ING Group has categorised its financial instruments that are either measured in the statement of financial position at fair value or of which the fair value is disclosed, into a three level hierarchy based on the observability of the valuation inputs from (unadjusted) quoted prices. Highest priority is retained to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to valuation techniques supported by unobservable inputs.
Transfers into and transfers out of fair value hierarchy levels are made on a quarterly basis at the end of the reporting period.
Instruments, where inputs are unobservable are classified in this category, provided that the impact of those unobservable inputs on the overall valuation is insignificant. The notion of significant is particularly relevant for the distinction between Level 2 and Level 3 assets and liabilities. ING Group has chosen to align the definition of significance with the 90% confidence range as captured in the prudent value definition by EBA where possible. The same 90% confidence range is applied to model uncertainty. If the combined change in asset value resulting from the shift of the unobservable parameters and the model uncertainty exceeds the threshold, the asset is classified as Level 3. A value change below the threshold results in a Level 2 classification.
This category includes financial instruments whose fair value is determined using a valuation technique (e.g. a model), for a significant part of the overall valuation is unobservable, or is determined by reference to price quotes where the market is considered inactive. Unobservable inputs are inputs which are based on the Group’s own assumptions about the factors that market participants would use in pricing an asset or liability, developed based on the best information available in the market.
Unobservable inputs may include volatility, correlation, spreads to discount rates, default rates and recovery rates, prepayment rates, and certain credit spreads. Transfers into and transfers out of fair value hierarchy levels are made on a quarterly basis.
Methods applied in determining fair values of financial assets and liabilities (carried at fair value)
The following methods and assumptions were used by ING Group to estimate the fair value of the financial instruments: Equity securities
Instrument description: Equity securities include stocks and shares, corporate investments and private equity investments.
Quoted market prices are obtained from an exchange market, dealer, broker, industry group, pricing service, or regulatory service. The quoted prices from non-exchange sources are reviewed on their tradability of market prices. If quoted prices in an active market are not available, fair value is based on an analysis of available market inputs, which includes consensus prices obtained from one or more pricing services. Furthermore, fair values are determined by valuation techniques discounting expected future cash flows using a market interest rate curves, referenced credit spreads, maturity of the investment, and estimated prepayment rates where applicable.
The remaining positions are classified as Level 2 or Level 3. Asset backed securities for which no active market is available and a wide discrepancy in quoted prices exists, are classified as Level 3.
Instrument description: Derivatives contracts can either be exchange-traded or over the counter
Fair value hierarchy: Loans and receivables are predominantly classified as Level 2. Loans and receivables for which current market information about similar assets to use as observable, corroborated data for all significant inputs into a valuation model is not available are classified as Level 3 and are expected to be sold as Level 3.
Instrument description: Financial liabilities at fair value through profit and loss include debt securities, debt instruments, primarily comprised of structured notes, which are held at fair value under the fair value option. Besides that, it includes derivative contracts and repurchase agreements.
Valuation: The fair values of securities in the trading portfolio and other liabilities at fair value through profit or loss are based on quoted market prices, where available. For those securities not actively traded, fair values are estimated based on internal discounted cash flow valuation techniques using interest rates and credit spreads that apply to similar instruments.
Of the total amount of financial assets classified as Level 3 as at 31 December 2020 of EUR 4.1 billion
(31 December 2019: EUR 4.8 billion), an amount of EUR 2.1 billion ( 52.3%) (31 December 2019: EUR 2.5 billion, being 52.6%) 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.
(31 December 2019: EUR 0.5 billion), an amount of EUR 0.1 billion (34.6%) (31 December 2019: EUR 0.2 billion, being 39.3%) 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.
0.1 billion) which relates to financial liabilities that are part of structures that are designed to be fully neutral in terms of market risk. As explained above, the fair value of each of the components of these structures may be sensitive to unobservable inputs, but the overall sensitivity is by design not significant.
(Reverse) repo's 176 3 1 Present value techniques Interest rate (%) 3% 4% 4% 4%
Structured notes 180 184 Price based Price (%) 74% 83% 109% 124%
– Rates 2 13 38 68 Option pricing model Interest rate volatility (bps) 12 17 70 137
– Credit 168 102 154 183 Present value techniques Credit spread (bps) 2 2 1,403 11,054
– Other 3 3 3 3 Option pricing model Commodity volatility (%) 18% 11% 55% 53%
Jump rates simulate abrupt changes in valuation models. The rate is an added component to the discount rate in the model to include default risks.
Sale of assets –73 –53 –8 –3 –973 –832 –270 –212 –419 –680 –1,743 –1,780
Maturity/settlement –39 –11 –1 –83 –461 –57 –35 –175 –212 –354 –719
In 2020, reclassification relate to a re-review of the general terms of a portfolio of securitization loans, the underlying pools of assets are exposed to residual value risk. Consequently, the portfolio of EUR 0.3 billion, which is classified at Level 3, was incorrectly measured at amortised cost and therefore reclassified to mandatorily fair value through profit or loss. Furthermore, it relates to ING’s investment in Visa preference series C shares, reference is made to Note 5 ‘Financial assets at fair value through other comprehensive income’.
In 2019 and 2020, unrealised gains and losses that relate to ‘Financial assets at fair value through other comprehensive income’ are included in the Revaluation reserve – Equity securities at fair value through other comprehensive income or Debt Instruments at fair value through other comprehensive income.
In practice valuation uncertainty is measured and managed per exposure to individual valuation inputs
This disclosure does not attempt to indicate or predict future fair value movement. The numbers in isolation give limited information as in most cases these Level 3 assets and liabilities should be seen in combination with other instruments (for example as a hedge) that are classified as Level 2.
Credit (Debt securities, Loans, structured notes, credit derivatives) 43 10 -27 i) Financial instruments not measured at fair value
The following table presents the estimated The fair values of the financial instruments not measured at fair value in the statement of financial position. The aggregation of the fair values presented below does not represent, and should not be construed as representing, the underlying value of ING Group.
Loans and advances to banks 25,364 35,136 2,165 2,367 0 728 7,763 11,469 15,611 20,570 25,539 35,133
Financial liabilities 1 The prior period has been updated to improve consistency and comparability of customer deposits
The fair values of receivables from banks are generally based on quoted market prices or, if unquoted, on estimates based on discounting future cash flows using available market interest rates including appropriate spreads offered for receivables with similar characteristics, similar to Loans and advances to customers described below.
Where no quoted market prices are available, fair value of the subordinated loans is estimated using discounted cash flows based on interest rates and credit spreads that apply to similar instruments.
Derivatives that qualify for hedge accounting under IFRS are classified and accounted for in accordance with the nature of the instrument hedged and the type of IFRS hedge model that is applicable. The three models applicable under IFRS are: fair value hedge accounting, cash flow hedge accounting, and hedge accounting of a net investment in a foreign operation. How and to what extent these models are applied are described under the relevant headings below. The company’s detailed accounting policies for these three hedge models are set out in paragraph 1.7 ‘Financial instruments’ of Note 1
The impact of Covid-19 on timing or amount of cash flows of our products that are designated as hedged items in hedge accounting programs did not result in hedge ineffectiveness during the reporting period.
As a result of Brexit and the associated uncertainty of the ability of United Kingdom based clearing houses to offer clearing services to European clients such as ING, ING has reduced its exposure to UK
based clearing houses. In 2020 ING Group transferred part of the derivative exposures to an European
For discontinued cash flow hedges, the fair value changes accumulated in the cash flow hedge reserve of EUR 884 million remains in Other Comprehensive Income and is recycled to the statement of profit or loss in the periods in which the hedged item affects profit or loss. The de-designation and redesignation of these hedge accounting relationships did not result in material impact in the statement of profit or loss of 2020.
Following the decision by global regulators to seek alternatives for current critical benchmarks in use in various jurisdiction in order to comply with the EU Benchmarks Regulation, the IBOR transition program of ING was initiated in 2018 to prepare the Group for the reform.
ING is exposed and on how ING is managing the transition to alternative benchmark rates.
Except for EONIA and EUR LIBOR all IBOR’s in scope of ING’s program are a component of either hedging instrument and/or hedged item where the interest rate and/or foreign currency risk are the designated hedged risk. The hedged exposures are mainly loan portfolios, issued debt securities and purchased debt instruments.
ING Group early adopted the amendments to IAS 39 issued in September 2019 to these hedging relationships directly affected by IBOR reform (Phase 1). This excludes EURIBOR hedges as EURIBOR is
The same assumption is used while assessing the likelihood of occurrence of the forecast transactions that are subject to cash flow hedges. The cash flow hedges directly impacted by the IBOR reform still meet the highly probable requirement assuming the respective LIBOR benchmark on which the hedged cash flows are based are not altered as a result of the reform.
December that are used in the Group's hedge accounting relationships for which the Phase 1 amendments to IAS39 were applied: Notional amounts of Hedging instruments in EUR as at 31 December
Approximately 85% (31 December 2019: 68%) of the above notional amounts have a maturity date beyond 2021. In addition, approximately 63% of the above notional amounts for USD LIBOR have a maturity date beyond June 2023.
ING Group did not early adopt Phase 2 amendments in 2020. Refer to sections 1.4.2 and 1.7.4. of Note 1 ‘Basis of preparation and accounting policies’ for more information on the Phase 2 amendments.
Before fair value hedge accounting is applied by ING Group, ING Group determines whether an economic relationship between the hedged item and the hedging instrument exists based on an evaluation of the quantitative characteristics of these items and the hedged risk that is supported by quantitative analysis. ING Group considers whether the critical terms of the hedged item and hedging instrument closely align when assessing the presence of an economic relationship. ING Group evaluates whether the fair value of the hedged item and the hedging instrument respond similarly to similar risks. In addition ING is mainly using regression analysis to assess whether the hedging instrument is expected to be and has been highly effective in offsetting changes in the fair value of the hedged item.
The derivatives used for fair value hedge accounting are included in the statement of financial position line-item ‘Financial assets at fair value through profit or loss – Non-trading derivatives’ for EUR 486 million (2019: EUR 524 million) respectively ‘Financial liabilities at fair value through profit or loss – Nontrading derivatives’ EUR 444 million (2019: EUR 873 million). The remaining derivatives are offset with other derivatives and collaterals paid or received.
Change in fair value used for measuring ineffectiveness for the period
Hedge ineffectiveness recognised in the statement of profit or loss gain (+) / loss (-)
– Customer deposits and other funds on deposit 2,239 30 -84
– Customer deposits and other funds on deposit 3,233 -43 -13
Additionally, for portfolio (macro) fair value hedges of ING Group’s fixed rate mortgage portfolio, ineffectiveness also arises from the disparity between expected and actual prepayments (prepayment risk).
There were no other sources of ineffectiveness in these hedging relationships.
ING Group’s cash flow hedges mainly consist of interest rate swaps and cross-currency swaps that are used to protect against the exposure to variability in future cash flows on non-trading assets and liabilities that bear interest at variable rates or are expected to be refunded or reinvested in the future.
The derivatives used for cash flow hedge accounting are included in the statement of financial position line-item ‘Financial assets at fair value through profit or loss – Non-trading derivatives’ EUR 1,376 million (2019: EUR 677 million) respectively ‘Financial liabilities at fair value through profit or loss –
Non-trading derivatives’ EUR 230 million (2019: EUR 339 million). The remaining derivatives are offset with other derivatives and collaterals paid or received.
USD and 0.82% (2019: 1.50%) for AUD. The average currency exchange rates for cross currency swaps used in cash flow hedge accounting is for EUR/USD 0.95 (2019: 1.11) and for EUR/AUD 1.60 (2019: 1.55).
Less than month months months 1 to 2 year years years years >5 years Total
Cash flow hedging – impact of hedging instruments on the statement of profit or loss and other comprehensive income
Change in value used for calculating hedge ineffectiveness for the period
Interest rate risk on; Combined interest and FX rate risk on; – Discontinued hedges -3
The main sources of ineffectiveness for cash flow hedges are:  differences in timing of cash flows of the hedged item(s) and hedging instrument(s);  mismatches in reset frequency between hedged item and hedging instrument.
A foreign currency exposure arises from a net investment in subsidiaries that have a different functional currency from the presentation currency of ING Group. The risk arises from the fluctuation in spot exchange rates between the functional currency of the subsidiaries and ING Group’s presentation currency, which causes the amount of the net investment to vary in the consolidated financial statements of ING Group. This risk may have a significant impact on ING Group’s financial statements.
ING Group has the following derivative financial instruments used for net investment hedging; Gross carrying value of derivatives used for net investment hedging
For ING Group’s main currencies the average exchange rates used in net investment hedge accounting for 2020 are EUR/USD 1.14 (2019: 1.12), EUR/PLN 4.45 (2019: 4.30), EUR/AUD 1.65 (2019: 1.61) and
The following table shows the notional amount of derivatives designated in net investment hedging split into the maturity of the instruments: Maturity derivatives designated in net investment hedging
Less than months months year years years years >5 years Total
The effect of the net investment hedge accounting in the statement of profit or loss and other comprehensive income is as follows: Net investment hedge accounting – Impact on statement of profit or loss and other comprehensive income
Carrying amount net investment hedge reserve at the end of the reporting period1
Discontinued hedges -210 1 The carrying amount is the gross amount, excluding tax adjustments.
Amounts presented in these tables by contractual maturity are the amounts as presented in the statement of financial position and are discounted cash flows. Reference is made to ‘Risk Management
ING Group Annual Report 2020 351 41 Liabilities and off-balance sheet commitments by maturity
The tables below include all liabilities and off-balance sheet commitments by maturity based on contractual, undiscounted cash flows. These balances are included in the maturity analysis as follows:  Perpetual liabilities are included in column ‘Maturity not applicable’.
 Non-financial liabilities are included based on a breakdown of the amounts per statement of financial position, per expected maturity.
 Loans and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.
ING Group’s expected cash flows on some financial liabilities vary significantly from contractual cash flows. Principal differences are in demand deposits from customers that are expected to remain stable or increase and in unrecognised loan commitments that are not all expected to be drawn down immediately. Reference is made to the liquidity risk paragraph in ‘Risk Management – Funding and liquidity risk’ for a description on how liquidity risk is managed.
Liabilities and off-balance sheet commitments by maturity 2020 Less than 1 month 1 1–3 months 3–12 months 1–5 years Over 5 years
Guarantees issued by ING Groep N.V. 319 319 1 Includes liabilities on demand.
4 The prior period has been updated to improve consistency and comparability of the amounts per maturity of contingent liabilities.
The financial assets pledged as collateral consist primarily of Loans and advances to customers pledged to secure Debt securities in issue, deposits from the Dutch Central Bank and other banks, as well as debt securities used in securities lending or sale and repurchase transactions. They serve to secure margin accounts and are used for other purposes required by law. Pledges are generally conducted under terms that are usual and customary for collateralised transactions including standard sale and repurchase agreements, securities lending and borrowing and derivatives margining. The financial assets pledged are as follows: Financial assets pledged as collateral
In addition, in some jurisdictions ING Bank N.V. has an obligation to maintain a reserve with central banks. As at 31 December 2020, the minimum mandatory reserve deposits with various central banks amount to EUR 10,573 million (2019: EUR 9,975 million).
At ING Group amounts that are offset mainly relate to derivatives transactions, sale and repurchase agreements, securities lending agreements and cash pooling arrangements. A significant portion of offsetting is applied to OTC derivatives which are cleared through central clearing parties.
▪ In the case of derivatives and securities lending or sale and repurchase agreements, cash and non-cash collateral has been received or pledged to cover net exposure in the event of a default or other predetermined events. The effect of over-collateralisation is excluded.
Trading and Non-trading Derivatives 73,142 -52,561 20,581 12,520 5,350 2,710 10,240 30,821
Trading and non-trading Derivatives 74,454 -57,172 17,282 10,510 3,968 2,805 6,669 23,951
Loans and advances to customers Reverse repurchase, securities borrowing and similar agreements 180 180
2 At 31 December 2019, the total amount of ‘Loans and advances to customers’ excluding repurchase agreements is EUR 611,585 million of which EUR 2,689 million is subject to offsetting.
EUR 364 million is subject to offsetting as at 31 December 2019.
Other items where offsetting is applied in the 1 The ‘statement of financial position total’ is the sum of ‘Net amounts of financial assets presented in the statement of financial position’ and ’Amounts not subject to enforceable master netting arrangements’.
3 At 31 December 2020, the total amount of ‘Customers deposits’ excluding repurchase agreements is EUR 609,642 million of which EUR 18,675 million is subject to offsetting.
4 Other items mainly include amounts to be settled with Central Clearing Counterparties regarding securities and derivatives transactions and is included in ‘Other Liabilities – Amounts to be settled’ for EUR 4,877 million in the statement of financial position of which EUR 865 million is subject to offsetting as at 31 December 2020.
Other items where offsetting is applied in the 1 The amounts pledged as collateral for ‘Deposits from Banks – Repurchase agreements’ and ‘financial liabilities at fair value through profit or loss – Repurchase agreements’ have been updated to improve consistency and comparability.
3 At 31 December 2019, the total amount of ‘Customers deposits’ excluding repurchase agreements is EUR 574,433 million of which EUR 14,649 million is subject to offsetting.
4 Other items mainly include amounts to be settled with Central Clearing Counterparties regarding securities and derivatives transactions and is included in ‘Other Liabilities – Amounts to be settled’ for EUR 4,741 million in the statement of financial position of which EUR 269 million is subject to offsetting as at 31 December 2019.
Other contingent liabilities include acceptances of bills and are of a short-term nature. Other contingent liabilities also include contingent liabilities resulting from the operations of the Real Estate business including obligations under development and construction contracts. Furthermore other contingent liabilities include a contingent liability in connection with a possible Dutch tax obligation that relates to the deduction from Dutch taxable profit for losses incurred by ING Bank in the United
Irrevocable facilities mainly constitute unused portions of irrevocable credit facilities granted to corporate clients. Many of these facilities are for a fixed duration and bear interest at a floating rate.
ING Group’s credit risk and interest rate risk in these transactions is limited. The unused portion of irrevocable credit facilities is partly secured by customers’ assets or counter-guarantees by the central governments and other public sector entities under the regulatory requirements. Irrevocable facilities also include commitments made to purchase securities to be issued by governments and private issuers.
In addition to the items included in contingent liabilities, ING Group has issued certain guarantees as participant in collective arrangements of national banking funds and as a participant in required collective guarantee schemes which apply in different countries. For example, ING Bank N.V. provided a guarantee to the German Deposit Guarantee Fund (‘Einlagensicherungsfonds’ or ESF) under section 5
is a voluntary collective guarantee scheme for retail savings and deposits in excess of EUR 100,000.
While it is not feasible to predict or determine the ultimate outcome of all pending or threatened governmental, regulatory, arbitration and legal proceedings and investigations, ING is of the opinion that some of the proceedings and investigations set out below may have or have in the recent past had a significant effect on the financial position, profitability or reputation of ING and/or ING and its consolidated subsidiaries.
Dutch authorities concerning anti-money laundering matters, and in the context of significantly increased attention on the prevention of financial economic crime, ING has experienced heightened scrutiny by authorities in various countries. The interactions with such regulatory and judicial authorities have included, and can be expected to continue to include, onsite visits, information requests, investigations and other enquiries. Such interactions, as well as ING’s internal assessments in connection with its global enhancement programme, have in some cases resulted in satisfactory outcomes, and also have resulted in, and may continue to result in, findings, or other conclusions which may require appropriate remedial actions by ING, or may have other consequences. ING intends to continue to work in close cooperation with authorities as it seeks to improve its management of non-financial risks in terms of policies, tooling, monitoring, governance, knowledge and behaviour.
Also as previously disclosed in March 2019, ING Italy was informed by the Banca d’Italia of their report containing their conclusions regarding shortcomings in AML processes at ING Italy, which was prepared based on an inspection conducted from October 2018 until January 2019. ING Italy has been engaged in discussions with Banca d’Italia and Italian judiciary authorities. In February 2020, the Court of Milan confirmed and approved a plea bargain agreement with the Italian judiciary authorities. As a consequence, ING Italy has paid an administrative fine and disgorgement of profit. In addition, in
In September 2020, the Banca d’Italia announced that the ban on onboarding new customers at ING
Tax cases: Because of the geographic spread of its business, the Issuer may be subject to tax audits, investigations and procedures in numerous jurisdictions at any point in time. Although the Issuer believes that it has adequately provided for all its tax positions, the ultimate resolution of these audits, investigations and procedures is uncertain and may result in liabilities which are materially different from the amounts recognised.
SIBOR – SOR litigation: In July 2016, investors in derivatives tied to the Singapore Interbank Offer Rate
(“SOR”). The lawsuit refers to investigations by the Monetary Authority of Singapore (“MAS”) and other regulators, including the U.S. Commodity Futures Trading Commission (“CFTC”), in relation to rigging prices of SIBOR- and SOR based derivatives. In October 2018, the New York District Court issued a decision dismissing all claims against ING Group and ING Capital Markets LLC, but leaving ING Bank, together with several other banks, in the case, and directing plaintiffs to file an amended complaint consistent with the Court's rulings. In October 2018, plaintiffs filed such amended complaint, which asserts claims against a number of defendants but none against ING Bank (or any other ING entity), effectively dismissing ING Bank from the case. In December 2018, plaintiffs sought permission from the
York District Court granted the defendants’ motion to dismiss and denied leave to further amend the complaint, effectively dismissing all remaining claims against ING Bank. In November 2019, plaintiffs filed an appeal against this judgment.
Interest rate derivatives claims: ING is involved in several legal proceedings in the Netherlands with respect to interest rate derivatives that were sold to clients in connection with floating interest rate loans in order to hedge the interest rate risk of the loans. These proceedings are based on several legal grounds, depending on the facts and circumstances of each specific case, inter alia alleged breach of duty of care, insufficient information provided to the clients on the product and its risks and other elements related to the interest rate derivatives that were sold to clients. In some cases, the court has ruled in favour of the claimants and awarded damages, annulled the interest rate derivative or ordered repayment of certain amounts to the claimants. The total amounts that need to be repaid or compensated in some cases still need to be determined. ING may decide to appeal against adverse rulings. Although the outcome of the pending litigation and similar cases that may be brought in the future is uncertain, it is possible that the courts may ultimately rule in favour of the claimants in some or all of such cases. Where appropriate a provision has been taken. The aggregate financial impact of the current and future litigation could become material.
was allowed to increase the interest surcharge based upon the essential obligations in the contract. In a relevant case the Dutch Supreme Court ruled in favor of another Dutch bank, addressing the question whether or not a bank is allowed to increase interest surcharges unilaterally. The Supreme Court ruled affirmative. ING will continue to deal with all claims individually.
Luxemburg benefitted from an "opschorting van de uitspraak/suspension du prononcé" which means that the conviction has been upheld, but no penal sanction has been pronounced (penalties suspended). The judgment is now final.
Mortgage expenses claims: ING Spain has received claims and is involved in procedures with customers regarding reimbursement of expenses associated with the formalisation of mortgages. In most court proceedings in first instance the expense clause of the relevant mortgage contract has been declared null and ING Spain has been ordered to reimburse all or part of the applicable expenses.
January 2021, the Spanish Supreme Court ruled that valuation costs of mortgages, signed prior to June 16, 2019, the date the new mortgage law entered into force, should be borne by the bank. The impact on ING was analysed and the provision mentioned above was adjusted. ING Spain has also been included, together with other Spanish banks, in three class actions filed by customer associations. In one of the class actions an agreement was reached with the association. In another class action ING
filed an appeal asking the Spanish Court of Appeal to determine that the ruling of the court of first instance is only applicable to the consumers that were part of the case.
Shareholders Action Group B.V. on behalf of certain (former) shareholders of Imtech N.V. (“Imtech”).
Furthermore, on 28 March 2018, ING Bank received another claim on the same subject matter from the
Dutch Association of Stockholders (Vereniging van Effectenbezitters, “VEB”). Each of the claimants allege inter alia that shareholders were misled by the prospectus of the rights issues of Imtech in July 2013 and October 2014. ING Bank, being one of the underwriters of the rights issues, is held liable by the claimants for the damages that investors in Imtech would have suffered. ING Bank responded to the claimants denying any and all responsibility in relation to the allegations made in the relevant letters. In September 2018, the trustees in the bankruptcy of Imtech claimed from various financing parties, including ING, payment of what the security agent has collected following bankruptcy or intends to collect, repayment of all that was repaid to the financing parties, as well as compensation for the repayment of the bridge financing. At this moment it is not possible to assess the outcome of these claims nor to provide an estimate of the (potential) effect of these claims.
In November 2019 ING Bank agreed to purchase the remaining 25% shares in three tranches between
November 2019 and April 2020 for a total consideration of EUR 90 million. This resulted in the remeasurement of the financial liability to EUR 90 million. A stake of 23% was purchased in 2019 which reduced the outstanding financial liability and on 30 April 2020 ING purchased the remaining stake of 2%. As at 31 December 2020 the ownership interest of ING Bank was 100%. Given that ING Bank already had control over Payvision, the acquisition of the shares in 2020 represents a shareholder transaction and resulted in a transfer between Non-controlling interest and Shareholders equity of EUR
The deferred purchase price is linked to the performance of the sold portfolio and is reported under the financial assets mandatorily measured at fair value through profit and loss. The additional loss in 2019 amounted EUR -2 million (2018: EUR -123 million). The Italian lease business was reported as Assets
Reference is made to Note 24 ‘Result on the disposal of group companies’.
The principal subsidiaries, investments in associates and joint ventures of ING Groep N.V. and their statutory place of incorporation or primary place of business are as follows: Principal subsidiaries, investments in associates and joint ventures
ING Financial Holdings Corporation Delaware United States of America 100% 100%
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’s activities involving structured entities are explained below in the following categories: 1. Consolidated ING originated securitisation programmes; 2. Consolidated ING originated Covered bond programme (CBC); 3. Consolidated ING sponsored Securitisation programme (Mont Blanc); 4. Unconsolidated Securitisation programme; and 5. Other structured entities.
The underlying exposures include residential mortgages in the Netherlands, Belgium, Spain, Italy and
The structured entity issues securitisation notes in two or more tranches, of which the senior tranche obtains a high rating (AAA or AA) by a rating agency. The tranche can subsequently be used by ING
In addition ING Group originated various securitisations for liquidity management optimisation purposes. As at 31 December 2020, these consisted of approximately EUR 2 billion (2019: EUR 2 billion)
of senior secured portfolio loans, which have been issued to ING subsidiaries in Germany. The underlying exposures are senior loans to large corporations and financial institutions, and real estate finance loans, mainly in the Netherlands. These securitisations did not impact ING Group’s consolidated statement of financial position and profit or loss.
Furthermore ING offers protection against deterioration of the mortgage loans. The entities are consolidated by ING Group.
In addition, subsidiaries of ING in Germany, Belgium and Australia also issued covered bonds with pledged mortgages loans of approximately EUR 21 billion (2019: EUR 16 billion) in total.
In the normal course of business, ING Group structures financing transactions for its clients by assisting them in obtaining sources of liquidity by selling the clients’ receivables or other financial assets to a
Special Purpose Vehicle (SPV). The senior positions in these transactions may be funded by the ING
administered multi seller Asset Backed Commercial Paper (ABCP) conduit Mont Blanc Capital Corp.
In its role as administrative agent, ING Group facilitates these transactions by acting as administrative agent, swap counterparty and liquidity provider to Mont Blanc Capital Corp. ING Group also provides support facilities (i.e. liquidity) backing the transactions funded by the conduit. The types of asset currently in the Mont Blanc conduit include trade receivables, consumer finance receivables, car leases and residential mortgages.
The standby liquidity facilities are reported under irrevocable facilities. All facilities, which vary in risk profile, are granted to the Mont Blanc Capital Corp. subject to normal ING Group credit and liquidity risk analysis procedures. The fees received for services provided and for facilities are charged subject to market conditions.
Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. Related parties of ING Group include, among others, its subsidiaries, associates, joint ventures, key management personnel, and various defined benefit and contribution plans. For post-employment benefit plans, reference is made to Note 36 ‘Pension and other postemployment benefits’. Transactions between related parties include rendering or receiving of services, leases, transfers under finance arrangements and provisions of guarantees or collateral. All transactions with related parties took place at conditions customary in the market. There are no significant provisions for doubtful debts or individually significant bad debt expenses recognised on outstanding balances with related parties.
Variable compensation 1 Excluding members of the Management Board Banking that are also members of the Executive Board of ING Groep N.V.
2 The collective fixed allowances consist of two savings allowances applicable to employees in the Netherlands; an individual savings allowance of 3.5% and a collective savings allowance to compensate for loss of pension benefits with respect to salary in excess of EUR 110,111.
3 In 2020 one member of the Executive Board left ING during the year. The table includes compensation earned in the capacity as board member.
5 Other emoluments include reimbursement of costs related to home/work commute, costs relating to tax and financial planning services, costs associated with a company car and for expats, the costs associated with housing and schooling and costs related to reimbursement of Directors and Officers indemnity
Variable compensation 1 Excluding members that are also members of the Executive Board of ING Groep N.V. One Management Board Banking member was appointed to the Executive Board during the year.
Key management personnel compensation is generally included in Staff expenses in the statement of profit or loss. The total remuneration of the Executive Board and Management Board Banking is disclosed in the table above. Under IFRS, certain components of variable remuneration are not recognised in the statement of profit or loss directly, but are allocated over the vesting period of the award. The comparable amount recognised in Staff expenses in 2020 relating to the fixed expenses of 2020 and the vesting of variable remuneration of earlier performance years, is EUR 12 million in 2020
The table below shows the total of fixed remuneration, expense allowances and attendance fees for the Supervisory Board in 2020 and 2019.
Board Banking are compliant with the standards set out in the DNB guidelines for loans to officers and directors of a regulated entity, such as ING.
As at 31 December 2020 Deposits outstanding from key management personnel amounted to EUR
12.5 million (31 December 2019: EUR 12.4 million). Total interest paid in 2020 on these deposits amounted to EUR 14 thousand (2019: EUR 13 thousand).
Total number of shares and stock options 348,088 374,301 46,198 50 Subsequent events
On 18 February 2021 ING announced that it intends to withdraw from the retail banking market in the
GT Balance Sheet & Capital Management takes into account both regulatory and internal, economic based metrics and requirements as well as the interests of key stakeholders such as shareholders and rating agencies.
ING applies the following main capital definitions:  Common equity Tier 1 capital (CET1) - is defined as shareholders’ equity less regulatory adjustments. CET1 capital divided by risk-weighted assets equals the CET1 ratio.
 Total capital – is Tier 1 capital plus subordinated Tier 2 liabilities and regulatory adjustments.
Total capital divided by risk-weighted assets equals the Total capital ratio.
Our capital position remained strong despite the higher risk costs due to Covid-19. At both the consolidated and entity level, ING has sufficient buffers to withstand certain adverse scenarios without breaching regulatory requirements in a forward looking scenario.
RWA inflation. This new ambition level is still comfortably above the current Maximum Distributable
Amount (MDA) level of 10.51%, implying a management buffer of ~200 basis points.
CRR II / CRD V solvency requirement (including buffer requirements) of 10.51%. The Group’s Tier 1 ratio
(including grandfathered securities) increased to 17.3%. The Total capital ratio (including grandfathered securities) increased from 19.1% to 20.1% compared to last year.
(including buffer requirements) of 8.14%. ING Bank will pay EUR 1,207 million of dividend to ING Group in relation to 2020 profit. The Tier 1 ratio (including grandfathered securities) increased from 15.1% to 15.9%, primarily reflecting developments in ING Bank’s CET1 ratio. The Banks’s total capital ratio
2. Including EUR 4,660 million which is CRR-compliant (2019: EUR 5,312 million) and EUR 983 million to be replaced as capital recognition is subject to CRR grandfathering rules (2019: EUR 1,604 million).
In the third quarter of 2020, ING announced a change in its distribution policy from a progressive dividend to a pay-out ratio of 50% of resilient net profit and additional return of structural excess capital. The latter to be considered periodically, taking into account alternative opportunities as well as macroeconomic circumstances and the outcome of our capital planning. Resilient net profit is defined as net profit adjusted for significant items not linked to the normal course of business. The 50% payout may be in the form of cash or a combination of cash and share repurchases.
adjustments to the IFRS-EU net result related to impairments on goodwill (EUR 310 million) and the
(EUR 0.12 per share). This amount is equal to 15% of adjusted net profit for 2020, in line with the ECB
improve decision-making and business steering through balancing risk and return following a forward looking and prudent management approach.
Directives, as implemented by the Dutch Central Bank (Dutch Central Bank until 3 November 2014, the
ECB thereafter) for supervisory purposes. In 2010, the Basel Committee issued new solvency and liquidity requirements that superseded Basel II, implemented in the EU via CRR / CRD. In accordance with the CRR the minimum Pillar 1 capital requirements applicable to ING Group are: a CET1 ratio of 4.5%, a Tier 1 ratio of 6% and a Total capital ratio of 8% of risk-weighted assets.
SII buffer) by the Dutch National Bank from 3% to 2.5%. Similarly, various competent authorities changed or removed their Countercyclical Buffer (CCyB) requirements reducing the CCyB for ING from 24 basis points to 3 basis points.
As a consequence, the overall CET1 requirement (including buffer requirements) for ING Group at a consolidated level was 10.51% in 2020. This requirement is the sum of a 4.5% Pillar I requirement, a 0.98% Pillar II requirement, a 2.5% Capital Conservation Buffer (CCB), a 0.03% Countercyclical Buffer
(CCyB) (based on December 2020 positions) and a 2.5% O-SII buffer that is set separately for Dutch systemic banks by the Dutch Central Bank (De Nederlandsche Bank). This requirement excludes the
ING’s key credit ratings and outlook are shown in the table above. Each of these ratings reflects only the view of the applicable rating agency at the time the rating was issued, and any explanation of the significance of a rating may be obtained only from the rating agency.
accepts no responsibility for the accuracy or reliability of the ratings.
Parent company statement of financial position as at 31 December before appropriation of result
Investments in group companies 2 47,717 47,109 Share capital 39 39
Result from (disposal of) group companies and participating interests after taxation 12 2,421 4,870
Notes to the parent company financial statements 1 Basis of presentation
Consolidated financial statements. Investments in Group companies are accounted for in the Parent company accounts according to the equity method. In addition to the notes to these financial statements, further information is included in the notes to the consolidated financial statements.
Changes in ING Groep N.V. shares held by group companies 5 1 3 Receivables from Group companies
As at 31 December 2020 an amount of EUR 42,270 million (2019: EUR 40,917 million) is expected to be settled after more than one year from the balance sheet date.
In 2020, ING Groep N.V. issued 3.9 million ordinary shares (2019: 5.0 million). These issues were made in order to fund obligations arising from share-based employee incentive programmes.
Realised gains/losses transferred to the statement of profit or loss -33 -33
As at 31 December 2020, the Share of participating interests reserve includes an amount of EUR 1,912 million (2019: EUR 1,818 million) related to the former Stichting Regio Bank and the former Stichting
Changes in the composition of the group and other changes 441 – 441
Reference is made to the ING Group Consolidated financial statements, Note 18 ‘Subordinated loans’
The number of debentures held by Group companies as at 31 December 2020 is nil with a statement of financial position value of nil (2019: nil with a statement of financial position value of nil). Derivatives from Group companies by remaining term
The 2020 negative staff expenses relate to a release of provision for cash-settled employee share based payments.
The information on share-based payment plans and remuneration of the members of the Executive
Included in Interest and other financial income is EUR 1,106 million (2019: EUR 1,074 million) related to
Included in Interest and other financial expenses is EUR 20 million (2019: EUR 21 million) related to
In 2020 the reversal was booked of a EUR 69 million tax accrual of 2019.
For a reconciliation of the weighted average statutory income tax rate to ING Group’s effective income tax rate reference is made to Note 37 ‘Taxation’ in the ING Group Consolidated financial statements.
ING Group Annual Report 2020 387 12 Result from Group companies and participating interests after taxation
In the ordinary course of business ING Group have entered into a number of agreements whereby ING
Group are provided and being provided indemnifications related to sale of our past businesses and agreements whereby ING Group made detailed arrangements regarding allocation and handling of claims.
Addition to reserves pursuant to Article 37 (4) of the Articles of Association 2,017
Czech Republic. Raiffeisenbank Czech Republic has agreed to prepare a welcome offer for ING’s retail customers in the Czech Republic. In March, customers will receive an invitation from Raiffeisenbank to move to this bank over the coming months. The ambition is for ING to stop all its retail activities in this market by the end of 2021. ING will remain active in the Czech Republic as a provider of wholesale banking products and services. The agreement with Raiffeisenbank has been secured to ensure ING’s customers in the Czech Republic can continue to meet their banking needs. ING customers will receive the option to move their savings and investments to Raiffeisenbank at preferential conditions. The agreement between ING Czech Republic and Raiffeisenbank Czech Republic is pending regulatory approval.
The consolidated financial statements comprise: 1 the consolidated statement of financial position as at 31 December 2020; 2 the following consolidated statements for 2020: the statement of profit or loss, the statements of comprehensive income, changes in equity and cash flows; and 3 the notes comprising a summary of the significant accounting policies and other explanatory information.
We are independent of ING Groep N.V. in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (‘ViO’, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in The Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (‘VGBA’, Dutch Code of Ethics).
— Assessment of Expected Credit Losses on loans and advances to customers and banks.
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. 390
We consider normalised profit before taxation from continuing operations as the most appropriate benchmark based on our assessment of the general information needs of users of financial statements and given the fact that ING Group is a profit-oriented entity. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.
We agreed with the Audit Committee of the Supervisory Board that misstatements in excess of EUR 12.5 million (2019: EUR 15 million) which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
All components in scope for group reporting are audited by KPMG member firms. We sent detailed instructions to all component auditors, covering significant areas including the relevant significant risks of material misstatement identified at group level, and set out the information required to be reported to the group audit team. We performed file reviews for The Netherlands, Belgium, Germany, France, United Kingdom, Hong Kong, Singapore and Turkey. The Covid-19 travel implications required us to perform the file reviews remotely. For all components in scope of the group audit, we held conference calls and/or remote meetings with the auditors of the components. During these meetings and calls, the planning, risk assessment, procedures performed, findings and observations reported to the group auditor were discussed in more detail and any further work deemed necessary by the group audit team was then performed.
The audit coverage as stated in the section summary can be further specified as follows: Total assets 92% 8% Covered by audit procedures performed by component auditors
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. 391
The objectives of our audit with respect to fraud and non-compliance with laws and regulations are: With respect to fraud: — to identify and assess the risks of material misstatement of the financial statements due to fraud; — to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate audit responses; and
With respect to non-compliance with laws and regulations: — to identify and assess the risk of material misstatement of the financial statements due to non-compliance with laws and regulations; and
— to obtain a high (but not absolute) level of assurance that the financial statements, taken as a whole, are free from material misstatement, whether due to fraud or error when considering the applicable legal and regulatory framework.
As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to for example financial reporting fraud and misappropriation of assets. We, together with our forensics specialists, evaluated the fraud risk factors to consider whether those factors indicated a risk of material misstatement due to fraud.
The potential effect of the identified laws and regulations on the financial statements varies considerably.
Firstly, the Company is subject to laws and regulations that directly affect the financial statements, including taxation and financial reporting. We assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items and, therefore, no additional audit response is necessary.
Secondly, the Company is subject to many other laws and regulations where the consequences of non-compliance could have an indirect material effect on amounts recognised or disclosures provided in the financial statements, or both, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an indirect effect: — Anti-money laundering laws and regulations.
In accordance with the auditing standard, we evaluated the following fraud and non-compliance risks that are relevant to our audit, including the relevant presumed risks: — Fraud risk in relation to management override of controls (a presumed risk).
— Fraud risk in relation to management override of Expected Credit Loss provision results.
We rebutted the presumed fraud risk on revenue recognition, as the accounting of interest income and commission income is based on automatically generated accruals based on static data taken from the loan source system and therefore concerns routine transactions not subject to management judgement.
We communicated the identified risks of fraud and non-compliance with laws and regulations throughout our team and remained alert to any indications of fraud and/or non-compliance throughout the audit. This included communication from the group to component audit teams of relevant risks of fraud and/or non-compliance with laws and regulations identified at group level.
— We obtained audit evidence regarding compliance with the provisions of those laws and regulations generally recognised to have a direct effect on the determination of material amounts and disclosures in the financial statements.
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. 392
We do note that our audit is based on the procedures described in line with applicable auditing standards.
We inspected the progress reports in relation to the KYC enhancement program and we evaluated and discussed internal audit reports in relation to compliance. We instructed local auditors of selected components of ING Group to assess the progress of the remediation at component level.
We observe that the required KYC enhancement program receives and will need ongoing attention from management, the Audit Committee and the Supervisory Board.
— Use of forward-looking macroeconomic forecasts in the ECL, including GDP, unemployment, and house pricing index.
The following are the primary procedures we performed to address this Key Audit Matter: — We evaluated the design and tested the operating effectiveness of certain internal controls related to the ECLprocess for loans and advances to customers and banks. This included controls related to the assumptions (including macroeconomic forecasts, PD, LGD and EAD), review of model outputs, governance and monitoring of the ECL, determination of credit risk ratings, the estimated future recovery cash flows of individual loan provisions and management overlays recorded to ECL.
— We involved credit risk professionals with specialised skills and knowledge who assisted in evaluating the assumptions to determine the PD, LGD, and EAD parameters in models used by the Company to determine the collective provisions, and assessed management overlays recorded to the ECL, including payment holiday and time lag overlays. This included reperforming back-testing of certain models to evaluate current model performance. We considered the impact these overlays have on model calculations and results when reaching our conclusions.
— We involved corporate finance professionals with specialised skills and knowledge who assisted in examining the methodologies, cash flows and collateral values used in expected future recovery cash flow assessments of individual loan provisions for impaired loans. We challenged management’s use of recovery scenarios and expected cash flows considering industry trends and comparable benchmarks, and recalculated recovery amounts.
As discussed in Note 10 to the consolidated financial statements, goodwill was EUR 533 million as at 31 December 2020. Management conducts an impairment test annually in accordance with IAS 36, and whenever events or changes in circumstances indicate that the carrying value of a Cash Generating Unit (‘CGU’) may exceed its recoverable amount. As a result of the negative developments in the macroeconomic outlook in the context of the Covid-19 pandemic, the recoverable amount of goodwill has declined. The recoverable amount is estimated as the higher of fair value less cost of disposal and value in use (‘VIU’) of each CGU, based on management’s dividend discount model.
Specifically, forecasts, terminal growth rates, discount rates and capital ratios were challenging to test as minor changes to those assumptions had a significant effect on the Company’s assessment of the recoverable amount. We performed sensitivity analyses to determine the significant assumptions used, which required challenging auditor judgement. Additionally, the audit effort associated with this estimate required specialised skills and knowledge.
The following are the primary procedures we performed to address this Key Audit Matter: — We identified events or changes in circumstances and tested management’s process for determining the recoverable amount of each CGU.
Based on our procedures performed, we found management’s overall assessment relating to the valuation of goodwill within an acceptable range and adequately disclosed in Note 10.
Our audit approach depends to a large extent on the effectiveness of automated controls and, therefore. procedures are designed to test, among others, access and change management controls over IT systems. Given the IT technical characteristics of this part of the audit, IT audit specialists are an integral part of our engagement team.
Our areas of focus related to the change management, user access management, cyber security, security event monitoring, automated and application controls of the IT systems relevant for financial reporting. Management has put efforts to remediate identified control deficiencies. For those control deficiencies that were not remediated, we tested compensating controls that addressed the same risk or mitigating controls that lowered the risk of the deficiency. For certain deficiencies during the period of remediation, we substantively assessed the access to determine whether inappropriate access occurred and whether changes made were appropriate.
— contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements.
We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audits of public-interest entities.
Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. 395
We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, related safeguards.
Company may make distributions to the extent permitted by law after adoption of the annual accounts by the Executive and Supervisory Boards. The Executive Board, subject to approval of the
Supervisory Board, determines what part of the result remaining after application of the provisions of article 37.3 is to be appropriated to reserves and that the remaining part of the result shall be at the disposal of the Annual General Meeting. The General Meeting, on a motion of the Executive Board with approval of the Supervisory Board may resolve to distribute from the reserves to ordinary shareholders a dividend or other form of distribution to the registered shareholders on a date determined by the
The following is a summary of the principal risk factors that could have a material adverse effect on the business activities, financial condition, results and prospects of ING. Please carefully consider all of the information discussed in this Item 3.D “Risk Factors” for a detailed description of these risks.
• Our revenues and earnings are affected by the volatility and strength of the economic, business, liquidity, funding and capital markets environments of the various geographic regions in which we conduct business, as well as by changes in customer behaviour in these regions, and an adverse change in any one region could have an impact on our business, results and financial condition.
• ING’s business, results and financial condition have been, and likely will continue to be, adversely affected by the Covid-19 pandemic.
• Interest rate volatility and other interest rate changes may adversely affect our business, results and financial condition.
• Inflation and deflation may negatively affect our business, results and financial condition.
• We may incur losses due to failures of banks falling under the scope of state compensation schemes.
• Non-compliance with laws and/or regulations concerning financial services or financial institutions, including with respect to financial economic crimes, could result in fines and other liabilities, penalties or consequences for us, which could materially affect our business and reduce our profitability.
• We are subject to the regulatory supervision of the ECB and other regulators with extensive supervisory and investigatory powers.
• We may be subject to litigation, enforcement proceedings, investigations or other regulatory actions, and adverse publicity.
• We may be subject to withholding tax if we fail to comply with the Foreign Account Tax
• Operational risks, such as systems disruptions or failures, breaches of security, cyber attacks, human error, changes in operational practices, inadequate controls including in respect of third parties with which we do business, natural disasters or outbreaks of communicable diseases may adversely impact our reputation, business and results.
• We are subject to increasing risks related to cybercrime and compliance with cybersecurity regulation.
• Ratings are important to our business for a number of reasons, and a downgrade or a potential downgrade in our credit ratings could have an adverse impact on our results and net results.
• We may be exposed to business, operational, regulatory, reputational and other risks in connection with climate change.
• We may incur further liabilities in respect of our defined benefit retirement plans if the value of plan assets is not sufficient to cover potential obligations, including as a result of differences between actual results and underlying actuarial assumptions and models.
• Risks relating to our use of quantitative models or assumptions to model client behaviour for the purposes of our market calculations may adversely impact our reputation or results.
• We may be unable to manage our risks successfully through derivatives.
• Because we are incorporated under the laws of the Netherlands and many of the members of our Supervisory and Executive Board and our officers reside outside of the United States, it may be difficult to enforce judgments against ING or the members of our Supervisory and Executive
Because ING is a multinational banking and financial services corporation, with a global presence and serving around 39.3 million customers, corporate clients and financial institutions in over 40 countries,
Retail Banking markets. In Wholesale Banking, we provide specialised lending, tailored corporate finance, debt and equity market solutions, payments & cash management, trade and treasury services. As a result, negative developments in financial markets and/or countries or regions in which we operate, have in the past had and may in the future have a material adverse impact on our business, results and financial condition, including as a result of the potential consequences listed below.
Continued risk of political instability and fiscal uncertainty in Europe and the United States, as well as ongoing volatility in the financial markets and the economy generally have adversely affected, and may continue to adversely affect, our business, results and financial condition”. All of these are factors in local and regional economies as well as in the global economy, and we may be affected by changes in any one of these factors in any one country or region, and more if more of these factors occur simultaneously and/or in multiple countries or regions or on a global scale.
(primarily Poland among others), Southern Europe (primarily Spain among others), East Asia (primarily
ING Group Annual Report 2020 400 information, refer to the risk factor described under heading “–ING’s business, results and financial condition have been, and likely will continue to be adversely affected by the Covid-19 pandemic”.
Securities prices, real estate values and private equity valuations may also be adversely impacted, and any such losses would be realised through profit and loss and shareholders’ equity. We also offer a number of financial products that expose us to risks associated with fluctuations in interest rates, securities prices, corporate and private default rates, the value of real estate assets, exchange rates and credit spreads.
ING’s business, results and financial condition have been, and likely will continue to be, adversely affected by the Covid-19 pandemic.
Germany, France, Italy, Spain, the U.K. and the U.S.). This disruption has adversely affected, and will likely continue to adversely affect, global economic growth, supply chains, manufacturing, tourism, consumer spending, asset prices and unemployment levels, and has resulted in volatility and uncertainty across the global economy and financial markets.
Governments, regulators and central banks (including the ECB), have also announced that they are taking or considering measures seeking to safeguard the stability of the financial sector, to prevent lending to the business sector from being jeopardised and to ensure the payment system continues to function properly. The ECB currently allows banks to operate below the level of capital required by the
September 30, 2021. However, it is not certain whether these or future measures will be extended or maintained for a sufficient period of time, or whether such measures will be successful in mitigating the economic consequences of the pandemic and related response measures. If the pandemic is prolonged or the actions are unsuccessful, additional actions by governments and central banks may follow and the adverse impact on the global economy will deepen, and our business, results and financial condition may be materially adversely affected.
In 2020, ING also took certain measures to support customers impacted by the Covid-19 pandemic, including payment holidays, offering credit facilities to business customers under government guarantee schemes and providing liquidity under credit facilities to large corporate customers.
Although, following supervisory guidelines, payment holidays do not automatically trigger an immediate classification of the loans as in default or as forborne, the credit quality of these loans will be monitored for future transitions into Stage 2 and could result in increased risk costs and additional risk weighted assets in future periods. As of December 31, 2020, in line with the European Banking
Our capital and liquidity position may also be adversely impacted by the Covid-19 pandemic and related response measures, including as a result of changes in future levels of savings and deposits from customers, changes in asset quality, and the effects of government or regulatory responses to the pandemic, and may require changes to our funding structure, impact our ability to comply with regulatory capital requirements and adversely affect our cost of capital and credit rating. Any of the foregoing developments may have a material adverse impact on our business, results and financial condition.
A prolonged period of low interest rates, and in some situations negative interest rates, has resulted in, and may continue to result in: ▪ lower earnings over time on investments, as reinvestments will earn lower rates; ▪ increased prepayment or redemption of mortgages and fixed maturity securities in our investment portfolios, as well as increased prepayments of corporate loans. This as borrowers seek to borrow at lower interest rates potentially combined with lower credit spreads.
The foregoing impacts have been and may be further amplified in a negative interest rate environment, since we may not be able to earn interest on our assets (including reserves). In addition, we have, and may continue to, earn negative interest on certain of our assets (including cash balances, loans and bonds), while still paying positive interest or no interest to others to hold our liabilities, resulting in an adverse impact on our credit spread and lowering of our net interest income.
Alternatively, any period of rapidly increasing interest rates may result in: ▪ a decrease in the demand for loans; ▪ higher interest rates to be paid on customer deposits and on debt securities that we have issued or may issue on the financial markets from time to time to finance our operations, which would increase our interest expenses and reduce our results; ▪ higher interest rates which can lead to lower investments prices and reduce the revaluation reserves, thereby lowering IFRS equity and the capital ratios. Also the lower securities value leads to a loss of liquidity generating capacity which needs to be compensated by attracting new liquidity generating capacity which reduces our results;
ING. Such distress of, or default by, a major financial institution could disrupt markets or clearance and settlement systems and lead to a chain of defaults by other financial institutions, since the commercial and financial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships. Also the perceived lack of creditworthiness of a sovereign or a major financial institution (or a default by any such entity) may lead to market-wide liquidity problems and losses or defaults by us or by other institutions. This risk is sometimes referred to as ‘systemic risk’ and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with whom we interact on a daily basis and financial instruments of sovereigns in which we invest. Systemic risk could impact ING directly, by exposing it to material credit losses on transactions with defaulting counterparties or indirectly by significantly reducing the available market liquidity on which ING and its lending customers depend to fund their operations and/or leading to a write down of loans or securities held by ING. In addition, ING
Our global business and results are materially affected by conditions in the global capital markets and the economy generally. In Europe, there are continuing concerns over weaker economic conditions, levels of unemployment, the availability and cost of credit, credit spreads, and the impact of continued quantitative easing within the Eurozone through bond repurchases and the ECB’s targeted longer-term refinancing operation (‘TLTRO’). In addition, geopolitical issues, including trade tensions between the US
and China, increasing protectionism between key countries, and issues with respect to the Middle East,
Adverse developments in the market have included, for example, temporary decrease in liquidity, increased price volatility, credit downgrade events, and increased probability of default for fixed income securities. Moreover, there is a risk that an adverse credit event at one or more European sovereign debtors (including a credit rating downgrade or a default) could trigger a broader economic downturn in Europe and elsewhere. In addition, the confluence of these and other factors has resulted in volatile foreign exchange markets. International equity markets have also continued to experience heightened volatility and turmoil, with issuers, including ourselves, that have exposure to the real estate, mortgage, private equity and credit markets particularly affected. These events, market upheavals and continuing risks, including high levels of volatility, have had and may continue to have an adverse effect on our results, in part because we have a large investment portfolio.
ING Group Annual Report 2020 404 to meet their day-to-day cash flows in the short-term debt market. The impact of any further downgrades to the sovereign credit rating of the US government or a default by the US government on its debt obligations would create broader financial turmoil and uncertainty, which would weigh heavily on the global financial system and could consequently result in a significant adverse impact to the
In many cases, the markets for investments and instruments have been and remain illiquid, and issues relating to counterparty credit ratings and other factors have exacerbated pricing and valuation uncertainties. Valuation of such investments and instruments is a complex process involving the consideration of market transactions, pricing models, management judgment and other factors, and is also impacted by external factors, such as underlying mortgage default rates, interest rates, rating agency actions and property valuations. Historically these factors have resulted in, among other things, valuation and impairment issues in connection with our exposures to European sovereign debt and other investments.
London Interbank Offered Rate (‘LIBOR’), the Euro OverNight Index Average (‘EONIA’) and the Euro
Interbank Offered Rate (‘EURIBOR’). These interest rate ‘benchmarks’ have been the subject of ongoing national and international regulatory reform. For example, ICE Benchmark Administration (IBA), as the administrator of LIBOR, issued a consultation with respect to its plans for the cessation for most LIBOR
Markets Institute (EONIA’s administrator) has indicated that EONIA cannot be used in any contracts that may be outstanding as of 1 January 2022. Following the implementation of such reforms, the manner of administration of benchmarks may change, with the result that they may perform or be calculated differently than in the past, or such benchmarks may cease to exist entirely, or there could be other consequences which cannot be predicted.
systems, trade reporting infrastructure processes, or in relation to communications with clients or other parties and engagement during the transition period. In addition to the heightened conduct and operational risks, the process of adopting new reference rates may expose the Group to an increased
A sustained increase in the inflation rate in our principal markets would have multiple impacts on us and may negatively affect our business, results and financial condition. For example, a sustained increase in the inflation rate may result in an increase in market interest rates, which may: ▪ decrease the estimated fair value of certain fixed income securities that we hold in our investment portfolios, resulting in: ▪ reduced levels of unrealised capital gains available to us, which could negatively impact our solvency position and net income, and/or
▪ require us, as an issuer of securities, to pay higher interest rates on debt securities that we issue in the financial markets from time to time to finance our operations, which would increase our interest expenses and reduce our results.
A significant and sustained increase in inflation has historically also been associated with decreased prices for equity securities and sluggish performance of equity markets generally. A sustained decline in equity markets may: ▪ result in impairment charges to equity securities that we hold in our investment portfolios and reduced levels of unrealised capital gains available to us which would reduce our net income, and
However, extraordinary ex-post contributions may be temporarily deferred if, and for so long as, they would jeopardise the solvency or liquidity of a bank. Depending on the size of the failed bank, the available financial means in the fund, and the required additional financial means, the impact of the extraordinary ex-post contributions on ING may be material.
Since 2015, the EU has been discussing the introduction of a pan-European deposit guarantee scheme
Non-compliance with laws and/or regulations concerning financial services or financial institutions, including with respect to financial economic crimes, could result in fines and other liabilities, penalties or consequences for us, which could materially affect our business and reduce our profitability.
ING has faced, and in the future may continue to face, the risk of consequences in connection with non-compliance with applicable laws and regulations. For additional information on legal proceedings, see Note 45 ‘Legal proceedings’ to the consolidated financial statements. There are a number of risks in areas where applicable regulations may be unclear, subject to multiple interpretations or under development, or where regulations may conflict with one another, or where regulators revise their previous guidance or courts overturn previous rulings, which could result in our failure to meet applicable standards. Regulators and other authorities have the power to bring administrative or judicial proceedings against us, which could result, among other things, in suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action, which could materially harm our results and financial condition. If we fail to address, or appear to fail to address, any of these matters appropriately, our reputation could be harmed and we could be subject to additional legal risk, which could, in turn, increase the size and number of claims and damages brought against us or subject us to enforcement actions, fines and penalties.
Furthermore, as a financial institution, we are exposed to the risk of unintentional involvement in criminal activity in connection with the commission of financial economic crimes, including with respect to money laundering and the funding of terrorist and other criminal activities. The failure or perceived failure by us to comply with legal and regulatory requirements with respect to financial economic crimes may result in adverse publicity, claims and allegations, litigation and regulatory investigations and sanctions, which may have a material adverse effect on our business, results, financial condition and/or prospects in any given period. For further discussion of the impact of litigation, enforcement proceedings, investigations or other regulatory actions with respect to financial economic crimes, see “– We may be subject to litigation, enforcement proceedings, investigations or other regulatory actions, and adverse publicity” below.
Moreover, these regulations intended to protect our customers, markets and society as a whole can limit our activities, among others, through stricter net capital, market conduct and transparency requirements and restrictions on the businesses in which we can operate or invest.
In certain countries in which we operate, judiciary and dispute resolution systems may be less effective. As a result, in case of a breach of contract, we may have difficulties in making and enforcing claims against contractual counterparties and, if claims are made against us, we might encounter difficulties in mounting a defence against such allegations. If we become party to legal proceedings in a market with an insufficiently developed judicial system, it could have an adverse effect on our operations and net results.
In addition, as a result of our operations in certain countries, we are subject to risks of possible nationalisation, expropriation, price controls, exchange controls and other restrictive government actions, as well as the outbreak of hostilities and or war, in these markets. Furthermore, the current economic environment in certain countries in which we operate may increase the likelihood for regulatory initiatives to enhance consumer protection or to protect homeowners from foreclosures.
Generally, a failure to comply with prudential or conduct regulations could have a material adverse effect on the Group’s business, results and financial condition.
On 24 December 2020, the United Kingdom and the EU agreed to the EU-UK Trade and Cooperation
Sometimes changes are introduced subject to a transitional period during which the new requirements are being phased in, gradually progressing to a fully phased-in, or fully-loaded, application of the requirements.
Developments—Basel III and European Union Standards as currently applied by ING Group.”
(“CFTC”) as a swap dealer and is subject to CFTC regulation of the off-exchange derivatives market pursuant to Title VII of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-
Frank”). Operating as a swap dealer requires compliance with CFTC regulatory requirements, which may be burdensome, impose additional compliance costs and could adversely affect the profitability of this business, as well as exposing ING to the risk of non-compliance with these regulations.
In addition, new position limits under Dodd-Frank applicable to the derivatives market generally for uncleared swaps referencing any of twenty-five commodity futures contracts could limit ING’s position sizes in these swaps and similarly limit the ability of counterparties to utilize certain of our products to the extent hedging exemptions from the position limits are unavailable. Such regulation of the derivative markets and market participants will likely result in increased cost of hedging and other trading activities, both for ING and its customers, which could expose our business to greater risk and could reduce the size and profitability of our customer business. The imposition of these regulatory
Any of the foregoing factors, and any further regulatory developments with respect to commodities and derivatives, could have a material impact on our business, results and financial condition.
For further discussion of the impact of regulation of commodities and derivatives on ING, see “Item 4.
We are subject to several other bank recovery and resolution regimes that include statutory write down and conversion as well as other powers, which remains subject to significant uncertainties as to scope and impact on us.
(‘SRM’), the ‘Bank Recovery and Resolution Directive’ (‘BRRD’) as implemented in national legislation, and the Dutch ‘Intervention Act’ (Wet bijzondere maatregelen financiële ondernemingen, as implemented in the Dutch Financial Supervision Act). The SRM applies to banks that are supervised by the ECB under the SSM, with the aim of ensuring an orderly resolution of failing banks at minimum costs for taxpayers and the real economy. The BRRD establishes a common framework for the recovery and resolution for banks within the European Union, with the aim of providing supervisory authorities and resolution authorities with common tools and powers to address banking crises preemptively in order to safeguard financial stability and minimise taxpayers’ exposure to losses. In addition, the Intervention Act confers wide-ranging powers to the Dutch Minister of Finance, including, among other things, in relation to shares and other securities issued by us or with our cooperation or other claims on us (including, without limitation, expropriation thereof) if there is a serious and immediate threat to the stability of the financial system. Any application of statutory write-down and conversion or other powers would not be expected to constitute an event of default under our securities entitling holders to seek repayment. If any of these powers were to be exercised in respect of
ING Group Annual Report 2020 410 investigations by regulators, legislators and law enforcement officials, and responding to these inquiries and investigations, regardless of their ultimate outcome, is time consuming and expensive.
Adverse publicity, claims and allegations, litigation and regulatory investigations and sanctions may have a material adverse effect on our business, results, financial condition and/or prospects in any given period.
may be subject to tax audits, investigations and procedures in numerous jurisdictions at any point in time. Although we believe that we have adequately provided for all our tax positions, the ultimate resolution of these audits, investigations and procedures may result in liabilities which are different from the amounts recognized. In addition, increased bank taxes in countries where the Group is active result in increased taxes on ING’s banking operations, which could negatively impact our operations, financial condition and liquidity.
ING Group Annual Report 2020 411 invested in reviewing and assessing historical sales practices and products that were sold in the past, and in the maintenance of risk management, legal and compliance procedures to monitor current sales practices, there can be no assurance that all of the issues associated with current and historical sales practices have been or will be identified, nor that any issues already identified will not be more widespread than presently estimated.
The negative publicity associated with any sales practices, any compensation payable in respect of any such issues and regulatory changes resulting from such issues, has had and could have a material adverse effect on our reputation, business, results, financial condition and prospects. For additional information regarding legal proceedings or claims, see Note 45 ‘Legal proceedings’ to the consolidated financial statements.
We face the risk that the design and operating effectiveness of our controls and procedures may prove to be inadequate. Operational risks are inherent to our business. Our businesses depend on the ability to process and report a large number of transactions efficiently and accurately. In addition, we routinely transmit, receive and store personal, confidential and proprietary information by email and other electronic means. Although we endeavour to safeguard our systems and processes, losses can result from inadequately trained or skilled personnel, IT failures (including due to a computer virus or a failure to anticipate or prevent cyber attacks or other attempts to gain unauthorised access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or impairing operational performance, or security breaches by third parties), inadequate or failed internal control processes and systems, regulatory breaches, human errors, employee misconduct, including fraud, or from natural disasters or other external events that interrupt normal business operations. Such losses may adversely affect our reputation, business and results. We depend on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. The equipment and software used in our computer systems and networks may not always be capable of processing, storing or transmitting information as expected. Despite our business continuity plans and procedures, certain of our computer systems and networks may have insufficient recovery capabilities in the event of a malfunction or loss of data. As part of our Accelerated Think
Widespread outbreaks of communicable diseases may impact the health of our employees, increasing absenteeism, or may cause a significant increase in the utilisation of health benefits offered to our employees, either or both of which could adversely impact our business. Also see above under the heading “–ING’s business, results and financial condition have been, and likely will continue to be adversely affected by the Covid-19 pandemic”. As set out there, we expect to be affected by the Covid19 pandemic through its impact on, among others, our employees. We also face physical risks, including natural disasters as a direct result of climate change, such as extreme weather events or rising water levels, which could have a material adverse effect on our operations, particularly where our headquarters may be impacted. For further description of the risks associated herewith, see “–We may be exposed to business, operational, regulatory, reputational and other risks in connection with climate change’ below. In addition, other events including unforeseeable and/or catastrophic events can lead to an abrupt interruption of activities, and our operations may be subject to losses resulting from such disruptions. Losses can result from destruction or impairment of property, financial assets, trading positions, and the loss of key personnel. If our business continuity plans are not able to be implemented, are not effective or do not sufficiently take such events into account, losses may increase further.
We are subject to increasing risks related to cybercrime and compliance with cybersecurity regulation.
Like other financial institutions and global companies, we are regularly the target of cyber attacks, which is a specific risk to ING as a result of its strategic focus on technology and innovation. In particular, threats from Distributed Denial of Service (‘DDoS’), targeted attacks (also called Advanced
ING may be exposed to the risks of misappropriation, unauthorised access, computer viruses or other malicious code, cyber attacks and other external attacks or internal breaches that could have a security impact. These events could also jeopardise our confidential information or that of our clients or our counterparties and this could be exacerbated by the increase in data protection requirements as a result of GDPR. These events can potentially result in financial loss and harm to our reputation, hinder our operational effectiveness, result in regulatory censure, compensation costs or fines resulting from regulatory investigations and could have a material adverse effect on our business, reputation, revenues, results, financial condition and prospects. Even when we are successful in defending against cyber attacks, such defence may consume significant resources or impose significant additional costs on ING.
Because we operate in highly competitive markets, including our home market, we may not be able to increase or maintain our market share, which may have an adverse effect on our results.
Competition could also increase due to new entrants (including non-bank and financial technology competitors) in the markets that may have new operating models that are not burdened by potentially costly legacy operations and that are subject to reduced regulation. New entrants may rely on new technologies, advanced data and analytic tools, lower cost to serve, reduced regulatory burden and/or faster processes in order to challenge traditional banks. Developments in technology has also accelerated the use of new business models, and ING may not be successful in adapting to this pace of change or may incur significant costs in adapting its business and operations to meet such changes.
For example, new business models have been observed in retail payments, consumer and commercial lending (such as peer-to-peer lending), foreign exchange and low-cost investment advisory services. In
With respect to secured transactions, our credit risk may be exacerbated when the collateral held by us cannot be or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to us. We also have exposure to a number of financial institutions in the form of unsecured debt instruments, derivative transactions and equity investments. For example, we hold certain hybrid regulatory capital instruments issued by financial institutions which permit the issuer to cancel coupon payments on the occurrence of certain events or at their option. The EC has indicated that, in certain circumstances, it may require these financial institutions to cancel payment. If this were to happen, we expect that such instruments may experience ratings downgrades and/or a drop in value and we may have to treat them as impaired, which could result in significant losses. There is no assurance that losses on, or impairments to the carrying value of, these assets would not materially and adversely affect our business, results or financial condition.
Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. Our credit ratings are important to our ability to raise capital and funding through the issuance of debt and to the cost of such financing. In the event of a downgrade, the cost of issuing debt will increase, having an adverse effect on our net results. Certain institutional investors may also be obliged to withdraw their deposits from ING following a downgrade, which could have an adverse effect on our liquidity. They can also have lower risk appetite for our debt notes, leading to lower purchases of (newly issued) debt notes. We have credit ratings from S&P, Moody’s Investor Service and
For a description of the physical risks to our business resulting from natural disasters as a result of climate change, see “–Operational risks, such as systems disruptions or failures, breaches of security, cyber attacks, human error, changes in operational practices, inadequate controls including in respect of third parties with which we do business, natural disasters or outbreaks of communicable diseases may adversely impact our reputation, business and results” above.
An inability to retain or attract key personnel may affect our business and results.
ING Group relies to a considerable extent on the quality of its senior management, such as members of the executive committee, and management in the jurisdictions which are material to ING’s business and operations. The success of ING Group’s operations is dependent, among other things, on its ability to attract and retain highly qualified personnel. Competition for key personnel in most countries in which ING Group operates, and globally for senior management, is intense. ING Group’s ability to attract and retain key personnel, in senior management and in particular areas such as technology and operational management, client relationship management, finance, risk and product development, is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent.
The (increasing) restrictions on remuneration, plus the public and political scrutiny especially in the
Rights Directive, known as ‘SRD II’, which came into effect on June 10, 2019, ING is required to hold a shareholder (binding) vote on ING’s Executive Board remuneration policy and Supervisory Board remuneration policy at least every four years. Furthermore the shareholders have an advisory vote on
We may be unable to manage our risks successfully through derivatives.
Furthermore, regulatory liquidity requirements in certain jurisdictions in which we operate are remain stringent, undermining our efforts to maintain centralised management of our liquidity. These developments may cause trapped pools of liquidity and capital, resulting in inefficiencies in the cost of managing our liquidity and solvency, and hinder our efforts to integrate our balance sheet. An example of such trapped liquidity includes our operations in Germany where German regulations impose separate liquidity requirements that restrict ING’s ability to move a liquidity surplus out of the
ING Groep N.V. is a holding company and, therefore, depends on dividends, distributions and other payments from its subsidiaries to fund dividend payments to its shareholders and to fund all payments on its obligations, including debt service obligations.
Lower earnings of a local entity may also reduce the ability of such local entity to make dividends and distributions to ING Groep N.V. Other restrictions, such as restrictions on payments from subsidiaries or limitations on the use of funds in client accounts, may also apply to distributions to ING Groep N.V.
ING’s AT1 Securities may, under certain circumstances, convert into equity securities, and such conversion would dilute the ownership interests of existing holders of ING shares and such dilution could be substantial. Additionally, any conversion, or the anticipation of the possibility of a conversion, could depress the market price of ING shares. Furthermore, we may undertake future equity offerings with or without subscription rights. In case of equity offerings with subscription rights, holders of ING
Because we are incorporated under the laws of the Netherlands and many of the members of our Supervisory and Executive Board and our officers reside outside of the
United States, it may be difficult to enforce judgments against ING or the members of our Supervisory and Executive Boards or our officers.
Most of our Supervisory Board members, our Executive Board members and some of the experts named in this Annual Report, as well as many of our officers are persons who are not residents of the
United States, and most of our and their assets are located outside the United States. As a result, investors may not be able to serve process on those persons within the United States or to enforce in the United States judgments obtained in US courts against us or those persons based on the civil liability provisions of the US securities laws.
Investors also may not be able to enforce judgments of US courts under the US federal securities laws in courts outside the United States, including the Netherlands. The United States and the Netherlands do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments
(other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be enforceable in the
is not contrary to the public policy of the Netherlands, and (iv) is not incompatible with (a) a prior judgment of a Netherlands court rendered in a dispute between the same parties, or (b) a prior judgment of a foreign court rendered in a dispute between the same parties, concerning the same subject matter and based on the same cause of action, provided that such prior judgment is not capable of being recognized in the Netherlands. It is uncertain whether this practice extends to default judgments as well.
Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors, officers or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
In addition, there is doubt as to whether a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certain experts named herein in an original action predicated solely upon the U.S. federal securities laws brought in a court of competent jurisdiction in the
The Executive Board and the Supervisory Board share the ultimate responsibility for reviewing and approving the annual report, including disclosures on material topics. For more information on our annual reporting governance refer to the ‘About this report’ chapter.
The overarching principles governing our approach to sustainability are set out in ING’s global
Sustainability Direction. The global head of Sustainability reports directly to a member of the
Sustainability department, to business units and subject-matter experts who help develop policies, programmes and targets in response to sustainability-related risks and opportunities, in line with the global Sustainability Direction. Progress on identified priorities is communicated regularly to the MBB
Responsibility for our various sustainability targets lies either with the MBB member responsible for that specific area, or with the MBB as a whole. For example, responsibility for reducing ING’s own operational environmental footprint, managed via the environmental programme, lies with the chief operations officer (COO). The COO sponsors the environmental programme and oversees our performance, including policies, implementation and continuous improvement. The programme ensures that the targets are integrated within the relevant business functions, and if necessary, translated to policy. For more information, please see ‘Environmental performance’ on ing.com. The
Executive Board Charter. Our sustainability governance, covering climate and human rights topics, is detailed on ing.com.
ING identifies topics that have the most impact on our business and are of the highest priority for stakeholders in our value chain. This process allows us to prioritise and focus on the most material topics and effectively address these in our policies, programmes and targets.
In 2020 we conducted a materiality assessment, consisting of global peer, media, trend and regulatory analyses. The process was aligned with the guidelines and standards of the Global
The aggregation of these inputs provided preliminary results which were validated in peer and media analyses. As a result, ‘Environmental and social risk management’ was added as a material topic.
‘Employee development’, a topic on our 2019 materiality long list, passed our inclusion threshold this year. We renamed the following material topics without changes to their scope to improve clarity: ▪ ‘IT systems & platforms’ became ‘System availability’
ING contributes to the economies of over 40 countries where we operate. The table below provides an overview of our direct financial contributions to some of our key stakeholders. Related key performance indicators are available in our value creation model in the ‘How we make a difference’
Governments Corporate income tax and bank taxes 1,660 2,375 2,402 1 Includes employee and client donations raised through fundraising activities
Conditions can play an important role in helping clients improve their environmental and social performance and ensuring their continued compliance with our ESR policy. The following chart shows the concentration of ESR conditions and engagement across policy sectors. For a breakdown of ESR
advice reports please refer to the Environmental, social and governance risk section.
*Other includes advice reports covering the policy areas animal welfare, chemicals and manufacturing.
ING is a Netherlands-based global commercial bank. Our 57,000+ employees serve around 39.3 million customers, corporate clients and financial institutions in over 40 countries. Our products include savings, payments, investments, loans and mortgages in most of our retail markets. For our Wholesale Banking clients we provide specialised lending, tailored corporate finance, debt and equity market solutions, payments & cash management and trade and treasury services.
Statements ->Note 35 Information on geographical areas; 1.2 Describe how your bank has aligned and/or is planning to align its strategy to be consistent with and contribute to society's goals, as expressed in the Sustainable
We have made significant progress in measuring and steering our lending portfolio towards the Paris Agreement’s well-below twodegree goal, a strategy we call the Terra approach. We are a signatory to the UN-backed Collective Commitment to Climate
Action signed by 31 banks in September 2019. In 2020, we released a stand-alone disclosure in line with the Taskforce for
We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from our activities, products and services. To this end, we will set and publish targets where we can have the most significant impacts.
2.1 Impact Analysis: Show that your bank has identified the areas in which it has its most significant (potential) positive and negative impact through an impact analysis that fulfills the following elements: a) Scope: The bank’s core business areas, products/services across the main geographies that the bank operates in have been as described under 1.1. have been considered in the scope of the analysis.
c) Context and Relevance: Your bank has taken into account the most relevant challenges and priorities related to sustainable development in the countries/regions in which it operates.
Our Terra approach focuses on the sectors in our loan book that are responsible for most global GHG emissions. We conducted a saliency analysis in line with the UN Guiding Principles (UNGP) in 2018 to identify our salient human rights issues. In 2019 and 2020, ING conducted client engagements on these salient issues.
▪ ING Group 2020 Annual Report->World around us- >Material topics 2020
▪ ING.COM->Sustainability->Sustainability Direction- >Sustainability Direction; ▪ ING.COM->Sustainability->Sustainability Direction- >Sustainable business->Terra approach; ▪ ING.COM->Sustainability->The world around us- >Sustainable development goals; ▪ ING.COM->Sustainability->The world around us- >Reporting->2018 Human rights report; ▪ ING.COM->Sustainability->The world around us- >Reporting->2020 Human rights update; Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Impact Analysis.
(potential) negative impacts of the set targets on other dimensions of the SDG/climate change/society’s goals and that it has set out relevant actions to mitigate those as far as feasible to maximise the net positive impact of the set targets.
ING has set time-bound climate alignment targets for each of the nine sectors in scope of our Terra approach (see Terra toolbox).
ING commits to close to zero coal-fired power generation and thermal coal mining by 2025.
▪ ING.COM->Sustainability->The world around us- >Reporting->2020 Terra progress report; ▪ ING Group 2020 Annual Report->Non-financial appendix- >Energy policy in practice
▪ ING.COM->Sustainability->The world around us- >Sustainable development goals; Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Target Setting.
Show that your bank has defined actions and milestones to meet the set targets.
Show that your bank has put in place the means to measure and monitor progress against the set targets. Definitions of key performance indicators, any changes in these definitions, and any rebasing of baselines should be transparent.
Paris Agreement. Our 2020 Terra progress report (p.15) describes the next steps for each of the nine sectors in scope of climate alignment.
Our 2020 Human rights update report (p.22) describes the actions ING will undertake in the course of 2021 to address salient human rights risks in our loan book.
For each target separately: Show that your bank has implemented the actions it had previously defined to meet the set target.
We were on track or almost on track in aligning each of the nine sectors in our loan book in scope of well-below two degree alignment. We achieved our target to disclose a metric and target in 2020 for each of the nine sectors in scope of Paris climate alignment. One of the new targets we set in 2020 relates to the fossil fuel sector. In addition to our near-zero thermal coal exposure target we now also target a decrease in upstream oil and gas measured in loans outstanding (p.21 of 2020 Terra progress report).
3.1 Provide an overview of the policies and practices your bank has in place and/or is planning to put in place to promote responsible relationships with its customers. This should include high-level information on any programmes and actions implemented (and/or planned), their scale and, where possible, the results thereof.
ING is engaging Wholesale Banking clients on three salient human rights issues (p.13 of 2020 Human rights update).
▪ ING.COM->Sustainability->The world around us- >Reporting->2020 Terra progress report; ▪ ING.COM->Sustainability->Sustainability Direction- >Sustainable business->Environmental and social risk policies; ▪ ING.COM->Sustainability->The world around us- >Reporting->2020 Human rights update; 3.2 Describe how your bank has worked with and/or is planning to work with its clients and customers to encourage sustainable practices and enable sustainable economic activities. This should include information on actions planned/implemented, products and services developed, and, where possible, the impacts achieved.
Please refer to our online overview of partnerships, memberships and engagements. Our 2020 Terra progress report describes our engagement with 2 degree investing initiative.
We will implement our commitment to these Principles through effective governance and a culture of responsible banking 5.1 Describe the relevant governance structures, policies and procedures your bank has in place/is planning to put in place to manage significant positive and negative (potential) impacts and support effective implementation of the Principles.
We have instituted Board-level oversight of environmental, social and governance issues. This includes a Climate Change
▪ ING.COM->Sustainability->Sustainability Direction- >Sustainability governance; ▪ ING.COM->Sustainability->Our Stance->Data ethics; 5.2 Describe the initiatives and measures your bank has implemented or is planning to implement to foster a culture of responsible banking among its employees. This should include a high-level overview of capacity building, inclusion in remuneration structures and performance management and leadership communication, amongst others.
ING’s ESG performance determines part of the Executive Team’s variable compensation. ING runs a number of ESG-related employee engagement programmes globally. This includes courses on environmental and social risks for risk officers and on the Equator Principles framework.
risk->Environmental and social risk 5.3 Governance Structure for Implementation of the Principles
Show that your bank has a governance structure in place for the implementation of the PRB, including: a) target-setting and actions to achieve targets set b) remedial action in the event of targets or milestones not being achieved or unexpected negative impacts being detected.
▪ ING.COM->Sustainability->Sustainability Direction- >Sustainability governance; Please provide your bank’s conclusion/ statement if it has fulfilled the requirements regarding Governance Structure for Implementation of the Principles.
We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.
Show that your bank has implemented/is working on implementing changes in existing practices to reflect and be in line with existing and emerging international/regional good practices and has made progress on its implementation of these Principles.
In 2020 we met our financial empowerment goal. A total of 27.8 million retail customers felt financially empowered after interactions with ING.
Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Progress on Implementing the Principles for Responsible Banking
Leavers and turnover (headcount) 1 1 Total leavers headcount in 2020 divided by headcount on 1 January 2020
Total workforce gender breakdown headcount in percentage of employees Female Male Female Male Female Male 1 Deviations from 100% in the sum of category totals are due to employee gender not recorded.
In April 2020, ING announced new global targets for reducing our operational footprint. To underpin our programme and global targets, we have successfully developed our environmental management system (EMS). Our EMS continues to help us to make progress against our 2022 and 2030 targets and to integrate the programme throughout our business activities and operations. Our new targets were developed prior to the Covid-19 pandemic, and we are analysing the potential short, mid and longterm impacts of the pandemic on our operations and environmental performance. Much of the decrease in carbon emissions, water and residual waste, reached in 2020 was due to Covid pandemic-related restrictions on travel and working from home.
Our commitments: ▪ We will reduce our scope 1 and 2 CO2e emissions from our buildings and data centres by 80 percent by year-end 2022, and 90 percent by year-end 2030 (base year 2014).
▪ We will reduce our water footprint by 26 percent by 2022 (base year 2014).
▪ We will continue to procure 100 percent renewable electricity for all ING buildings where we have management control worldwide.
▪ We will remain carbon neutral by offsetting remaining carbon emissions.
▪ Our water consumption decreased by 27 percent in 2020 relative to our base year.
▪ We maintained carbon-neutral operations in 2020 by offsetting emissions caused by business travel and non-renewable energy use.
MWH x 1000 kilotonne CO2 e 1 The data scope for natural gas grew in 2020 to include for the first time our Shared Services office in Romania.
KW x 1 million kilotonne CO2 e 1 Business travel comprises travel by air and by road for business purpose only.
in tonnes 1 Residual waste is the difference between total and recycled waste.
Total carbon per FTE in tonne 0.4 0.8 0.9 1 Our total CO2e emissions are the sum of our emissions in scope 1, 2 and 3 in kilotonnes. CO2e (CO2 equivalent) denotes the conversion of greenhouse gases into the equivalent radiant force of CO2 based on their respective global warming potentials (GWP) at a 100-year time-horizon. For conversion factors, we utilize the DEFRA 2020 GWP factors.
sustainability department. The DMS is built and hosted by a specialty sustainability software company, CREDIT360. Credit360 is ING’s proprietary tool used for calculating CO2e and emissions extrapolations.
We regularly engage our customers, investors, government officials, NGOs and other stakeholders on environmental, social and governance issues. In revising our ESR policies, we follow a structured consultation process and proactively seek input from our stakeholders. In line with our Sustainability
Direction we contribute to multiple international initiatives and cooperate as a member of platforms such as the Equator Principles Association and the UN Environment Programme Finance Initiative
Enterprises and the Global Reporting Initiative (GRI) Standards. An overview of partnerships, memberships and endorsements is available at around-us-1/Memberships.htm.
We define stakeholders as organisations or individuals who may be directly or indirectly impacted by
Late 2019, NGO Oxfam Novib raised its concerns regarding the end-of-life ship management practices of an offshore oil and gas service provider. ING invited the NGO to share its concerns with
ING to be discussed in our engagements with the client, which they kindly did. Under the Dutch
Banking sector Agreement, ING provided in-detail feedback of the engagement process with Oxfam in 2020. Due to client confidentiality considerations, the outcome of the engagements could not be shared.
In response to the above event, ING conducted portfolio analysis to understand its indirect exposure to ship breaking activities. We are reviewing the results and expect to decide on next steps in 2021.
In 2016, ING joined two other banks to provide a loan to the Angolan Ministry of Finance for dredging activities by Dutch contractor Van Oord. The Dutch government, through insurer Atradius Dutch
State Business, provided credit insurance. ING conducts a thorough due diligence process before committing to projects like this. During the due diligence process it became clear that Van Oord’s consortium partner was connected to Isabel dos Santos, the daughter of the former president of
Assessment (ESIA) report. The ESIA concluded that the project did not require the physical resettlement of local communities, though stated the need for financial compensation of local fishermen. However, in early 2020 ING was informed that approximately 3,000 families in the project area had been resettled in 2013 as part of another project, before Van Oord started its activities in
In February 2020, Dutch research provider for the civil society sector Profundo and local NGOs
Greenpeace and Fair Finance Guide published the report Oliewinning bij de Noordpool (Oil production in the North Pole) focused on the Arctic oil and gas exploration activities of the world’s oil majors. The report alleges that Dutch pension funds and banks support Arctic oil and gas exploration directly and indirectly through their loans and investments in the oil majors.
ING does not provide project finance services for offshore oil and gas exploration or production in the
ING recognises that commodity traders such as those listed in the report face supply chain risks, which is why our Environmental and Social Risk (ESR) policy envisages enhanced due diligence of supply chains. As part of our due diligence processes, ING re-assesses clients running high risks on a yearly basis. In our engagements with the soft commodities sector ING addresses sector best practices including commodity certifications.
In May 2020, Dutch NGO Fair Finance Guide, relying on data from local civil society research provider
We value diversity and inclusion. That’s why we have introduced the 70% principle. It gives managers a basis for building mixed teams around appropriate dimensions of diversity. While we recognise we have work to do, we’ve made progress which is recognised by third party initiatives like the
Mexico, reached out to ING regarding a client and community benefit agreement. The local community sought dialogue with ING on the mining company’s agreement, for which it was seeking new terms and had blocked the mine operations.
As one of the mining company’s lenders, ING met with peer banks to discuss the issue and to jointly engage the client on the local community’s concerns. Though ING does not directly finance the mine in question, we engaged with the local community to hear their concerns. The open dialogue with impacted rights holders and the mining company led to an improved understanding of the situation on the ground.
Assessment (SUSBA) in 2020. On a dedicated site, WWF provides access to an interactive tool which can be used to assess and track banks' performance on ESG integration, based on all public disclosures issued by each bank. Any improvements or regressions in performance compared to the previous year are also displayed. ING marked an improvement over 2020 and is in the leading group of international banks. The tool aims to highlight the potential for the financial sector to drive sustainable development in ASEAN and beyond. It also aspires to provide a decision-useful assessment framework that incorporates environmental and social issues most relevant to the
The publications can be downloaded on www.ing.com. A printed version of the Annual Report on Form 20-F, in English, can be ordered from ING.Corporate.Communications@ing.com.
Disclaimer Certain of the statements contained herein are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to a number of factors, including, without limitation: (1) changes in general economic conditions, in particular economic conditions in ING’s core markets, including changes affecting currency exchange rates (2) the effects of the Covid-19 pandemic and related response measures, including lockdowns and travel restrictions, on economic conditions in countries in which ING operates, on ING’s business and operations and on ING’s employees, customers and counterparties (3) changes affecting interest rate levels (4) any default of a major market participant and related market disruption (5) changes in performance of financial markets, including in Europe and developing markets (6) political instability and fiscal uncertainty in Europe and the United States (7)
(9) changes in conditions in the credit and capital markets generally, including changes in borrower and counterparty creditworthiness (10) failures of banks falling under the scope of state compensation schemes (11) non-compliance with or changes in laws and regulations, including those financial services and tax laws, and the interpretation and application thereof (12) geopolitical risks, political instabilities and policies and actions of governmental and regulatory authorities (13) legal and regulatory risks in certain countries with less developed legal and regulatory frameworks (14)
changes in regulation of US commodities and derivatives businesses of ING and its customers (18)
(28) inability to attract and retain key personnel (29) future liabilities under defined benefit retirement plans (30) failure to manage business risks, including in connection with use of models, use of derivatives, or maintaining appropriate policies and guidelines (31) changes in capital and credit markets, including interbank funding, as well as customer deposits, which provide the liquidity and capital required to fund our operations, and (32) the other risks and uncertainties detailed in the most recent annual report of ING Groep N.V. (including the Risk Factors contained therein) and ING’s more recent disclosures, including press releases, which are available on www.ING.com. This annual report contains inactive textual addresses to internet websites operated by us and third parties. Reference to such websites is made for information purposes only, and information found at such websites is not incorporated by reference into this annual report. ING does not make any representation or warranty with respect to the accuracy or completeness of, or take any responsibility for, any information found at any websites operated by third parties. ING specifically disclaims any liability with respect to any information found at websites operated by third parties. ING cannot guarantee that websites operated by third parties remain available following the filing of this annual report or that any information found at such websites will not change following the filing of this annual report. Many of those factors are beyond ING’s control.