank until year-end 2015.
The implementation of the commitments and obligations set out in the (amended) Restructuring Plan was monitored by a monitoring trustee who is independent of ING until 31 December 2015.
As part of the previously announced amended restructuring agreement with the EC in 2012, ING planned to divest more than 50% of ING’s Asian insurance and investment management businesses by the end of 2013. Under the revised timelines announced, ING committed to divest ING Life Japan in line with the divestment timeline for ING’s European insurance and investment management activities. This meant that the timeline to divest more than 50% of ING Life Japan had effectively been extended to year-end 2015, which was also the unchanged timeline to divest more than 50% of ING’s European insurance and investment management businesses. As part of the revised 2013 agreement, ING agreed to accelerate the timeline to complete the divestment of 100% of ING’s European insurance and investment management activities by year-end 2016.
Status of the European Commission Restructuring Plan ING has completed most commitments of the restructuring plan. The following steps were taken in 2015: In March 2015, ING Group sold its remaining 18.9% stake in Voya. As agreed, ING Group divested its remaining stake before year-end 2016. Reference is made to Note 54 ‘Other events’.
In May 2015, ING Group has made a capital injection into NN Group of EUR 57 million by subscribing for newly issued shares for an aggregate amount of EUR 57 million and ING has provided NN Bank a EUR 63 million facility which allows the bank to draw additional Tier 1 capital. With this provision of capital, ING Group fulfilled a commitment to the European Commission (EC) pertaining to the capitalisation of NN Bank, which is included in the EC decision of 16 November 2012. With the deconsolidation of NN Group, ING also fulfilled the commitment to divest NN Bank for more than 50% and deconsolidate NN Bank before year-end 2015. The NN Bank targets for mortgage production and consumer credit production needed to be met until year-end 2015. Also, the mortgage production restrictions at ING Retail Banking Netherlands in relation to mortgage production of Nationale-Nederlanden Bank applied until year-end 2015. At the end of 2015, ING and the Dutch State reported to the European Commission that the NN Bank related commitments have been fulfilled.
Reference is made to Note 11 ‘Assets and liabilities held for sale’, Note 49 ‘Companies and businesses acquired and divested’ and Note 54 ‘Other events’.
As a result of the above, ING's ownership in NN Group declined from 100% to 68.14% in 2014. This transaction did not impact the profit and loss account of ING Group, as NN Group continued to be fully consolidated by ING Group. In 2014, the transactions had a negative impact on shareholders' equity of ING Group of EUR 3,251 million. This amount included: • EUR 2,590 million, being the difference between the net proceeds of the IPO to ING and the IFRS-EU carrying value of the stake in
May 2015 – Capital injection into NN Group In May 2015, in order to fulfil its commitment to the European Commission (‘EC’), ING Group made a capital injection into NN Group by subscribing for newly issued shares for an aggregate amount of EUR 57 million. The transaction increased the ownership of ING in NN Group from 54.58% to 54.77%. As part of this transaction, ING provided a EUR 63 million facility to NN Bank which allows NN Bank an unconditional right to draw down additional Tier 1 capital at prevailing market terms, until 31 December 2018. With this provision of capital, ING Group fulfils its commitment to the EC pertaining to the capitalisation of NN Bank, per the EC decision of 16 November 2012. These transactions have no material impact on the capital position of ING Group and no impact on the capital position of ING Bank.
September 2015 – Further divestment of NN Group On 30 September 2015, ING Group sold 40 million ordinary shares of NN Group. As part of the transaction, NN Group repurchased 6 million ordinary shares. The gross proceeds to ING Group, including the repurchase by NN Group, amounted to EUR 1 billion. The transaction reduced ING’s interest in NN Group to 25.76%. The transaction resulted in a loss of EUR 17 million in 2015 and is recognised in the profit and loss account in the line ‘Net result from disposal of discontinued operations’. The transaction was settled on 5 October 2015.
The announcement and the letters received provided the basis for the reassessment of the fair value of the shares. The fair value of the shares, EUR 154 million as at 31 December 2015, is determined by taking into account the upfront consideration, consisting of cash and preferred shares, the earn-out consideration and any uncertain factors that could affect the upfront and earn-out consideration. It is considered unlikely that the fair value will materially differ from the value included in the letters received from VISA Europe in December 2015. The shares are recognised as Investment in available-for-sale equity securities. The increase in fair value of EUR 154 million is recognised in Equity. Reference is made to Note 5 ‘Investments’, Note 13 ‘Equity’ and Note 40 ‘Fair value of assets and liabilities’.
Regulatory costs ING Group is required to contribute to the Deposit Guarantee Schemes (‘DGS’) and National Resolution Fund (‘NRF’) in all countries where it operates.
Dutch ex-ante DGS Until 2015, the DGS system in the Netherlands was funded on an ex-post basis. The EU DGS Directive requires ex-ante funding as of 1 January 2015. In January 2016, the Dutch Central Bank informed the Dutch banks that it decided to postpone the first contribution date for the ex-ante DGS. The first ex-ante DGS contribution will be recognised in the profit and loss account in the first quarter of 2016. This delay does not affect the target size of the ex-ante DGS fund, nor the date at which the target size should be reached, being July 2024. As at 31 December 2015, ING Group did not have a present obligation for the Dutch ex-ante DGS and as a result, no provision has been recognised.
Voya The table below provides a summary of the various Voya divestment transactions which occurred in 2013, 2014 and 2015: Date
(parent) of ING Group which reflected the difference between the net proceeds received and the IFRS-EU book value of ING Group’s interest sold at the respective transaction dates. The amounts were recognised in ‘Other reserves’.
Risk management supports the various management boards in formulating the risk appetite, strategies, policies, limits and provides a review, oversight and support function throughout ING Group on risk-related items.
NN Group risk management governance ING Group was involved in the risk management of NN Group through the participation of the ING Group CRO in the NN Group Supervisory Board. On 14 December 2015, he stepped down in line with ING Group’s strategy to divest the remaining shareholding in NN Group over time as part of the restructuring agreement with the European Commission, ultimately by the end of 2016. The activities of NN Group are classified as an Associate held for sale. Therefore, they are not further discussed in the remainder of this section. For more information, please refer to the risk management section of NN Group’s Annual Report.
Purpose and business model The purpose of ING Bank’s risk management function is to support the ambition of ING Bank to be the primary bank for our customers, by empowering the business by an integrated state of the art enterprise wide risk management platform. The following principles support this purpose: • The risk management function is embedded in all levels of ING Bank’s organisation and is part of the daily business activities and strategic planning to have a sustainable competitive advantage; • Products and portfolios are structured, underwritten, priced, approved and managed properly and compliance with internal and external rules monitored; • Delegated authorities are consistent with the overall Bank strategy and risk appetite; and • Transparent communication to internal and external stakeholders on risk management.
The commercial departments form the first line of defence and have primary responsibility for the day-to-day risk management. They originate loans, deposits and other products within applicable frameworks and limits, they know our customers well and are wellpositioned 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), the ultimate responsible officer. As a member of the MBB, the CRO 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.
Bank’s market risks that occur in its activities. ALCO Bank defines the policy regarding funding, liquidity, interest rate mismatch and solvency for ING Bank; and
The General Managers of these risk departments report to the CRO and bear direct responsibility for risk (mitigating) decisions at Bank level. The General Managers and the CRO are responsible for the harmonisation and standardisation of risk management practices. In addition, there are two staff departments in place: • Model Validation (MV), a staff department that carries out periodic validations of all significant regulatory risk models used by ING
Risk policies, procedures and standards ING Bank has a framework of risk management policies, procedures and standards in place to create consistency throughout the organisation, and to define minimum requirements that are binding to all business units. The governance framework of the local business units aligns with ING Bank’s framework and meets local (regulatory) requirements. Senior management is responsible to ensure policies, procedures and standards are implemented and adhered to. Policies, procedures and standards are regularly reviewed and updated via the relevant risk committees to reflect changes in markets, products and practices.
Accountability The Promoting Integrity Programme (PIP) is a long-term, global, educational and behavioural change programme supported by the Executive Board for all ING Bank employees.
Risk profile Key risks ING Bank recognises the following key risks (financial as well as non-financial risks) that are associated with its business activities.
or trading counterparties; • Market risk: the risk of potential loss due to adverse movements in market variables. Market risks include interest rate, credit spread, equity, real estate and foreign exchange risks; • Funding and liquidity risk: the risk that ING Bank or one of its subsidiaries cannot meet its financial liabilities when they come due, at reasonable cost and in a timely manner. Liquidity risk can materialise both through trading and non-trading positions; and • Business risk: the exposure to value loss due to fluctuations in volumes, margins and expenses, as well as customer behaviour risk.
In order to achieve this risk ambition, ING Bank has the following targets: • Have a rating ambition which is in line with the strongest among its peer group; • Be able to restore capital and liquidity position following a stress situation on its own strength; • Be in a position to meet current and forthcoming regulatory constraints and targets; and • Have a risk profile that compares favourably to its main banking peers.
For financial risks, a sequence of different risk appetite frameworks is implemented to address the most significant risks. This implies that a whole framework of credit risk limits is in place that monitors the overall quality of the ING Bank credit portfolio and that of all the underlying portfolios as well. In addition, specific concentration risk appetites are defined on product level, geographic level and (single name) counterparty level which are cascaded down into the organisation. The risk appetite for the trading book activities within Financial Markets is accompanied by a risk appetite framework for market risks in the banking books. For both types of market risk, limits at Bank level are translated into the organisation. The liquidity & funding risk appetite statements that are defined on ING Bank level are translated into the organisation, taking the liquidity & funding specific situation of each (solo) unit into account.
EC and RC do not cover liquidity risk: the risk that ING Bank or one of its subsidiaries cannot meet its financial liabilities, at reasonable cost and in a timely manner, when they come due. ING Bank has a separate liquidity management framework in place to manage this risk, which is described in the funding and liquidity risk section.
As next phase in regulatory requirements for banks’ risk and capital management, the regulators are focusing on the required capital calculations across banks. 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. These developments have suggested that stricter rules may be applied by a later framework.
Impact of low interest rate environment In 2015, interest rates in the Eurozone and other main home countries continued to decrease. Central banks held their rates at very low and even negative levels, thereby negatively impacting short-term as well as long-term market rates. The 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.
However, given the current unusual situation with persistent low interest rates, the following may put the ING Bank’s Net Interest Margin (NIM) and Net Interest Income (NII) under pressure: • On mortgages, ING Bank could be confronted with higher than expected prepayment rates because of the difference between the rates of the existing mortgage portfolio and the prevailing market rates. • On savings, NII and NIM may decrease due to a further decline in yields on assets, while possibilities for further reduction of client rates on savings deposits are limited.
The oil price seemed to have reached a low early in the year and soon started to climb but it fell back midyear and remained low in the second half of the year. ING has a well-diversified portfolio of clients active in the oil & gas markets and we service clients active in upstream, midstream and downstream sectors. The part of the portfolio that faces direct exposure to oil & gas price-risk is limited. Nevertheless, ING closely monitors the financial and operational performance of all its clients active in the oil & gas sector.
For additional information on macroeconomic developments in 2015 please see the ‘Market & regulatory context’ section in the report of the Executive Board.
Credit risk definitions Credit risk is the risk of loss from the default and/or credit rating deterioration of counterparties (including bond issuers). Credit risks arise in ING Bank's lending, financial market and investment activities.
CR uses risk categories to differentiate between the different types of credit risk. All products within ING Bank are aggregated to one of the following risk categories: • Pre-settlement risk (PS): 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.
To manage country risk effectively, ING Bank uses two components, which together form the country risk framework: the first component is to set a maximum economic capital consumption and the second component is to assign country reference benchmarks, which define the maximum appetite for credit risk, that ING Bank has per country to ensure that exposures and potential future losses do not exceed a certain agreed level. The country reference benchmark is based on the country’s GDP and the funds entrusted locally in that country. In countries where ING Bank is active, the relevant country’s risk profile is regularly evaluated, resulting in a country rating, which is used to set the country reference benchmark. Based on these two components country limits are set and exposures derived from lending, investment, pre-settlement and money market activities are then measured and reported against these country limits on a daily basis.
Product approvals Across ING Bank the product approval and review process ensures effective management of risks associated with products. It ensures that sound due diligence is performed by relevant stakeholders to ensure that risks (credit, operational, legal, etc.) are mitigated.
Credit risk capital and measurement Credit risk capital Regulatory Capital (RC) is a law based prudent measure defined by regulators and serves as the minimum amount of CET 1, Additional Tier 1 and Tier 2 capital required to absorb unexpected losses. RC is the minimum amount of capital (based on 99.90% confidence level) that ING Bank must hold from a regulatory perspective as a cushion to be able to survive large unexpected losses.
strategies including asset class mix; 2. Practice-based drivers including approaches to risk management and risk measurement; and 3. Regulating environment such as supervisory practices, implementing laws and regulations including national discretion and accounting standards.
Risk based drivers ING Bank’s portfolio is heavily dominated by secured lending especially in the areas of residential mortgages, leasing and commercial real estate. Secured lending tends to have a much lower LGD, given the collateral involved, which is a key driver of RWA calculation. Another important element of the ING business model is the focus on retail exposures collateralised by residential property. ING’s retail portfolio is mainly comprised of residential mortgages. The regulatory formula for this exposure class tends to result in the lowest RWA, all other factors being equal.
Economic Capital (EC) reflects ING Bank’s own view on credit risk, which allows it to be used in decision making processes at transaction level, counterparty level and (sub) portfolio levels. Credit risk and transfer risk capital are calculated on all portfolios which contain credit or transfer risk, including investment portfolios. EC is the minimum amount of capital required to cover for unexpected losses within a 99.95% confidence level and a 12 months’ time horizon. It is used throughout ING Bank in the decision making process (mainly wholesale banking), in risk adjusted counterparty and portfolio profitability measurement tools (wholesale banking and retail), in investment and divestment decisions, in the country risk framework and in concentration risk management such as risk appetite statements (RAS), single name concentration and the systemic risk reports (sector concentration report).
Regulatory Capital Economic Capital For portfolios which are reported on SA, the CRR/CRD IV compliant lookup tables are used to determine risk weights.
Regulatory EAD is employed for all exposures. Economic EAD is employed for all exposures. 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.
Credit risk measurement There are two ways to measure credit risk within ING Bank’s portfolio, depending on whether the exposure is booked under an ING office which is permitted by the ECB to use the Advanced Internal Rating Based (AIRB) approach, or if it falls under the Standardised (SA) approach.
Advanced Internal Rating Based Approach (AIRB) There are five elements that drive the determination of risk weighted assets under the AIRB approach.
The investment portfolio decreased slightly in proportion as well as in absolute value and along with fulfilling liquidity requirements it remains a source of supporting assets in Challenger and Growth markets with exposure primarily to European central governments and central banks. Investor and sponsor securitisations comprise the shrinking portfolio of securitisations within ING Bank.
ING Bank as Sponsor In the normal course of business, ING Bank structures financing transactions for its clients by assisting them in obtaining sources of liquidity by selling the clients’ receivables or other financial assets to an Special Purpose Vehicle (SPV). The transactions are often funded by the ING Bank administered multi seller Asset Backed Commercial Paper (ABCP) conduit Mont Blanc Capital Corp. (rated A1 /P-1). Mont Blanc Capital Corp. continues to fund itself externally in the ABCP markets. In its role as administrative agent, ING Bank facilitates these transactions by providing structuring, accounting, funding and operations services. ING Bank also provides support facilities (liquidity and program wide enhancement) backing the transactions funded by the conduit. Mont Blanc is fully consolidated into the ING Bank financial accounts.
The customer-centric data model conforms strongly to the three core business needs of ING Bank: • To transact efficiently with our counterparties; • To be compliant with our internal and external obligations; and • To monitor the risks we undertake.
Lending Investment Money Market Pre-settlement Total ING Bank 1 Based on credit risk measurement contained in lending, pre-settlement, money market and investment activities. The ratings reflect probabilities of default and do not take collateral into consideration.
The total ING Bank portfolio registered a robust growth which was driven by asset origination as well as FX movements. The total past due and impaired buckets declined, signalling an improvement in the bank's economic operating environment. The improvement in the past due but not impaired portfolio is due to the positive impact of better arrears management in the Dutch mortgages portfolio. The impaired loans volume declined with a large contribution coming from Real Estate Finance clients returning to performing status. The level of impaired residential mortgages also reduced in most geographies and especially in the Dutch mortgages portfolio.
Past-due obligations Retail Banking continuously measures its portfolio in terms of payment arrears. The retail portfolios are closely monitored on a monthly basis to determine if there are any significant changes in the level of arrears. The methodology is principally extended to loans to private individuals, such as residential mortgage loans, car loans, and other consumer loans. Generally, an obligation is considered ‘past-due’ if a payment of interest or principal is more than one day late. In practice, the first 5-7 days after an obligation becomes past due are considered to be operational in nature for retail loans and small businesses portfolios. After this period, letters are sent to the obligor reminding the obligor of its (past due) payment obligations. If the arrears continue to exist, the obligor is transferred to a restructuring unit. The obligor is downgraded to risk rating 20 (non-performing) when the arrears exceed 90 days. In order to reduce the number of arrears, ING banking units encourage their obligors to set up automatic debits from their (current) accounts to ensure timely payments. The table below captures all past due exposures starting from day 1, without excluding the first 5-7 day operational time interval.
ING uses three distinct statuses in categorizing the management of clients with (perceived) deteriorating credit risk profile, i.e. there is doubt as to the performance and the collectability of the client’s contractual obligations: • Watch List: Usually, but not necessarily, a client is first classified as Watch List when there are concerns of any (potential or material) deterioration in the credit risk profile that is normally connected to the ability of the client to adhere to the repayment obligations or to refinance the existing loan. The grounds for concern are usually caused by indication of Early Warning Signals. Watch List status requires more than usual attention and increased monitoring by quarterly reviews. However at this stage, no specific intervention from ING is deemed necessary and no significant restructuring is expected. Certain clients with a Watch List status may develop into a Restructuring status or even a Recovery status.
Provisions Loan Loss provisions are calculated and accounted for in accordance with International Financial Reporting Standards (IFRS-EU). LLP are reported for financial assets that are measured against amortised costs (Loans and Receivables, Held-to-Maturity Investments). There are three types of LLP: • Individually Significant Financial Asset (ISFA) Provisions: when there is objective evidence that a financial asset is defaulted as result of one or more prescribed events that trigger a default. In such case, ING assigns a risk rating 20, 21 or 22. Specific provisions are calculated if the exposure to a Borrower exceeds the threshold amount. The threshold amount varies per business unit, but generally is nil in Wholesale Banking, and a maximum of EUR 1 million in the Retail ‘home markets’. A provision is calculated based on several scenarios and assumptions. Provisions level is up to date given the quarterly reviews; Discounted cash flow (DCF) is measured when this is a significant risk driver which can be calculated. The future cash flow is based on best estimate of when/if recoveries will occur. Recoveries can be from any source, such as the sale of collateral, on-going cash flows, sale of a business/subsidiary, etc.; • Individually Not Significant Financial Asset (INSFA) Provisions: are made for acknowledged non-performing loans (ratings 20-22), if the exposure to a Borrower is below the threshold amount. Due to their small size, the IFRS-EU rules permit a collective approach to measuring these provisions; and
There was an improvement in the bank coverage ratio to 38.5% (2014: 35.5%) mainly due to a faster outflow from the non-performing loan portfolio and a comparatively lesser decrease in stock provision level.
For retail clients, clear criteria to determine whether a client is eligible for a modification or refinancing have been established for all ING Bank retail units that apply forbearance activities. Also, specific approval mandates are in place to approve the modifications and refinancing, as well as procedures to manage, monitor and report the forbearance activities. These criteria and mandates vary, based on the legal framework in place and market practices, but are in line with ING Bank policy.
The rating of clients with forbearance measures can also change during the forbearance reporting period: • From performing to non-performing - If the performing forborne client, which exited the non-performing probation period, hits one of the general non-performing triggers defined by ING, becomes more than 30 days past due or receives additional forbearance measures during the reporting period, the client needs to be classified as non-performing; and
Even though the Real Estate sector stabilized slightly compared to previous years, the impact of the prior deterioration is still visible in the forborne assets, due to its probation periods. The decrease in the performing Real Estate forborne assets was mainly driven by outflow in the Netherlands , due to sale and repayments. While on the other hand, the non-performing forborne assets increased mainly due to new inflow, coming from the Netherlands and Italy, for which the latter one was the result of expanding the forborne assets definition.
Exposures are categorised into different Value to Loan (VTL) buckets that give insight in the level of collateralisation of ING Bank’s portfolio. VTL is calculated as the cover value divided by the outstandings at the balance sheet date. The cover values are pre-haircut and indexed values and exclude any cost of liquidation. Covers can either be valid for all limits, sub-limits or a particular outstanding of a borrower, the latter being the most common. To prevent erroneous inflation of the level of collateralisation, the coverage of all outstanding is capped at 100% if there is over-collateralisation on a certain outstanding. As a result, the coverage levels disclosed are conservative. Each limit is subsequently assigned to one of the six defined VTL buckets: no cover, >0% - 25%, >25% to 50%, >50% to 75%, >75% to <100%, and ≥ 100%. As the nature of the Pre-settlement portfolio determines that collateral is netted, these VTL buckets are not shown for the Pre-settlement portfolio.
Total Lending, Investment and Money Market 707,970 580,474 20,105 82,204 119,554 165,396 33.3% 19.3% 47.4%
Investment outstandings remained stable over the year. Since investments traditionally do not require covers, the no covers ratio in this portfolio is close to 100%. However, 94% of the investment outstandings are investment grade.
In the Lending portfolio, coverage within consumer lending increased influenced by an improvement in the house price index in the Netherlands. Increase in Business Lending outstandings was also the reason for increase in the guarantees received on exposures in that portfolio.
Consumer lending portfolio The Consumer Lending portfolio comprises of Residential Mortgage loans (92.4% in 2015 versus 93.7% in 2014) and Other Consumer Lending loans, which mainly comprise credit cards, term loans and revolvers to consumers. As a result, most of the collateral consists of mortgages. The mortgage values are maintained in the ING Bank’s central database (Vortex) and in most cases external data is used to index the market value. On a quarterly or annual basis, the mortgages value is updated in Vortex using the relevant house price index (the NVM Index in the Netherlands, Level Housing Index in Australia, Crif Real Estate Appraisal Company in Italy, Ministerio de Fomento in Spain and Stadim in Belgium).
Other retail portfolio also saw an improvement, mainly in Belgium and Luxembourg. The numbers shown are conservative as the savings pledged to the mortgage product, ‘Spaarhypotheek’ (or Mortgage with external Saving account) present in the Dutch mortgage portfolio are not taken into account in the table above.
Business Lending portfolio Business Lending is an important business of ING Bank, accounting for 38.9% of the total ING Bank’s outstandings. In line with our objective to give stakeholders insight into the portfolio, we present the Business Lending portfolio per Industry breakdown in accordance with the NAICS definition and per Region and main market. Business Lending presented in this section does not include Pre-settlement and Investment & Money Market exposures, which are separately exhibited in the next sections.
Total Business Lending 262,415 112,817 17,680 83,916 56,835 110,661 33.7% 4.5% 5.5% 9.0% 11.6% 35.8% of which Total Non1 Including loans to ING Group and NN Group. 2 Excluding intercompany positions. 3 ‘Others’ comprises industries with outstandings below EUR 10 billion.
A key characteristic of the Investment and Money Market business is that typically little cover is given to support these exposures. 100.0% of Money Market and 97.2% of Investment exposure receives no covers. During 2015 the percentages for Investment increased slightly, while Money Market increased one percentage point. The majority of ING’s investment positions are of high quality rated between AAA to A-, based on external ratings. The guarantees listed under Rest of Europe are comprised of the Cedulas and were booked in Spain.
ING Bank matches trades with similar characteristics to determine their eligibility for offsetting. This offsetting effect is called ‘compensation’. Subsequently, ING Bank reduces the amount by any legal netting that may be permitted under various types of Master Agreements, such as ISDA Master Agreements, Global Master Repurchase Agreements (GMRA), Global Master Securities Lending Agreements (GMSLA), etc. Lastly, the amount is further reduced by any collateral that is held by ING Bank under Credit Support Annexes (CSAs) or other similar agreements.
As part of its securities financing business, ING Bank entities actively enter into agreements to sell and buy back marketable securities. These transactions can take many legal forms. Repurchase and reverse repurchase agreements, buy/sell-back and sell/buyback agreements, and securities borrowing and lending agreements are the most common. As a general rule, the marketable securities that have been received under these transactions are eligible to be resold or re-pledged in other (similar) transactions. ING Bank is obliged to return equivalent securities in such cases.
Market risk Introduction Market risk is the risk that movements in market variables, such as interest rates, equity prices, foreign exchange rates, credit spreads and real estate prices, negatively impact the bank’s earnings, capital, market value or liquidity position. Market risk either arises through positions in banking books or trading books. The banking book positions are intended to be held in the long-term (or until maturity) or for the purpose of hedging other banking book positions, while the trading book positions are typically held with a shortterm intent.
For the trading books, the linear interest rate risk in the banking books and equity investments, the Value at Risk (VaR) is taken as a starting point for the economic capital calculations for market risk. The VaR is measured at a 99% confidence interval, a one day holding period and under the assumption of an expected value of zero.
2015 2014 –100 bps +100 bps –100 bps +100 bps By currency Euro –583 -1,855 169 –1,749 US Dollar –12 42 –4 26 Other –58 36 1 5 Total –653 -1,777 166 –1,718 2015 2014 –100 bps +100 bps –100 bps +100 bps By business Wholesale Banking –76 53 183 –120 Retail Banking Benelux –159 –270 –109 –130 Retail Challengers & Growth Markets –640 –274 –285 –29 Corporate Line Banking 222 –1,286 377 –1,439 Total –653 –1,777 166 –1,718 2015 2014 –100 bps +100 bps –100 bps +100 bps By accounting category Amortised Cost –1,019 210 –1,203 1,292 Fair value through equity 800 –2,248 1,234 –2,920 Fair value through profit and loss –434 261 135 –90 Total –653 –1,777 166 –1,718
The NPV-at-Risk is dominated by the interest rate sensitive long-term investments of own funds, as the equity itself is not modelled and hence is not presented as an offset for the investments of own funds. The value of these investments is impacted significantly if interest rates move up by 1%. Convexity risk in retail portfolios also contributes to the overall NPV-at-Risk. The asymmetry between the NPV-at-Risk for a –100 bps and a +100 bps shock is primarily caused by the flooring the interest rates to zero for the –100 bps scenario.
Basis Point Value (BPV) BPV measures the impact of a one basis point increase in interest rates on value. To a large extent the BPV and NPV-at-Risk reflect the same risk - the difference being that BPV does not reflect convexity risk, given the small shift in interest rates.
Year-on-year variance analysis The overall BPV decreased in 2015 with EUR 0.1 million. This mainly results from a change in the strategic position. The changes in BPV in Retail Banking Benelux and Retail Challengers and Growth Markets reflect volume and duration changes of originating assets and liabilities. Cash flow hedges were executed at the Bank Treasury function to mitigate these changes. The Bank Treasury function for Retail Challengers and Growth Markets is reported under Wholesale Banking business. Besides the change of the overall BPV exposure there is a change in the exposure per accounting category. This is mainly the result of increased volume of both savings and mortgages. As a result the BPV exposure at amortised cost showed a downward move. This move was mitigated by cash flow hedges, which revaluate through equity, and a decreased duration of investments.
Risk profile – FX translation result The following table presents the currency exposures in the banking books for the most important currencies for FX translation result. Positive figures indicate long positions in the respective currency.
The US Dollar is the main currency in terms of Net Exposure as the risk-weighted assets position in US Dollar is most significant besides the Euro.
Year-on-year variance analysis During the year ended 31 December 2015 the revaluation reserve relating to equity securities held in the available-for-sale portfolio fluctuated between a month-end low amount of EUR 1,931 million (2014: EUR 996 million) and a high amount of EUR 2,709 million (2014: EUR 2,019 million). The AFS portfolio increased from EUR 2.7 billion in 2014 to EUR 4.4 billion in 2015, mainly due to the increase in position value of Bank of Beijing (EUR 0.5 billion) and the merger of ING Vysya Bank with Kotak Mahindra Bank, as a result of which the ING stake in Kotak has been included in the AfS position (position value EUR 1.2 billion).
Main exposure arises from office buildings in own use located in Netherlands and Belgium (EUR 0.8 billion), as well as retail and residential exposures in Europe (EUR 0.1 billion).
Basel Committee/CRD IV ING Bank follows the regulatory framework set out in the Capital Requirements Regulation (CRR/CRD IV)for its regulatory capital calculations. The Basel Committee is performing a Fundamental Review of the Trading Book, which may have a significant impact on the Pillar I calculations. The final guidelines were published in January 2016 and full implementation is not expected before 2019.
Regulatory capital According to the Capital Requirements Regulation (CRR/CRD IV), regulatory capital for trading portfolios can be calculated using the standardised approach or an internal model approach. ING Bank received regulatory approval to use an internal model to determine the regulatory capital for the market risk in all trading books of ING Bank. Market risk capital of CAD2 trading books is calculated according to the CRR, using internal VaR, Stressed VaR and Incremental Risk Charge models, where diversification is taken into account. On the other hand, market risk capital of CAD1 books is calculated using Standardised Approach with fixed risk weights. In 2015, capital calculations for all trading books are made under the Internal Model Approach. Mismatches in FX risk from the banking books are incorporated under the Standardised Approach. ING Bank does not have a Correlation Trading Portfolio or any other securitisations in the trading book.
Management Framework ING’s liquidity risk management framework incorporates all relevant risk principles with regard to the daily and on-going management of funding and liquidity risk. The framework contains the following key elements: • Liquidity risk appetite: This is set by ALCO Bank in line with ING’s complexity, business mix and liquidity risk profile. The risk appetite is reviewed on an annual basis and forms part of the input of business units in their medium term business plans. The defined risk appetite is allocated to the lower level ALCO’s; • Funding: The Bank Treasury function sets and updates the funding strategy and funding planning, taking into account diversification in sources and tenor of funding; • Intraday Liquidity Management: Bank Treasury actively manages its short term liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions; • Collateral Position Management: Bank Treasury actively manages the liquidity risk of its collateral positions to meet ING’s collateral needs, and resources, under both normal and stressed conditions and in accordance with all internal and regulatory rules; • Liquidity buffers: ALCO Bank ensures that sufficient liquidity is maintained, in accordance with Bank- and regulatory rules and standards, including a buffer of unencumbered, high quality liquid assets, to withstand stress events, such as those involving the loss or impairment of both unsecured and secured funding sources; • Liquidity risk transfer and pricing: ALCO Bank sets and maintains a Funds Transfer Pricing (FTP) framework that optimises Bank-wide funding and liquidity risk management, whereby all business units must transfer their structural funding and liquidity risks to Bank Treasury whilst managing their own customer behaviour liquidity risk costs; • Stress testing: ALCO ensures that liquidity stress tests are planned, designed, conducted and reviewed, to identify sources of potential liquidity strain, to determine how these can and will be addressed and to ensure that current exposures remain within the established liquidity risk tolerance; and
Liquidity risk appetite ING’s liquidity risk appetite expresses the level of liquidity risk ING is willing to take in the pursuit of its strategic objectives. The Liquidity Risk Appetite Statements (RAS) are aligned with the ING strategy and are allocated to the ING entities by way of limits, where needed per ING entity. ING’s Liquidity RAS is build up of three levels: • RAS Level 1 should be considered in conjunction with each other for the purpose of steering the ING Bank liquidity positions as they differ in assumptions, horizon and scope. The level 1 risk appetite statements (i) sets limits on structural liquidity mismatches, (ii) assure compliance with regulatory requirements (CRD2 and LCR) and (iii) set adequate buffers related to internally defined stress scenarios; • RAS Level 2 are additional principles that allow assessing different aspects of ING consolidated liquidity position and/or balance sheet (ratios). They can ultimately affect RAS Level 1, or they can be complementary to RAS Level 1 (where the differences lie in either the metrics, the assumption, the data source or both). The level 2 risk appetite statements focus on (i) ING Bank’s cash & collateral position, (ii) defined target loan-to-deposit ratios and (iii) assure sufficient levels of funding diversification; and
• RAS Level 3 are additional principles that allow assessing aspects of the consolidated liquidity position that concern certain parts of on- and off- balance sheet items, or represent a further specification of RAS Level 1 or Level 2.
The liquidity buffer is held as an insurance against a range of stress scenarios, covering the additional need for liquidity that may arise over a defined short period of time under stress conditions. ING’s minimum standards for liquidity buffers are described below: • When local regulatory rules require so, local liquidity buffers can be established. Although locally established, these buffers must be centrally functionally managed by the BT function; • The buffer must be adequate in relation to the contractual and expected expiry calendars and other expected or planned developments; • The size of the buffers is supported by estimates of liquidity needs performed under the Bank’s or business entity’s stress testing and be aligned with the liquidity risk appetite; • The liquidity buffer is composed of cash and core assets that are eligible for the Liquidity Coverage Ratio (LCR) and/or highly marketable, which are not pledged to payment systems or clearing houses. For longer term buffer purposes, a broader set of liquid assets might be appropriate, subject to the Bank’s or entity’s ability to generate liquidity from them under stress, within the specified period of time; and
On ad-hoc basis ING Bank performs additional stress tests related to the funding and liquidity position. Overall, stress testing is an integral part of the liquidity and funding risk management framework and also serves as input for the contingency funding plan. From a currency perspective, stress tests are applied on Euro and US Dollar whilst other currencies are monitored. This aligns with the Basel III and CRR approach with regard to major currencies.
The Basel Committee (BCBS) has finalised their NSFR policy document in October 2014, after which the EBA has started their review in 2015, with the aim to provide recommendations to the EC at the end of 2015. During 2016, the EC will study these recommendations in order to submit a legislative proposal on NSFR to the European Parliament and Council by the end of that year. The NSFR ratio is reported on a quarterly basis and will come in force as of 2018.
Next to the liquidity ratios, it is required to report additional monitoring metrics as defined by the EBA as of 2016.
Internal events analyses Analysis of internal non-financial loss data assists in identifying, quantifying, mitigating and monitoring operational risk exposure. It provides insight into causes and effectiveness of associated controls.
• Employment practice risk is the risk of loss due to acts inconsistent with employment, health laws, or agreements, from payment of personal injury claims, or from diversity/discrimination events.
Given the heavy reliance on IT systems in financial institutions, controls that monitor the various aspects of IT risk, such as integrity and confidentiality, are embedded in ING Bank’s risk and control framework.
Cybercrime Cybercrime is a continuous threat to companies in general and to financial institutions specifically. Both the frequency and the intensity of attacks increase on a global scale. ING Bank continued building on its Cybercrime Resilience Programme moving to further enhance the control environment to protect, detect and respond to e-banking fraud, Distributed Denial of Service (DDoS) and targeted attacks (also called Advanced Persistent Threats). Additional controls are being embedded in the organisation as part of the overall internal control framework and re-assessed against existing and new threats.
Within NFR, the Bank Compliance Risk Management function established a compliance control framework in which controls are defined based on laws, regulations and standards that are part of the internal control framework of ING Bank. To support management in mitigating compliance risks, the Bank Compliance Risk Management function actively educates and supports the business in managing compliance risks related to e.g. money laundering, terrorist financing, sanction and export control compliance, conflicts of interests, mis-selling, corruption and protection of customers’ interests.
The controls to mitigate the compliance risks associated with the above mentioned risk areas are designed and embedded in day-today processes. The effectiveness of the controls as designed is tested periodically, and senior management is aware about their responsibility to ensure their processes are compliant with applicable laws and regulations, ING Bank’s internal policies and the Orange Code.
The module focuses on various everyday risks, stressing that even small, often overlooked items can lead to larger issues. It addresses topics such as clean desk, user access, information barriers, physical security, data tapping, conflicts of interest and Foreign Account Tax Compliance Act (FATCA); and
Learning Global education and awareness training in the form of e-learning modules was provided on topics such as Financial Economic Crime (FEC), Anti-Bribery and Anti-Corruption, Anti-Competitive Conduct (Competition Law) and Fraud and Security. Furthermore, there were end of year campaigns for anti-bribery and anti-corruption to strengthen awareness.
Classroom sessions were delivered on general non-financial risk awareness for all lines of defence. This included training in introduction programmes for new staff and talent programmes. The international Training on Operational Risk was held for staff in ING Bank worldwide who are new to the ORM function. Compliance Risk Management introduced a new advanced Compliance Officer Training for senior compliance officers in ING Bank worldwide. Classroom trainings and workshops were held on Scenario Analysis in both the Netherlands and Belgium as well as webinars at basic and advanced levels.
Business Risk Business Risk for ING Bank has been defined as the exposure to value loss due to fluctuations in volumes/margins, expenses as well as the impact of customer behaviour risk. It is the risk inherent to strategy decisions and internal efficiency. The calculation of business risk capital is done by calculation of two components that are combined to one business risk figure via the variance-covariance methodology: 1. Expense risk covers the risk that expenses will deviate from the expected expenses over the horizon of the relevant activities. This risk primarily relates to the (in)flexibility to adjust expenses, when that is needed. Expense risk only concerns non-financial expenses (e.g. staff and IT expenses); financial expenses are not in scope; and 2. Customer behaviour risk relates to clients behaving differently than expected and the effect that this behaviour can have on customer deposits and mortgage pre-payments. The customer behaviour risk is calculated by stressing the underlying assumptions in the models for behavioural assets and liabilities.
All net capital flows in 2015 related to the sale of insurance related activities are disclosed in Note 54 ‘Other events’.
In June EUR 169 million 4.176% million Group Tier-1 securities were called. In July USD 1.5 bln 7.375% Group Tier 1 securities were called. In addition, ING Group redeemed the remaining outstanding amount of USD 364 million 5.775% Tier 1 securities on its first date call date in December 2015, which was fully on-lent to Bank. As a result, ING Groups fully-loaded total capital ratio (including grandfathered securities) increased from 15.5% at year-end 2014 to 17.4% at 31 December 2015.