Sustainability Indices named ING among world leaders in the category “Banks”. Our score in the ratings from Sustainalytics, rose 14% (score of 88 out of 100) compared to 2014.
The main external developments in 2015 are described in the “Market and regulatory context” chapter. In the next chapter, the issues our stakeholders find most important are discussed. These issues are addressed throughout this report.
Independent auditor’s report 349 Proposed appropriation of result and subsequent events 353 Risk factors 354 Additional Pillar 3 information 374 Non-financial appendix 414 Glossary 426 General information 437
Enablers Four strategic enablers support the implementation of our strategy: simplifying and streamlining our organisation, further striving for operational excellence, enhancing the performance culture within our company and diversifying our lending capabilities.
Payment Services Directive (PSD II) The second EU Directive on Payment Services (PSD II) was adopted in October 2015. This aims to create an EU-wide single market for payments with a modern and comprehensive set of rules. The goal is to make cross-border payments as easy, efficient and secure as domestic payments within a member state. The PSD II also seeks to improve competition by opening up payment markets to new entrants, thus fostering greater efficiency and cost reduction. While implementation in national law could take several years, ING sees the PSD II as an opportunity to develop new ways of serving our customers.
The rise in mobile and digital banking has changed the expectations and needs of our customers. We want to offer a differentiating experience and be available anytime, anywhere, by pursuing a digital-first approach complemented by advice when needed, with omnichannel contact and distribution possibilities.
The increase reflects higher net interest results and lower risk costs, despite a sharp increase in regulatory costs in 2015. Commercial performance was robust with 4.2% net growth in the core lending book.
Retail Banking – continued themselves to the bank without having to present themselves at a physical location. Since the launch of the service in August 2014, more than 70,000 customers have identified themselves this way, representing 11 percent of all new accounts opened in 2015. Innovative payment initiatives Payconiq and Twyp (“The way you pay”) are being piloted with the intention of launching new consumer-friendly ways to pay across Europe, available to customers of any bank.
The underlying result before tax of Retail Belgium fell 11.1 percent to EUR 845 million in 2015 compared with EUR 951 million in 2014, mainly due to lower income and higher risk costs.
The addition to the provision for loan losses was EUR 210 million, or 45 basis points of average risk-weighted assets, up from EUR 165 million, or 40 basis points, in 2014. The increase was mainly visible in Turkey and Poland.
• The Netherlands’ “Financially Fit” initiative was rewarded with a National Contact Centre Award in the category Customer Experience. ING Netherlands also received a Banking Communication Award for the best communicating bank in the Netherlands, and an Annual Masters of Media Awards (AMMA) prize for the best media strategy of the year.
Managing non-financial risks Non-financial risks can seriously impact the functioning of our different businesses and expose ING to significant reputational and financial damage. The issues differ for each business activity and require tailored approaches to counter them. ING, for example, monitors possible new fraud methods and money laundering practices that can emerge following the introduction of new retail payment methods and products, and continues to expand antifraud and sanction risk assessment programmes in our lending acceptance processes. The proper management of our exposure to corruption risk is receiving increased attention and is a material topic for our stakeholders. We are constantly strengthening our compliance-related methodologies and procedures to reflect regulatory developments and lessons learned, such as from the recent cases of manipulation of financial benchmarks.
In September and November 2015, updates were provided to the Supervisory Board with regard to the status of KPMG, ING’s new external auditor as per the financial year 2016 in order to comply with the mandatory external auditor rotation. KPMG declared independence from ING per 1 October 2015 in its role as new auditor and it was confirmed that KPMG’s independence is compliant with applicable rules and regulations. As of October 2015 EY is facilitating the auditor transition.
In addition, the outcomes and achievements following the Annual Talent Review 2014 were discussed. The approach for the 2015 process was shared with the Supervisory Board and the 2015 results were discussed in January 2016. Both the process and reporting had improved resulting in increased transparency.
The Identified Staff selection criteria and the list of Identified Staff were reviewed and approved. Throughout the year the Remuneration Committee approved Identified Staff related remuneration matters, based upon the governance framework.
• The shareholder approval requirements for equity compensation plans under Dutch law and the Corporate Governance Code differ from those applicable to US companies that are subject to NYSE’s listing rules that require a shareholder vote
Dutch law; and • Any other matters proposed by the Supervisory Board, the Executive Board or shareholders or holders of depositary receipts in accordance with the Articles of Association.
These figures are based on year-end 2015 estimates of institutional share ownership provided by IPREO.
Profile of members of the Supervisory Board The Supervisory Board has drawn up a profile to be used as a basis for its composition. It is available on the website of ING Group (www.ing.com) and at the ING Group head office.
Due to the listing of ING shares on the New York Stock Exchange, ING Group is required to comply with the SEC regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, or SOX 404.
In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, ING Groep N.V. has not maintained effective internal control over financial reporting as of 31 December 2015, based on the COSO criteria.
Legal and regulatory developments in 2015 New Dutch legislation, the Dutch Act on Remuneration Policies of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen, or Wbfo), was enacted with effect from 7 February 2015. The new legislation’s provisions include caps on variable remuneration applicable to all staff globally. ING has taken all necessary measures to implement the legislation’s requirements in its remuneration policies. Furthermore, new legislation has become effective as of 1 January 2015, pursuant to which pension premiums on salaries in excess of EUR 100,000 are no longer exempt or deductible from (wage) tax.
Pensions Executive Board members In the AGM of 12 May 2014, it was decided that members of the Executive Board appointed after 1 January 2015 will be given the option to join the Dutch Collective Defined Contribution Pension Plan based on a fixed premium methodology or to receive a savings allowance. Members of the Executive Board appointed before 1 January 2015 were given the same option as from 1 July 2014. In addition, individual Executive Board members participating in the pension plan that existed before the introduction of the 2010 Dutch defined benefit plan, (approved by the 2006 AGM), were given the choice to keep their existing pension arrangement. Members of the Executive Board will be required to pay a contribution to their pension premium in line with the contributions under ING’s Collective Labour Agreement (CLA) in the Netherlands.
• Strengthened the role of sustainable finance as part of the Think Forward strategy.
• Ensured the Think Forward strategy was properly translated for the various business lines and in particular for the Wholesale Bank.
A retention period of five years from the grant date applies to all share and option awards granted to Executive Board members. During this five-year period, the Executive Board members are only allowed to sell part of their shares on the date of vesting to pay tax on the vested amount of the award.
Reference is made to Note 54 ‘Other events’ for further information on these transactions.
Diluted earnings per ordinary share 0.13 0.13 1 Shareholder’s equity (parent) is adjusted in ‘Other reserves’. 2 Other liabilities is adjusted in the line item ‘Other’.
The fair value of real estate investments is based on regular appraisals by independent qualified valuers. For each reporting period every property is valued either by an independent valuer or internally. Indexation is used when a property is valued internally. The index is based on the results of the independent valuations carried out in that period. Market transactions and disposals made by ING Group are monitored as part of the validation procedures to test the indexation methodology. Valuations performed earlier in the year are updated if necessary to reflect the situation at the year-end. All properties are valued independently at least every five years and more frequently if necessary.
Fees and commissions Fees and commissions are generally recognised as the service is provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognised as income when the syndication has been completed and the Group has retained no part of the loan package for itself or has retained a part at the same effective interest rate as the other participants. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses – are recognised on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts as the service is provided. Asset management fees related to investment funds and investment contract fees are recognised on a pro-rata basis over the period the service is provided. The same principle is applied for wealth management, financial planning and custody services that are continuously provided over an extended period of time. Fees received and paid between banks for payment services are classified as commission income and expenses.
Recognised provision for credit losses (before tax) for the period/year nil nil nil nil nil nil nil nil 6 Loans and advances to customers
The fair values of the financial instruments carried at fair value were determined as follows: Financial assets
Other Other includes EUR 2,087 million (2014: EUR 2,144 million) related to transactions still to be settled at balance sheet date.
In 2015, a cash dividend of EUR 1,393 million was paid to the shareholders of ING Group.
In 2014, a charge of EUR 871 million was recognised in Pensions costs related to the Dutch defined benefit plan settlement. Reference is made to Note 38 ‘Pension and other post-employment benefits’ for information on pensions.
Every year, the ING Group Executive Board decides whether the option and share schemes are to be continued and, if so, to what extent. In 2010, the Group Executive Board decided not to continue the option scheme as from 2011. The existing option schemes up and until 2010 will be run off in the coming years.
Regulatory costs As of 2015, the line Regulatory costs represents contributions to the Deposit Guarantee Schemes (‘DGS’) and the National Resolution Fund (‘NRF’) and local bank taxes mainly in the Netherlands, Germany, Belgium and Poland. Regulatory costs were previously included in Other operating expenses - Other. The comparative amounts were adjusted accordingly.
For Addition/(releases) of provision for reorganisations and relocations reference is made to the disclosure on the reorganisation provision in Note 20 ‘Other liabilities’.
In 2013, Net result from classification as discontinued operations Asia included a goodwill write-off of EUR 42 million in IIM Taiwan.
In 2014, Net result from disposal of discontinued operations mainly includes the total net divestment loss of EUR –1,546 million on the further sale of Voya.
–1,442 –2,036 1,015 Not included in cash and cash equivalents: – amounts due to banks –23,501 –18,174 –15,749
Rest of Europe Poland ING Bank Slaski S.A. Wholesale banking/ Retail banking 8,713 903 25,666 317 60
The discount rate is approximately 3.0% on 31 December 2015 (2014: 2.5%). The discount rate used by ING is based on AA-rated corporate bonds. Discussions were ongoing, both in the industry and at the IASB, on the definition of the discount rate for defined benefit pension liabilities and ING would reconsider the methodology for setting the discount rate if and when appropriate.
As at 31 December 2014, ING Direct Australia reclassified EUR 2.6 billion Government and Semi-Government debt securities from Level 2 to Level 1 as the input was based on quoted prices in an active market.
Notes to the Consolidated annual accounts of ING Group - continued 2015 in EUR thousands
It was agreed that these restrictions would apply for the shorter period of three years or until the non-voting equity securities have been repaid in full to the Dutch State: • An agreement with the Dutch State to alter the repayment terms of 50% of the non-voting equity securities; • Repayment of EUR 5 billion of the non-voting equity securities issued in November 2008 to the Dutch State; • Additional Illiquid Assets Back-up Facility payments as part of the overall agreement with the European Commission will have to be made to the Dutch State in the form of fee adjustments relating to the Illiquid Assets Back-Up Facility which resulted in a oneoff pre-tax charge to ING of EUR 1.3 billion in the fourth quarter of 2009; • Launch of a EUR 7.5 billion rights issue, in order to finance the repayment of 50% of the non-voting equity securities and a mitigation of the capital impact of the additional Illiquid Assets Back-up Facility payment as part of the overall agreement with the European Commission to the Dutch State of EUR 1.3 billion; • Repayment of the non-voting equity securities (core Tier 1 securities) issued to the Dutch state with a return of at least 10% per annum. The EC could impose additional behavioural constraints in the event that the return was lower; • Restrictions on the calling of Tier 2 capital and Tier 1 hybrids, for the shorter period of three years starting from the date of the Commission decision or up to the date on which ING had fully repaid the non-voting equity securities (core Tier 1 securities) to the Dutch State (including the relevant accrued interest of core Tier 1 coupons and exit premium fees); and
Purpose The purpose of ING Group’s risk management function is to support ING Group’s ambition to be the primary bank for our customers by empowering the business through an integrated state of the art enterprise wide risk management platform. The following principles support this purpose: • The risk management function is embedded in all levels of ING Group’s organisation and is part of the daily business activities and strategic planning to have a sustainable competitive advantage; • Products and portfolios are structured, underwritten, priced, approved and managed properly, and compliance with internal and external rules monitored; • Delegated authorities are consistent with the overall Group strategy and risk appetite; and • Transparent communication to internal and external stakeholders on risk management.
This annual Risk Assessment serves as input when defining the global risk appetite which - in line with its business model and risk ambition - is currently formulated as follows: ING Bank has the ambition to be and remain a strong bank, and able to address possible adverse events on its own strengths and resources.
Process The stress testing process of ING Bank consists of several stages, which are summarised in below diagram.
Reference benchmarks A Reference Benchmark is the maximum appetite for Credit Risk per Legal One Obligor Group. It is expressed as a (Benchmark) Exposure at the Concentration Risk level, which corresponds to a (maximum) internal capital consumption for Credit Risk. It is used as a reference amount tool in the credit approval process and can be waived on the basis of proper arguments.
Performing 1 Including loans to ING Group and NN Group. 2 Excluding intercompany positions.
As of June 2015, ING Bank has introduced a new risk governance structure, as described earlier in the section of ‘Risk governance’, where it has decided to manage its trading and non-trading market risk exposures in separate risk departments. The former department of Market Risk Management, following its core activities, was split in a ‘Balance Sheet Risk’ department to manage the banking books (non-trading exposures), while trading book exposures merged with counterparty credit risk under ‘Credit & Trading Risk’ department.
Net Present Value (NPV) at Risk NPV-at-Risk measures the impact of changing interest rates on value. As a full valuation approach is applied, the risk figures include convexity risk that results from embedded optionalities like mortgage prepayment options. As for ES calculations, an instantaneous shock of 1% is applied.
Liquidity risk management within ING Bank falls under the supervision of the ALCO function, with ALCO Bank as the highest approval authority overseeing the execution of the overall strategy set by the Board.
Group’s eligible common equity Tier 1 capital before FI deductions 42,178 45,615 42,113 45,175
Total 36,068 35,777 Accrued interest expenses on own fund instruments at year-end 149 190 1 Shareholders’ equity (parent), as at 31 December 2014, is not adjusted as a result of the change in the accounting approach for the NN Group Anchor investment transaction.
The total amount of non-distributable reserves, in accordance with the financial reporting requirements per Part 9 of Book 2 of the Dutch Civil Code, is EUR 6,832 million (2014: EUR 13,719 million).
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit.
ING Group may be unable to retain key personnel. As a financial services enterprise with a decentralised management structure, ING Group relies to a considerable extent on the quality of local management in the various countries in which it operates. The success of ING Group’s operations is dependent, among other things, on its ability to attract and retain highly qualified professional personnel. Competition for key personnel in most countries in which ING Group operates is intense. ING Group’s ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers and sales executives, is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent.
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. In addition, 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. Any such regulatory initiative could have an adverse impact on our ability to protect our economic interest, for instance in the event of defaults on residential mortgages.
Because we are a Dutch company and because Stichting ING Aandelen holds more than 99.9% of our Ordinary Shares, the rights of our depositary receiptholders may differ from the rights of shareholders in other jurisdictions or companies that do not use a similar trust structure, which could affect your rights as an equity investor. While holders of our bearer depositary receipts are entitled to attend and speak at our General Meeting of Shareholders (‘General Meeting’), voting rights are not attached to the bearer depositary receipts. Stichting ING Aandelen (‘Trust’) holds more than 99.9% of our Ordinary Shares, and exercises the voting rights attached to the Ordinary Shares (for which bearer depositary receipts have been issued). Holders of bearer depositary receipts who attend — in person or by proxy — the General Meeting must obtain and are entitled to voting rights by proxy from the Trust. Holders of bearer depositary receipts and holders of the American Depositary Shares (‘ADSs’) representing the bearer depositary receipts who do not attend the General Meeting may give binding voting instructions to the Trust. The Trust is entitled to vote on any Ordinary Shares underlying the bearer depositary receipts for which the Trust has not granted voting proxies, or voting instructions have not been given to the Trust. In exercising its voting discretion, the Trust is required to be guided primarily by the interests of the holders of bearer depositary receipts, while also taking into account: • our interests, and • the interests of our affiliates.
Holders of ING shares may experience dilution of their holdings. The issuance of equity securities resulting from the conversion of some or all of such instruments 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.
Common Equity Tier 1 ratio 12.94% 12.87% 12.70% 13.49% 13.39% 10.48% Tier 1 ratio 14.45% 14.56% 14.75% 13.49% 13.42% 12.38% Total capital ratio 16.92% 17.10% 17.45% 14.58% 15.04% 15.53%
Additional Pillar III information - continued in EUR billion 2015 2014 Opening amount 226.7 222.2 Book size1 7.6 5.9 Divestments/De-consolidations –1.5 –7.0 Book quality2 –8.4 0.8 Model updates3 5.6 –2.2 Methodology and policy4 –2.8 –3.2 Foreign exchange movements 5.5 5.1 Other 0.3 –1.6 Total Credit RWA movement excluding CVA RWA 6.3 –2.1
READ RWA 2015 2014 Delta % 2015 2014 Delta % Sovereigns Total per rating 117,789 103,137 14.2% 8,297 7,926 5% Performing 117,771 103,132 14.2% 8,229 7,926 4% Non-performing 18 6 221.4% 68 0 241,17%
Institutions Product Type 107,372 113,407 –5.3% 20,683 25,743 –20% Derivatives 32,056 32,851 –2.4% 5,372 5,873 –9% Bond Investments 18,645 20,165 –7.5% 1,623 2,112 –23% Revolving 18,144 14,953 21.3% 4,575 4,724 –3% Money Market 13,113 12,637 3.8% 1,387 1,895 –27% Term Loans 13,794 12,476 10.6% 4,200 3,879 8% Other 11,620 20,325 –42.8% 3,526 7,261 –51%
The LTV for the Belux portfolio decreased mainly driven by the lower LTVs for new production at ING Belgium: around mid-year, decision rules were updated in order to limit new production with high LTVs.
People Our employee engagement score is above 70% (bi-annual) 75% employee engagement score (bi-annual, 2014 score)
We aim to further invest in the personal and professional development of our employees EUR 68 million spent on learning and development
ING Bank credit risk portfolio per economic sector and application of ESR framework1 & SF strategies
Because of the lean cost structure at ING-DiBa (Germany), the rates it pays savers are among the most competitive in Germany. However, the prevailing low interest rates in the Eurozone mean that ING-DiBa has also needed to reduce rates. INGDiBa is offering customers alternatives to traditional savings products. This included a new tool for securities ’newcomers’ that helps them make investment decisions and select from more than 5,000 investment funds and ETFs that are offered free of fees. This resulted in the opening of one million investment accounts.
Furthermore, the change in law would i.e. mean higher costs for job agencies that set to work temporary employees at ING (as a result of the socalled transition payments).
Assets under Management (AuM) Refers to the total market value of assets a financial company invests on behalf of its customers.
Audit Committee The Audit Committee, consisting of members of the Supervisory Board, assists the Supervisory Board in monitoring the integrity of the financial statements of ING Group N.V. and ING Bank N.V., in monitoring the compliance with legal and regulatory requirements, and in monitoring the independence and performance of ING’s internal and external auditors.
Management Board Banking The Management Board Banking (MBB) consists of: • the CEO, CFO and CRO of ING Group; • the vice-chairman and head of Market Leaders of ING Bank; • the head of Challengers & Growth Markets of ING Bank; • the head of Wholesale Banking of ING Bank; and • the chief operations officer of ING Bank.
Risk-weighted assets (RWA) under Basel II Assets that are weighted for credit and market risk in accordance with the Basel II methodology. The risk-weighted assets are calculated using internal models approved by the Dutch Central Bank (De Nederlandsche Bank). Regulatory capital requirements for operational risk are calculated without the use of risk-weighted assets, but are included in the total risk-weighted assets reported. In the CRR/CRD IV, the term RWA is replaced by ‘Total Risk Exposure Amount’, but for now we follow common usage.
ING Publications • ING Group Annual Report, in English • Annual Review, online in Dutch and English • ING Bank Annual Report • Annual Report on Form 20-F, in English (in accordance with SEC guidelines)