The following, more conventional sections are ‘Corporate Governance’ and the annual accounts. Other and additional information is included at the end of this report and in a separate Sustainability Annex.
The ultimate role of a financial institution is to support and stimulate economic, social and environmental progress leading to a better quality of life for people in society. This is what the value we create for, and with, our stakeholders should be about. This naturally fits with our purpose: ‘empowering people to stay a step ahead in life and in business’.
It is therefore essential that we execute our core tasks increasingly efficiently and effectively. We do that through developing a performance culture that emphasises continual, incremental innovation as well as preparedness to disrupt ourselves before we are disrupted.
› Further improving the customer experience by accelerating innovation. Front-runner status in digital solutions gives the Bank an edge.
› Possibility of threats from new entrants from outside of the industry.
Stakeholders believe our financial performance is highly important. Both internal and external stakeholders considered this a priority. The outcome of the ECB’s comprehensive assessment and stress tests, announced in November 2014, confirmed the stability of our financial position. We have also been extending more credit in the markets where we are active.
Through efficiency initiatives we improved our environmental performance. The total extrapolated amount of carbon emissions decreased from 127 to 102 kilotonnes. By 2020, ING Bank aims to reduce the greenhouse gas emissions by 20 percent from 2014.
In 2014, we arranged for 71 places on a one-day traineeship.
Earn the primary relationship Our clients are at the heart of everything we do. We aim to create and sustain more primary relationships to support them in achieving their strategic goals.
Three lines of defence ING’s governance framework establishes three lines of defence to manage risk effectively.
A strong capital base is fundamental. ING prioritises capital adequacy at all levels of the organisation as a key driver of sustainable value creation. ING Group’s restructuring, now in its final phase, adds further financial flexibility and financial safety for all
W.F. (Wilfred) Nagel (58), member and CRO Executive Board ING Group and member and CRO Management Board Banking Wilfred Nagel was appointed a member of the Executive Board of ING Group on 14 May 2012. He is responsible for all of ING’s risk management departments. Wilfred Nagel became a member and CRO of the Management Board Banking on 5 October 2011.
Our approach to integrated reporting In our view a balanced integrated report contains information both on our economic performance, as well as on the impact of our organisation on society and the environment. By disclosing and explaining our financial and non-financial results, strategy, governance, external developments and the risks and opportunities we face, we aim to enable our stakeholders to assess how we create value and how we earn our income.
Scope and boundaries Through our materiality analysis we ensure that all material economic, social and environmental topics are in scope. The data and content in the integrated report and Sustainability Annex aim to provide a concise, accurate and balanced account of ING’s economic, social and environmental performance.
Personal note In all my contacts with the Bank’s employees, I am impressed to see how keen people are to show that ING has strong values and behaviours grounded in society.
Proposals by shareholders and holders of depositary receipts Proposals to include items on the agenda for a General Meeting that have been adequately substantiated under applicable Dutch law can be made by shareholders and holders of depositary receipts representing a joint total of at least 0.1 percent of the issued share capital or representing together a share value of at least EUR 50 million, calculated, on the basis of the closing prices on the date of signature of the proposal, as published by Euronext Amsterdam N.V. Given the periods of notice required for proxy voting, proposals have to be submitted in writing at least 60 days before the date of the meeting.
Any relation that a member of the Supervisory Board may have with ING Group subsidiaries as an ordinary, private individual, is not considered as a significant conflict of interest. Such relationships are not reported, with the exemption of any loans that may have been granted.
Most relevant ancillary positions: member of the Supervisory Board Cooperation of VGZ UA and Cooperation TVM U.A. Member of the Supervisory Council CBR (driving license agency).
In accordance with the Articles of Association and the Trust Conditions, ING Trust Office voted at its own discretion on the shares for which it did not issue voting proxies and did not receive voting instructions, representing 46% of the total votes that might be cast at the AGM 2014. In voting these shares, ING Trust Office was guided primarily by the interests of all holders of depositary receipts, taking into account the interests of ING Group and its affiliated enterprise in accordance with article 4 of the Trust Conditions and the best-practice provision IV.2.6 of the Dutch Corporate Governance Code. ING Trust Office voted on these shares in favour of all voting items on the agenda of the AGM.
2014 Remuneration Executive Board The Executive Board remuneration for 2014 is in accordance with the prohibition of variable remuneration for the year up to 8 November 2014 and the Executive Board remuneration policy, with exception of the alignment to the benchmark. According to policy remuneration levels should be slightly below the median of the benchmark, whereas actual Executive Board remuneration was significantly below the median.
(1) Eric Boyer de la Giroday is a member of the Supervisory Board as of May 2014. (2) Shares granted to Eric Boyer de la Giroday in May 2012 were awarded for his performance in position previous to his appointment to the
Employee stock option and share plans 7 7 1 8 Repayment of non-voting equity securities –750 –750 Repurchase premium –375 –375 –375 Changes in the composition of the group and other 13 13 634 647 Dividends –6 –6 Purchase/sale of treasury shares 255 255 255
Exchange rate differences in the profit and loss account are generally included in Net trading income. Reference is made to Note 28 ‘Net trading income’, which discloses the amounts included in the profit and loss account. Exchange rate differences relating to the disposal of available-for-sale debt and equity securities are considered to be an inherent part of the capital gains and losses recognised in Investment income. As mentioned below in Group companies relating to the disposals of group companies, any exchange rate difference deferred in equity is recognised in the profit and loss account in Result on disposals of group companies. Reference is also made to Note 14 ‘Equity’, which discloses the amounts included in the profit and loss account.
ING Group owns a real estate portfolio, diversified by region, by investment segment (Office, Retail and Residential) and by investment type. The valuation of different investments is performed using different discount rates (‘yields’), dependent on specific characteristics of each property, including occupancy, quality of rent payments and specific local market circumstances.
ING Group 130 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In 2013, Changes in the composition of the group and other changes included EUR –62 million as a result of the classification of Voya as held for sale and EUR –17 million as a result of the classification to continuing operations of ING Japan. Reference is made to Note 57 ‘Other events’.
ING Group 140 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
In addition to the legal and regulatory restrictions on distributing dividends from subsidiaries, associates and joint ventures to ING Groep N.V. there are various other considerations and limitations that are taken into account in determining the appropriate levels of equity in the Group’s subsidiaries, associates and joint ventures. These considerations and limitations include, but are not restricted to, rating agency and regulatory views, which can change over time; it is not possible to disclose a reliable quantification of these limitations. Reference is also made to the ‘Capital Management’ section.
Claim settlements and claim settlement costs – for the current year –17 –452 –1 –1 –18 –453 – for prior years –97 –618 –4 –13 –101 –631
In 2014, the change in Financial liabilities at fair value through profit and loss includes EUR –1,792 million (EUR –2,519 million as per classification date) as a result of the classification of NN Group as held for sale and EUR –248 million related to the deconsolidation of Vysya. Reference is made to Note 12 ‘Assets held for sale’ and Note 57 ‘Other events’.
The increase in Financial liabilities at fair value through profit and loss mainly relates to an increase in the fair value of derivatives due to a decrease in long-term interest rates and to an increase in repurchase funding.
Debt securities 12,417 12,415 Funds entrusted 409 536 Subordinated liabilities 725 904
In 2012, the decrease in total average assets, partly attributable to the disposal of ING Direct USA and ING Direct Canada, led to a decrease of EUR 578 million in the interest result. In addition a decrease of 11 basis points of the interest margin led to a decrease in the interest result of EUR 988 million.
Net result from disposal of discontinued operations 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 in the first (EUR –2,005 million), third (EUR 40 million) and fourth quarter of 2014 (EUR 418 million). Reference is made to Note 57 ‘Other events’.
Treasury bills and other eligible bills included in trading assets 457 489 79 Treasury bills and other eligible bills included in available-for-sale investments 220 85 439
Special items include items of income or expense that are significant and arise from events or transactions that are clearly distinct from the ordinary operating activities. Disclosures on comparative periods also reflect the impact of current period’s divestments.
ING Group 186 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
Additional notes to the consolidated annual accounts 41 Pension and other post-employment benefits In 2014, ING reached final agreement with the trade unions, the ING Pension Fund, the Central Works Council and the Association of Retired ING Employees (VSI) to settle all future funding and indexation obligations under ING’s current closed defined benefit plan in the Netherlands to the Dutch ING Pension Fund. The agreement made the ING Pension Fund financially independent from ING.
The table above relates to the defined benefit pension fund in the Netherlands that was closed for new pension rights as of 1 January 2014. The agreement reached to make the Dutch ING Pension Fund financially independent resulted in the removal of the plan assets related to the Dutch defined benefit pension fund from ING Group’s balance sheet in 2014. As a result the major categories of plan assets for this plan are no longer disclosed above.
in nature and involve various assumptions about the relevant pricing factors, especially for inputs that are not readily available in the market (such as credit spreads for own-originated loans and advances to customers). Changes in these assumptions could significantly affect the estimated fair values. Consequently, the fair values presented may not be indicative of the net realisable value. In addition, the calculation of the estimated fair value is based on market conditions at a specific point in time and may not be indicative of future fair values. Where exposures of a group of financial assets and financial liabilities are managed on a net basis ING applies the IFRS exception that allows ING to measure the fair value of the group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position or settle a net short position.
Amounts due to banks The fair values of payables to banks are generally based on quoted market prices or, if not available, on estimates based on discounting future cash flows using available market interest rates and credit spreads for payables to banks with similar characteristics.
Net asset value Price (%) 118% 118% Option pricing model Equity volatility (%) 17% 74%
ING Group 210 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
(1) Excludes assets classified as held for sale (2014: mainly NN Group; 2013: mainly Voya)
The table does not include assets relating to securities lending as well as sale and repurchase transactions. Reference is made to Note 48 ‘Transfer of financial assets’.
Net amounts of financial liabilities presented in the balance sheet Financial instruments
Amounts due to banks Repurchase, securities lending and similar agreements 676 676 313 363 Other 4 –3 1 1
ING Group 220 Consolidated annual accounts Notes to the consolidated annual accounts of ING Group continued
(1) Excludes commitments and contingent liabilities related to businesses classified as held for sale. In 2014 mainly NN Group.
ratio of approximately 80 basis points at closing. This result included the release of the currency translation reserve and the availablefor -sale reserve. The net negative cash proceeds from the divestment of ING Direct USA of EUR 10.3 billion (being the net amount of cash received of EUR 4.8 billion and cash included in the divestment of EUR 15.1 billion) is included in the cash flow statement in ‘Disposals and redemptions – group companies’. ING Direct USA was previously included in the segment Retail Rest of World (ING Direct). In September 2012, ING sold all of its shares in Capital One Financial Corporation as disclosed in Note 24 ‘Investment income’.
These divestments will also ensure that ING Group completes two other commitments: the required reduction of its balance sheet and the elimination of its double leverage.
SNS Reaal nationalisation In 2013, the nationalisation of SNS Reaal, a Dutch financial institution, was announced. As a consequence of the arrangements made by the Dutch government, ING Bank and other Dutch banks were required to pay a one-time levy of EUR 1 billion in 2014. For ING this resulted in a total charge of EUR 304 million in 2014 in the line Other operating expenses - Other. In accordance with the relevant legislation the levy was charged in three equal quarterly instalments.
NN Group Risk Management Governance In 2014, ING Group brought its European insurance and investment business to the market through an IPO. At 31 December 2014 ING Group had a 68.1% stake in NN Group. Therefore, ING Group performance and capital may be impacted by the insurance business through the Dutch unit-linked (‘woekerpolis’) claims, sustained low interest rates and volatility in the price of the equity stakes.
Price risk equity stakes The market value of the remaining shares of NN Group that are in possession of ING Group may be volatile and may be adversely affected by market conditions and other factors beyond the control of ING. Equity markets have experienced significant price and volume fluctuations in recent years. The market prices of shares of insurance companies have experienced fluctuations that have often been unrelated or disproportionate to the operating results of these companies.
As ING Bank strives to generate the same high-quality and transparent description of its risk, it immediately supported the EDTF principles and recommendations and largely implemented them to further fine-tune its practice on risk disclosures. For 2014 ING Bank further enhanced its disclosures following the EDTF progress report by implementing additional recommendations. ING Bank is of the opinion that disclosures should be clear, balanced and understandable by external observers, and that risk information is disclosed on a timely basis. The latter not only applies for the Annual Accounts and the risk management paragraph but also for the concurrent publication of the Pillar III section. An overview of all the EDTF recommendations and how they are followed-up can also be found in the Pillar III section.
The CRO ensures that the boards are well informed and understand ING Bank’s risk position at all times. Every quarter, the CRO reports to the board committees on ING Bank’s risk appetite levels and on ING Bank’s risk profile. In addition, the CRO briefs the board committees on developments in internal and external risk related issues and ensures the board committees understand specific risk concepts.
Risk policies, procedures and standards ING Bank has a framework of risk management policies, procedures and standards in place to create consistency throughout the organisation, and to define minimum requirements that are binding to all business units. The governance framework of the business units aligns with the Bank’s level framework and meets local (regulatory) requirements. Senior management is responsible to ensure
Total: EUR 7.2 Of which: Credit risk: EUR 5.8 Market risk: EUR 0.3 Business risk: EUR 0.7 Operational risk: Total: EUR 8.3 Of which: Credit risk: EUR 5.0 Market risk(1): EUR 2.4 Business risk: EUR 0.6 Operational risk: Total: EUR 11.5 Of which: Credit risk: EUR 9.4 Market risk: EUR 1.1 Business risk: EUR 0.2 Operational risk: Total: EUR 3.1 Of which: Credit risk: EUR 0.5 Market risk(2): EUR 2.6 Business risk: EUR 0.0 Operational risk: Riskweighted
The recurrence is twofold. One: identification, assessment and review and update of mitigating measures are done periodically. Two: if, during the period, monitoring findings indicate new risks are arising, known risks are changing, assessed risk levels are changing, or control measures are not effective enough, analyses of these findings may result in renewed and more frequent risk identification, and/ or assessment, and/or in a change of the mitigating measure.
Single Supervisory Mechanism In November 2014, the ECB took over supervisory powers for all banks in the Eurozone, establishing the Single Supervisory Mechanism (SSM). In preparation for this transition the ECB performed a yearlong and Europe wide Comprehensive Assessment, together with existing national regulators; ING Bank N.V. was one of the 130 banks that underwent this health check. The ECB objective was to foster transparency, to repair and to build confidence. The exercise ultimately aimed to provide details of any capital shortfalls and demand corrective measures. The ECB established quantitative benchmarks at various points in the process. Banks falling short of these benchmarks are required to raise additional capital in given time periods.
The three main purposes of Vortex; › Analysis for decision makers; › Compliance: Vortex is compliant and meets the requirements set by the regulators; › Disclosure: Vortex delivers reports to regulators, external rating agencies and investor relations.
Risk rating buckets per line of business Risk rating buckets are defined based upon the quality of the exposures in terms of creditworthiness, varying from investment grade to problem grade expressed in S&P, Moody’s and Fitch equivalents.
Credit restructuring Global Credit Restructuring (GCR) is the dedicated and independent corporate department within CRM that deals with non-performing loans and loans that hold a reasonable probability that ING will end up with a loss, if no specific action is taken. GCR deals with accounts or portfolios requiring an active approach, which may include renegotiation of terms & conditions and business or financial restructuring. The loans are managed by GCR or by the Regional Restructuring Units in the various regions and business units. GCR can approach files in several manners called Plans. Plan A generally consists of a consensual restructuring with the present owner and, sometimes, the executive management, based on debt reduction, additional collateral or external equity versus improved conditions and risk / reward profile for the bank. In the work out practice, ING faces a number of situations where the traditional Plan A is not realistic. Other cases demand another arrangement or a Plan B. Plan B is a lender led solution, where the bank(s) temporarily take ownership or take the company through, pre-packaged, insolvency to find a new strategic partner, which can add value in terms of liquidity, synergies and management. Thirdly, there is Plan C – the Recovery plan. Recovery status of a borrower means that ING Bank is actively seeking an exit from the credit relationship. This status will generally apply to those borrowers that are not likely to successfully turnaround their business, but there may be other reasons for ING Bank to exit from the credit relation. Further, legal remedies for recovery are being considered and liquidation of collateral may become a primary source of repayment.
For retail clients, clear criteria to determine whether a client is eligible for a modification or refinancing have been established for all ING Bank retail unit that apply forbearance activities. Also, specific approval mandates are in place to approve the modifications and refinancing, as well as procedures to manage, monitor and report the forbearance activities. These criteria and mandates vary, based on the legal framework in place and market practices, but are in line with ING Bank policy.
Over the year, the collateralisation level of the total ING Bank portfolio improved. Excluding the pre-settlement portfolio for which covers are netted to derive the outstandings at risk, 45.7% of the total ING Bank’s outstandings (from 42.0% as of 2013) are fully collateralised in 2014.
Investment and Money Market portfolio Investment and Money Market exposure per region
Backtesting Backtesting is a technique for the on-going monitoring of the plausibility of the VaR model in use. Although VaR models estimate potential future results, estimates are based on historical market data. In a backtest, the actual daily result is compared with the 1-day VaR. In addition to using actual results for backtesting, ING Bank also uses hypothetical results, which measure results excluding the effect of intraday trading, fees and commissions. When the actual or hypothetical loss exceeds the VaR an ‘outlier’ occurs. Based on ING Bank’s one-sided confidence level of 99% an outlier is expected once in every 100 business days. In 2014, three global backtest outliers (one actual and two hypothetical P&L outliers) occurred on two days, which were in line with our expectation based on the 99% confidence level of our VaR model. Details of the outliers are disclosed in the section ‘Risk profile’. ING Bank reports the results of this backtesting to DNB on a quarterly basis.
On ad-hoc basis ING Bank has performed additional stress tests related to the funding and liquidity position. Overall, stress testing is an integral part of the liquidity and funding risk management framework and also serves as input for the contingency funding plan. From a currency perspective, stress tests are applied on Euro and US Dollar whilst other currencies are monitored. This aligns with the Basel3 and CRR approach with regard to major currencies.
As a result of frequent evaluation of all businesses from economic, strategic and risk perspectives ING Bank continues to believe that for business reasons doing business involving certain specified countries should be discontinued. In that respect, ING has a policy not to enter into new relationships with clients from these countries and processes remain in place to discontinue existing relationships involving these countries. At present these countries are North Korea, Sudan, Syria, Iran and Cuba. Each of these countries is subject to a variety of EU, US and other sanctions regimes. Cuba, Iran, Sudan, and Syria are identified by the US as state sponsors of terrorism and are subject to U.S. economic sanctions and export controls.
Awareness Promoting Integrity Programme The Promoting Integrity Programme was started in 2010 and is an innovative programme consisting of e-modules on key bank-wide topics and follow-up dialogue sessions in which managers discuss the issues raised with their teams. The programme is sponsored by
Standard & Poor’s Moody’s Fitch rating outlook rating outlook rating outlook
The Share of associates and joint ventures reserve includes the following components: Reserve for non-distributable retained earnings of associates and joint ventures of EUR 1,483 million (2013: EUR 1,644 million) and Revaluation reserve of associates and joint ventures of EUR 10,370 million (2013: EUR 5,500 million).
› The parent company annual accounts give a true and fair view of the financial position of ING Group as at 31 December 2014, and of its result for 2014 in accordance with Part 9 of Book 2 of the Dutch Civil Code.
ING Group also successfully launched the IPO of NN Group N.V. (‘NN Group’) in 2014 and thereby reduced its shareholding to 68%. The IPO had a negative effect of approximately EUR 4.3 billion on the shareholders’ equity of ING Group, representing the difference between net proceeds and the IFRS book value of the stake sold. Per 30 September 2014, NN Group was classified as Assets and Liabilities Held For Sale and Discontinued Operations, as ING Group expected per that date to lose control and deconsolidate NN Group within 12 months. See note 57 to the consolidated annual accounts for full details of the NN divestments.
on so lid at ed a nn ua l a cc ou nt s A
Finally, as part of the road towards a full banking union, on 10 July 2013, the EC published a draft Regulation for a Single Resolution Mechanism (‘SRM’) with the aim to have a Single Resolution Board to be responsible for key decisions on how a bank subject to SSM supervision is to be resolved if a bank has irreversible financial difficulties and cannot be wound up under normal insolvency proceedings without destabilizing the financial system. The SRM was adopted by the European Parliament in April 2014 and by the European Council in July 2014 and was published in the Official Journal of the EU on 30 July 2014 and came into effect on 19 August 2014. The SRM will apply from 1 January 2016, with the exception of certain provisions relating to the establishment of the SRM and the making of delegated and implementing acts, which will apply at earlier dates.
(1) The floor is 80% of Basel I required Regulatory Capital.
(1) Intangibles: mainly capitalised software. (2) In Basel III the provision shortfall is deducted fully from Common Equity Tier 1, while the significant investments in financial institutions, conditionally to certain thresholds, are 250% risk weighted. During the phase-in period (2014-2017) they are gradually shifting from 50% deduction from Additional Tier 1 capital and 50% from Tier 2 capital towards full deduction from Common Equity Tier 1.
Undrawn commitments The figures below represent the potential exposure that may be drawn by ING Bank’s obligors under committed facilities. In most cases, the obligors have the right to make use of these facilities unless an event of default has occurred, or another defined event within the associated credit risk agreement has occurred. In most cases, the obligor pays a commitment fee to ING Bank on the unused portion of these facilities. Pre-Settlement, Money Market and Investment limits are generally not committed.
From the total notional value of OTC derivatives transactions that are not cleared by a CCP, 85% has been documented under bilateral (92%) and unilateral (8%) Collateral Support Annex (CSA) agreement.
Retail Of which residential mortgage 4,025 4,025 Of which credit card Of which other retail exposures 2,287 2,287 Of which re-securitisation Commercial Banking Of which loans to corporates Of which commercial mortgage 45 45 Of which lease and receivables Of which re-securitisation
On 31 December 2014 ING Bank had no originator exposure left. The last securitisation for which ING Bank acted as originator was BEL SME 2006 and it ran-off in March 2014.
Furthermore, assets are encumbered as a result of the repo- and securities lending business and cash and securities collateral posted for derivative and clearing transactions in which pledging collateral is a requirement. As part of its normal securities financing and derivatives trading activities ING enters into standard master agreements such as ISDA and Global Master Repurchase Agreements (GMRA), which contain Credit Support Annexes (CSA) or other similar clauses. The main part of ING Group’s repo- and reverse repo activities are short-term dated. Repo transactions are mostly conducted with securities which have been obtained as collateral in reverse repo transactions, which are not recognised on the balance sheet. Where securities recognised on the balance sheet have been used in a repo transaction, these remain recognised on the balance sheet and are reported as encumbered.
Credit risk The risk of loss from default by borrowers (including bond issuers) or counterparties. Credit risks arise in ING’s lending, pre-settlement and investment activities, as well as in its trading activities. Credit risk management is supported by dedicated credit risk information systems and internal rating methodologies for debtors and counterparties.
Irrevocable facilities Mainly constitute unused portions of irrevocable credit facilities granted to corporate customers and commitments made to purchase securities to be issued by governments and private issuers.
Trust Office At ING, this term is used to refer to the ING Trust Office.