The underlying net result was stable as higher interest results, increased fee income and lower risk costs were offset by lower one-off gains and volatile items, higher expenses (mainly due to investments in strategic projects and higher costs to support business growth) and a higher effective tax rate. Commercial performance was robust with 4.8% net growth in the core lending book.
Solid performance in 2017 in Wholesale Banking demonstrated the skills that differentiate us in the market. These include sector expertise in industry lending and expertise in areas like payments and cash management, working capital solutions and financial markets that support the financial resilience of clients. We’ll further develop Wholesale Banking as a clientfocused franchise that offers a consistent experience across borders. This includes moving to a stronger sector organisation and strengthening our international network with more resources in Asia and the Americas.
Also gaining importance across stakeholder groups is the topic of enhancing customer financial capabilities. Stakeholders find that banks have a responsibility to increase the financial knowledge of their customers. We see this as part of the way we empower people to stay a step ahead.
To achieve this, we are accelerating our Think Forward strategy and transforming our organisation. Key to this is working toward one global and scalable IT infrastructure with a modular approach for easy plugand -play connections. We are on course to implement one global approach to data management. And we will support this with one Way of Working. We believe this will help us collaborate better across borders and innovate much faster and at lower cost. As a first step, we are converging businesses with similar customer propositions that can benefit from economies of scale and a more standardised approach.
1. Simplify and streamline Simplify and streamline refers to ING’s aim to become a more effective, cost-efficient and agile organisation with the flexibility to respond to fast-changing customer needs and low-cost competitors. We are introducing one Way of Working based on end-to-end, multidisciplinary
• Over 37 million customers entrust us with their payments and deposits
• Over 4,600 employees trained on PACE, ING’s new way to innovate
It also offers opportunities for banks who have much to learn from these newcomers. ING is doing just that by partnering with fintechs and setting up accelerators to develop new solutions that meet our customers’ needs and advance our strategy.
Innovation culture ING uses a structured process called PACE to accelerate innovation internally. PACE is a combination of Lean Start-up, Agile Scrum and Design Thinking methods. The PACE Accelerator is an intensive 18-week programme that speeds up the time to market by testing ideas for new products and services and validating them with customers through experimentation. In 2017, the Pace Accelerator was active in four business units and the ING Customer Experience Centre in Amsterdam. In 2017, we initiated the PACE Everyday programme to teach employees how to innovate in their daily work. It ran in 10 business units.
In support of these changes, we will roll out ING’s one agile Way of Working across Wholesale Banking.
In February 2017, ING gained Top Employer status for Europe and individual recognition in Belgium, France, Italy, Poland, Spain and the United Kingdom.
Further, given the heavy reliance on IT systems in financial institutions, controls that monitor the various aspects of IT risk, such as integrity, availability and confidentiality, are embedded in ING’s risk and control framework.
31 Dec. 20171 Oct. 20171 Jul. 20171 Jan. 2017 1 Apr. 2017
We believe that the assurance evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion and our opinion.
By performing our procedures at country level, together with additional procedures at group level, we have been able to obtain sufficient and appropriate assurance evidence about the group’s reported information to provide a conclusion about the Non-financial Information and an opinion on the Four Specific Topics.
The members of the Supervisory Board are requested to assess annually whether or not they are independent as set out in the Corporate Governance Code and to confirm this in writing. On the basis of these criteria, all members of the Supervisory Board, with the exception of Eric Boyer de la Giroday, are to be regarded as independent on 31 December 2017. Eric Boyer de la Giroday is considered not independent because of his position as Chairman of the Board of Directors of ING Belgium S.A./N.V. and his former positions as member of the Executive Board of ING Groep N.V. and vice-chairman of the Management Board Banking of ING Bank N.V. On the basis of the NYSE listing standards, all members of the Supervisory Board are to be regarded as independent.
has a significant retail investor base, provided that it is feasible to meet local requirements (in ING’s 2009 rights offering, shares were offered to existing shareholders in Belgium, France, Germany, Luxembourg, Spain and the UK, where ING believed the vast majority of retail investors were located at that time); 4 Qualified or institutional investors in Canada and Australia.
Separate charters have been drawn up for the Risk Committee, the Audit Committee, the Nomination and Corporate Governance Committee and the Remuneration Committee. These charters are available on the website of ING Group (www.ing.com). A short description of the duties for the four Committees follows below.
As at 31 December 2017 Hermann-Josef Lamberti holds one executive and three non-executive positions. As per section 91 of CRD IV, this exceeds the maximum of (non-)executive positions allowed for (under section 3:8 of the Dutch Financial Supervision Act), i.e. one non-executive position too many. In consultation with the European Central Bank (‘ECB’) and based on the aforementioned article a request has been submitted to the ECB to authorise Hermann-Josef Lamberti to hold one additional non-executive position in order to comply with the board limitation rules.
Relevant positions pursuant to CRD IV: Member of the Supervisory Board of ING Groep N.V./ ING Bank N.V. per 1 September 2017, chairman of the Supervisory Board and chairman of the preparatory committee and selection & appointment committee of Heineken N.V., non-executive director and deputy chairman of the Board of Directors and chairman of the corporate and social responsibility committee of Royal Dutch Shell Plc, and member of the Supervisory Board of Hal Investments Plc.
To ensure the autonomy of staff in control functions (positions within Legal, Risk, Finance, Compliance, Audit and HR), the functional line is in the lead for the performance assessment. Where financial performance targets are included, they must be based on the financial performance of the bank.
• Continuous performance conversations: enables performance improvement at individual and team level.
1 Except for non-Identified Staff in Germany because it is pending approval by the Works Council.
As recognised in the profit or loss statement of 2017, the expenses per Executive Board Member (active on 31 December 2017), whilst serving on the Executive Board, amount to EUR 2.6 million for the CEO, EUR 1.4 million for the CFO and EUR 1.1 million for the CRO.
3 Disposals and redemptions – associates and joint ventures includes (2016: EUR 1,016 million proceeds on the further sale of NN Group shares in January 2016 resulting in loss of significant influence over NN Group; 2015: EUR 995 million proceeds on the further sale of NN Group shares in September 2015).
4 In 2016, Disposals and redemptions – available-for-sale investments includes EUR 1,375 million proceeds on the divestment of the remaining shareholding in NN Group in April 2016.
ING decided to continue applying IAS 39 for hedge accounting including the application of the EU carve out as explicitly permitted by IFRS 9. The revised hedge accounting disclosures as required by IFRS 7 ‘Financial Instruments: Disclosures’ as per 1 January 2018 will be implemented across ING Group.
Total impact –0.9 1 The EUR -0.4 billion is the post-tax impact on equity of the estimated IFRS 9 ECL increase amounting to EUR 0.6 billion. The capital impact is for the AIRB portfolios offset by the release of expected loss elements currently included in the calculation of regulatory capital per 31 December 2017. 2 Main impact of approximately EUR -0.6 billion from the reclassification of a part of the investment portfolio from the AFS (FVOCI) debt securities under IAS 39 to the
Computer software Computer software that has been purchased or generated internally for own use is stated at cost less amortisation and any impairment losses. Amortisation is calculated on a straight-line basis over its useful life. This period will generally not exceed five years. Amortisation is included in Other operating expenses.
Upon classification as held for sale, the carrying amount of the disposal group (or group of assets) is compared to its fair value less cost to sell. If the fair value less cost to sell is lower than the carrying value, this expected loss is recognised through a reduction of the carrying value of any goodwill related to the disposal group and the carrying value of certain other non-current non-financial assets. Any excess of the expected loss over the reduction of the carrying amount of these relevant assets is not recognised upon classification as held for sale, but is recognised as part of the result on disposal if and when a divestment transaction occurs.
ING Group recognised an additional reorganisation provision of EUR 1,032 million in 2016, for the intended workforce reductions per the intended digital transformation programmes. The intended initiatives are expected to result in a reduction of ING’s workforce mainly in Belgium and the Netherlands during 2016 to 2021.
In 2017, Other provisions – other includes a provision related to Letters of Credit/Guarantees of EUR 104 million. As at 31 December 2017, amounts expected to be settled within twelve months, amount to EUR 448 million. The amounts included in Other provisions are based on best estimates with regard to amounts and timing of cash flows required to settle the obligation.
As per 26 July 2016, more than 99.9% of the issued ordinary shares were held by Stichting ING Aandelen (ING Trust Office). In exchange for these shares, ING Trust Office issued depositary receipts. These depositary receipts were listed on various stock exchanges. Depositary receipts could be exchanged upon request of the holders of depositary receipts for (non-listed) ordinary shares without any restriction, other than payment of an administrative fee of EUR 0.01 per depositary receipt with a minimum of EUR 25 per exchange transaction.
Addition/(unused amounts reversed) of provision for reorganisations and relocations –5 1,189 165
Total comprehensive income for NN Group until deconsolidation at the end of May 2015 comprised EUR 1,718 million (attributable to equity holders of ING: EUR 941 million and to non-controlling interests: EUR 777 million). ING Group’s interest in NN Group was 54.77% until deconsolidation at the end of May 2015.
Geographical segments Main countries The Netherlands Belgium Including Luxembourg Germany Including Austria Other Challengers Australia, France, Italy, Spain, Portugal, Czech Republic and UK Legacy run-off portfolio Growth Markets Poland, Romania, Turkey and Asian bank stakes Wholesale Banking Rest of World UK, Americas, Asia and other countries in Central and Eastern Europe
Portugal Branch of ING Bank N.V. Wholesale banking 11 14 667 9 3
Turkey ING Bank A.S. Wholesale banking/Retail banking 6,070 641 17,544 155 34
For 2018 the expected contributions to pension plans are EUR 32 million.
Unused tax losses carried forward not recognised as a deferred tax asset 1,074 973
For uncollateralised OTC derivatives, ING applies Credit Valuation Adjustment to correctly reflect the counterparty credit risk in the valuation. The technique for calculating CVA is based on Monte Carlo simulation and uses various input including counterparty credit spread, market interest rates, and market exchanges rates. The counterparty credit spreads are based on counterparty CDS spread where available. Otherwise, the indexed proxy CDS spreads are used.
The remaining EUR 0.6 billion (31 December 2016: EUR 1.0 billion) of the fair value classified in Level 3 financial assets is established using valuation techniques that incorporates certain inputs that are unobservable. This relates mainly to assets that are classified as Available-for-sale investments, for which changes in fair value are recognised in shareholders’ equity and do not directly impact profit or loss.
ING Group Annual Report 2017 202 b) Non-financial assets and liabilities ING Group’s non-financial assets comprise Investments in associates and joint ventures, Property in own use, Investment properties and Inventory as included in the statement of financial position in the line items Investments in associates and joint ventures, Property and equipment, and Other assets respectively.
Fair value hedge accounting ING Group’s fair value hedges principally consist of interest rate swaps and cross-currency interest rate swaps that are used to protect against changes in the fair value of fixed-rate instruments due to movements in market interest rates.
Divestments effective in 2015 NN Group A number of divestment transactions resulted in a further decrease in the ownership of ING Group in NN Group to 25.75% from 68.14% at 31 December 2014. NN Group was deconsolidated and accounted for as an Investment in associate held for sale. Reference is made to Note 27 ‘Discontinued operations.
1 Includes their compensation earned in the capacity as Board members. 2 In 2017 two members left and two members joined the Executive Board. 3 Excluding members that are also members of the Executive Board of ING Groep N.V. 4 In the Management Board Banking, excluding the Executive Board members, one member left and one member joined in 2017. 5 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 103,317.
In general, ING has an impact on the environment and society directly through the consumption of natural resources and its relationship with stakeholders, and indirectly through our financing. Therefore, climate change as a risk continues to intensify, looking at the public, regulatory and political concerns around its integration into the financial sector’s operations and strategy.
Credit risk categories Credit risk uses the following risk categories to differentiate between the different types of credit risk: • Lending risk: arises when ING grants a loan to a client, or issues guarantees on behalf of a client. This includes term loans, mortgages, revolving credits, overdrafts, guarantees, letters of credit, etc. The risk is measured as the accounting value of the financial obligation that the client has to repay to ING, excluding any accrued and unpaid interest, discount/premium amortisations or impairments.
Pre-settlement (PS) risk -Financial assets at fair value through profit or loss (trading assets and non-trading derivatives) -Financial liabilities at fair value through profit or loss (trading assets and non-trading derivatives) -Securities financing
Credit approval process The credit approval process ensures that individual transactions are assessed on a name-by-name basis. For each type of client there is a dedicated process with credit risk managers specialised along the business lines of ING. The credit approval process is supported by a risk rating system and exposure monitoring system. Ratings are used to indicate a client’s creditworthiness which translates into a probability of default. This is used as input to determine the maximum risk appetite that ING has for a given type of client (reference benchmark). The determination of the delegated authority (the amount that can be approved at various levels of the organisation) is a function of the risk rating of the client and ING’s credit risk exposure on the client.
ING distinguishes four types of post default scenarios: • No Loss – Cure: the borrower pays all overdue amounts (to the extent ING is legally entitled to) and the asset becomes nondefaulted again. ING does not experience any loss in the process. The relationship is not terminated and the borrower returns back to performing; • No Loss – Exit without loss: ING (or the borrower) liquidates collaterals and calls guarantees in order to recover the exposure or the borrower fully repays. Thereafter the relationship is terminated. ING does not experience any loss in the process; • Loss – Exit with loss: ING (or the borrower) liquidates collaterals and calls guarantees in order to recover the exposure. Thereafter the relationship is terminated. ING suffers loss in the process; and
The table below represents the different types of exposures in 2017 and 2016.
Governance A governance framework has been established defining specific roles and responsibilities of business management units, market risk management units and internal approval bodies per activity.
Market risk in banking books ING makes a distinction between trading and banking (non-trading) books. Positions in banking books originate from the market risks inherent in commercial products that are sold to clients, the Bank Treasury exposures and from the investment of own funds (core capital). Both the commercial products, and the products used to hedge market risk exposures in these products are intended to be held until maturity, or at least for the long-term.
The 2nd line Financial Risk function is responsible for defining the governance with regard to funding and liquidity management and sets the standards for the funding and liquidity risk approach (identify, assess, control, monitor and report). Furthermore, it determines adequate policies and procedures for managing and monitoring liquidity risk and it checks compliance with guidelines and limits.
Internal events analyses Analysis of internal non-financial loss data assists in identifying, quantifying, mitigating and monitoring operational risk exposure. It provides insight into causes and effectiveness of associated controls. Supporting the creation and sharing of Lessons Learned for significant internal events is one of the means by which NFR enhances the internal control framework of ING.
Advanced Measurement Approach (AMA) ING has an Operational Risk Capital model in place in which the risk profile is closely tailored to its internal risk profile and its divisions, by using scenario data for capturing severe unlikely risks and internal loss and RCSA data for capturing day-to-day risks. The business has a leading role in assessing scenario severities, with the ORM function validating and challenging the results. The internal data are combined with external loss data (ORX) in the AMA capital calculation. Since April 2013, ING is allowed to use its AMA model for regulatory supervision purposes. ING reports the regulatory capital numbers on a quarterly basis. The AMA capital requirement per the end of 2017 amounts to EUR 3,207 million, compared to EUR 3,242 million per 2016 year-end.
Operational risk Definition Operational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.
The (increasing) restrictions on remuneration will continue to have an impact on existing ING Group remuneration policies and individual remuneration packages for personnel. This may restrict our ability to offer competitive compensation compared with companies (financial and/or non-financial) that are not subject to such restrictions and it could adversely affect ING Group’s ability to retain or attract key personnel.
A Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process.
1 In 2015, the category ‘education’ included the donations and volunteering hours for UNICEF. In 2016 and 2017, this is reported under the ‘Financial empowerment’ category.
1 As a result of the UK Modern Slavery Act 2015, ING is obliged to publish a ‘slavery and human trafficking statement’ for each financial year. ING published its first statement in 2017, available at www.ing.com/17ar22.
Barn fires Various NGOs publicised barn fires where thousands of animals died and suggested that banks should act to prevent a recurrence.
ING Groep N.V. Bijlmerplein 888, 1102 MG Amsterdam P.O. Box 1800, 1000 BV Amsterdam The Netherlands Telephone: +31 20 5639111 Internet: www.ing.com