We recognise that collaborating on a good cause, even with the best of intentions, could trigger questions about anti-competitive behaviour. This might lead to a situation where parties would be inclined to choose the safe side and not work together rather than pursue a joint sustainable approach between banks that might have more impact. We would find such a situation unfortunate, but would still continue to strive for sustainable progress.
Relaibility and stability section in the “Improving the customer experience” chapter.
Statement on anti-bribery principles in the “Risk and capital management” chapter and “Non-financial appendix”.
Accelerating the financing of sustainable transitions section in the “Wholesale Banking” chapter.
Our focus on primary customer relationships helped us to achieve healthy and balanced growth in our lending to customers and in customer deposits. Net core lending grew by nearly EUR 35 billion and customer deposits increased by EUR 28.5 billion in 2016, both rising around six percent. Lending is well diversified across regions and categories, with particularly strong growth in the Challengers & Growth Markets and Industry Lending in Wholesale Banking. We also saw substantial progress in fee and commission income, particularly in Challengers & Growth Markets where we are increasingly becoming the primary bank for customers.
The value creation model on pages 26 and 27 illustrates what we do and how we create value with our stakeholders through our unique Customer Promise to be clear and easy, to make financial services available anytime and anywhere, to empower and to keep getting better for customers. The framework of the International Integrated Reporting Council serves as a basis for this model.
Knowledge creation on pioneering themes (e.g. Circular Economy) through thought leadership.
Our people The expertise, capacity and energy of over 54,000 employees • EUR 70 million spent on training and development. • Employees submitted 1,194 ideas through Innovation
The process was developed following the bank’s partnership with Kabbage, a leading US-based technology platform. Credito Negocios makes use of full credit scoring and real-time risk monitoring and allows SMEs to get a loan within 10 minutes, based on real-time business data. The lending process is reduced to a few minutes from the days it previously took to process applications.
We are embracing this opportunity. Finding new solutions, new ways to make things easier and continuing to improve the customer experience are integral to our overall strategy.
Operating expenses increased 5.2 percent to EUR 886 million, from EUR 842 million in 2015. The increase was mainly due to a higher headcount to support business growth and customer acquisition, as well as investments in strategic projects. This was partly offset by lower regulatory costs. The cost/income ratio was 46.1 percent, compared with 44.1 percent in 2015.
Such solutions are provided through a variety of products, including corporate loans and project finance loans. We also offer finance through innovative green products like green loans and green bonds. We nearly met our 2020 ambition for sustainable transitions financed in 2016. We plan to revisit this ambition in 2017 in our continued drive to accelerate our STF.
ING is responding to the developing needs and expectations of clients and society regarding the circular economy. Our support has so far taken the form of thought leadership. In 2016, we published a report on how companies can make their business model more circular.
ING was involved in the closing of a landmark EUR 180 million Guarantee Facility for Porr AG, which is one of the largest construction companies in the Austrian market, active in building, civil construction and underground engineering. The deal is a novelty with a syndicate consisting only of insurance companies fronted by ING as the only issuing bank. ING led the transaction and facilitated the syndication process acting as Coordinator, Bookrunner Mandated Lead Arranger, Issuing Bank, Documentation and Facility Agent. The facility will be used for the issuance of guarantees on a multi-currency basis (EUR, PLN, CHF, CZK and other) to cover the whole business cycle of Porr’s projects in respective countries. One of the key reasons for the deal’s success is ING’s presence in Porr’s key markets and its capabilities to provide local guarantees in local currencies and local language. Apart from these advantages, the client also benefited from the excellent risk rating of the insurers and ING, all A-rated, as the rating of the guarantee issuing bank is getting more an more important in international project guarantees.
Our people strategy Our people strategy centres around creating greater leaders and better managers to engage employees and empower them to deliver on ING’s customer promise. At the same time, it equips employees to own their positions and become the best they can be.
In a recent survey, 97 percent of employees globally, indicated they were familiar with the Orange Code, 79 percent were aware of the Code and 18 percent said that they had heard of it (“it rings a bell”).
Internal mobility plays an important part in this. To better facilitate internal people moves, job opportunities are made more accessible and transparent for employees within the company. A new internal careers site will be launched early in 2017.
Bankwide shared services ING continues to look at different ways to help standardise, consolidate and optimise operational processes across the bank so that it can address new client demands rapidly and efficiently. In some areas, we are looking to further centralise operational and IT tasks bringing people together to create larger, more specialised skill pools in single locations.
Operational excellence Standardising and simplifying our systems, processes and ways of working are key to becoming a leaner, more customer-responsive organisation that delivers a consistent customer experience everywhere. Operational excellence also allows us to respond faster and more
Meeting these expectations requires simple, standardised processes and systems and an IT architecture that is integrated, and globally scalable. Our systems and platforms should be able to plug into others, both inside the bank and within third-party ecosystems.
We maintain strong global alliances with the financial industry, law enforcement authorities, governments and internet service providers to jointly fight cybercrime. ING’s responsible disclosure programme encourages ethical hackers to report vulnerabilities they might discover in ING’s online services.
We take a holistic approach to counter the complex and constant threat of cybercrime by combining prevention with detection and rapid response. We also provide e-banking fraud awareness training for employees and clients which, in addition to maturing controls, has resulted in e-banking fraud damages stabilising at low levels across our organisation.
The mission of risk management is to properly identify, measure and manage these risks so that they are aligned with both our strategy and our appetite for risk. ING puts a lot of effort into understanding, measuring and managing risks. We believe that we have set up an effective risk management framework and a strong risk management culture.
These forward-looking statements are based on management’s current beliefs and assumptions about future activities and are subject to uncertainties. Therefore our assurance provider cannot assure these statements.
Description: ING Group reports on sustainable transitions financed. These are defined as clients and projects that are environmental and/or social outperformers in their industry. In 2016, ING Group increased the coverage of the company’s loan book which has been assessed against the definition and criteria for sustainable transitions financed. This area was significant to our review since we identified that sustainable transitions financed serves as a material indicator for ING to monitor its performance and reporting and because the assessment of outperformers is inherently subject to assumptions and judgement related to the criteria and definitions.
• The articles of association of ING Group (“Articles of Association”) provide that there are no quorum requirements to hold a General Meeting, although certain shareholder actions and certain resolutions may require a quorum.
Shares which are included in the Securities Giro Transfer system are transferred pursuant to the Securities Giro Transfer Act (“Wet Giraal Effectenverkeer”). Shareholders wishing to transfer such shares must instruct the securities intermediary where their shares are administered accordingly.
Relevant positions pursuant to CRD IV: 2 Chairman and CEO of the Executive Board of ING Groep N.V. and of the Management Board of ING Bank N.V.
Relevant positions pursuant to CRD IV: Member of the Supervisory Board of ING Groep N.V./ ING Bank N.V. and Member of the Supervisory Board of IMC B.V.
Change of control provisions Legal provisions Pursuant to the terms of the Dutch Financial Supervision Act, a declaration of no objection from the European Central Bank must be obtained by anyone wishing to acquire or hold a participating interest of at least 10 percent in ING Group and to exercise control attached to such a participating interest. Similarly, on the basis of indirect change of control statutes in the various jurisdictions where subsidiaries of ING Group are operating, permission from, or notification to, local regulatory authorities may be required for the acquisition of a substantial interest in ING Group.
The following restrictions applied to the granting of voting proxies to holders of depositary receipts by ING Trust Office: • The relevant holder of depositary receipts had to announce his or her intention to attend the General Meeting observing the provisions laid down in the Articles of Association.
The Executive Board assessed the effectiveness of our internal control over financial reporting as of 31 December 2016. In making this assessment, the Executive Board performed tests based on the criteria of the Committee of Sponsoring Organisations of the Treadway Commission (“COSO”) in Internal Reporting - Integrated Framework (2013 framework). Based on the Executive Board’s assessment and those criteria, the Executive Board concluded that the Company’s internal control over financial reporting is effective as of 31 December 2016.
The entire variable remuneration is subject to postaward assessment by the Supervisory Board. The postaward assessment cannot lead to an upward adjustment of the deferred variable remuneration.
• Achieved underlying net profit of ING Bank of EUR 4,976 million, up 17.9% from 2015. • Realised underlying return on equity for ING Bank of 11.6% for 2016, up from 10.8% in 2015.
EUR 8.6 billion. • Improved underlying cost/income ratio to 54.2% from 55.9% in 2015.
Hermann-Josef Lamberti 149 111 81 Isabel Martín Castellá 114 92 87 Eric Boyer de la Giroday 114 92 53 Ann Sherry 4 85 1 As of 2013, the remuneration of members of the Supervisory Board living in the Netherlands is subject to VAT. 2 Joost Kuiper left the Supervisory Board as of 25 April 2016. The remuneration figures for 2016 reflect a partial year as a member of the
Total amount recognised in other comprehensive income 7,925 161 8,086 1,102 9,188 Net result from continuing and discontinued operations 83 1,168 1,251 189 1,440
– other financial assets at fair value through profit or loss –3,401 –256 –553
Three stage approach ING Group will apply the IFRS 9 three stage approach to measure expected credit losses: • Stage 1: 12 month ECL - performing • Financial instruments that have not had a significant increase in credit risk since initial recognition require, at initial recognition a provision for ECL associated with the probability of default events occurring within the next 12 months (12 month ECL). • Stage 2: Lifetime ECL – under-performing • In the event of a significant increase in credit risk since initial recognition, a provision is required for ECL resulting from all possible default events over the expected life of the financial instrument (Lifetime ECL). • Stage 3: Lifetime ECL – non-performing • Financial instruments that move into Stage 3 once credit impaired and purchases of credit impaired assets will require a Lifetime
Equipment Equipment is stated at cost less accumulated depreciation and any impairment losses. The cost of the assets is depreciated on a straight line basis over their estimated useful lives, which are generally as follows: for data processing equipment two to five years, and four to ten years for fixtures and fittings. Expenditure incurred on maintenance and repairs is recognised in the statement of profit or loss as incurred. Expenditure incurred on major improvements is capitalised and depreciated.
Defined contribution plans For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as staff expenses in the profit or loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
As at 31 December 2016, the non-subordinated receivables amount to EUR 28,790 million (2015: EUR 29,924 million) and the subordinated receivables amount to EUR 68 million (2015: EUR 64 million).
No individual loans and advances to banks has terms and conditions that significantly affect the amount, timing or certainty of consolidated cash flows of the Group. For details on significant concentrations, refer to the section ‘Risk management – Credit risk’ paragraph ‘Credit Risk Appetite and Concentration Risk Framework’.
Changes in unrealised revaluations 363 743 –102 –1,595 –70 –72 191 –924
Accumulated impairments as at 31 December –38 –11 –2 –2 –40 –13
More than 3 years but less than 4 years 7,893 6,068
Total average number of employees at full time equivalent basis 13,660 17,238 22,060 38,283 40,315 46,371 51,943 57,553 68,431 1 The average number of employees includes, on an average basis, employees of the discontinued operations of NN Group. NN Group was deconsolidated from
Total net result from discontinued operations 441 –456 –1,406 3,875.0 3,864.8 3,849.7
Diluted earnings from discontinued operations 441 –456 –1,406 3,878.5 3,870.3 3,856.0 0.11 –0.12 –0.36 30 Dividend per ordinary share
– Additions to loan loss provision 171 175 –18 278 368 974
The effective tax rate in 2014 was lower than the weighted average statutory tax rate. This was mainly caused by non-taxable income, the recognition of tax benefits from previously unrecognised amounts and prior year adjustments which were only partly offset by non-deductible items.
Accounting ineffectiveness on derivatives designated under cash flow hedge accounting resulted in a loss of EUR 16 million (2015: EUR 31 million gain) which was recognised in the statement of profit or loss, in the line Valuation results and net trading income.
Financial liabilities at fair value through profit or loss 4,384 3,966
ING’s activities involving structured entities are explained below in the following categories: 1 Consolidated ING originated Liquidity management securitisation programmes (Lions); 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.
In 2016, the position of Head of NFR cessed to exist resulting in a direct report of the Heads of Corporate Operational Risk Management (CORM) and Bank Compliance Risk Management (BCRM) to the CRO. ING Bank is looking at a new structure for the validation of Risk Models in a broader perspective. Setting up a new Model Risk Management function is of significant strategic importance to the Risk Organisation.
The chart below provides, in EUR billion, high level information on the risks arising from the Bank’s business activities. The RWAs illustrate the relative size of the risks incurred in respect of each business from a regulatory perspective.
Macroeconomic developments In 2016, ING Bank’s operating environment was characterized by continuously challenging market conditions with amongst others the persistent low interest rates and geopolitical risks.
Scenarios and stress tests Stress testing evaluates ING Bank’s financial stability under severe but plausible stress scenarios and supports in decision-making that assures ING Bank remains a financially-healthy going concern even after a severe event occurs. In addition to the bank-wide stress test framework as described in the Risk Management - Risk profile section, the credit risk department performs stress tests on a monthly basis in order to continually assess the portfolio risks and concentrations. These monthly stress tests are consistent with the stress scenario as established in the ING Bank wide credit risk appetite framework. The monthly stress tests are reviewed in the Risk and Capital Integration team and potential management actions are proposed if necessary.
ESR Policy Development and Governance: • MBB/Global Credit Committee: Ultimate approval authority for approving new and updated ESR policies.
Total Bank 760,543 580,474 20,105 82,204 119,554 165,396 33.3% 19.3% 47.4% 1 Including loans to ING Group. 2 Excluding intercompany positions. 3 More information on the credit risk mitigants of the Pre-settlement exposure can be found in the Pre-settlement section.
The favourable trend in risk costs continued over the year 2016. Compared to 2015-end, risk costs have trended down to 31 basis points (2015: 44 basis points) of average RWA which is below the through-the-cycle range of 40-45 basis points. The improving risk trend caused average quarterly risk costs to remain well below EUR 300 million, causing the total stock of provisions to decline from EUR 5.8 billion to EUR 5.3 billion.
Total 7,104 3,944 3,159 6,982 3,241 3,742 1 Undrawn commitments are excluded.
Capital management Objectives ING Group Capital Management (Capital Management) is responsible for the adequate capitalisation of ING Group and ING Bank entities at all times in order to manage the risk associated with ING’s business activities. This involves not only the management, planning and allocation of capital within ING Group and ING Bank, but also the necessary capital market transactions, term (capital) funding and risk management transactions. ING takes an integrated approach to assess the adequacy of its capital position in relation to its risk profile and its operating environment. This implies taking into account the interests of its various stakeholders. Capital Management takes into account the metrics and requirements of regulators, rating agencies and internal risk based metrics such as the Risk Appetite Framework.
Changes in the value of hedging instruments that are designated as net investment hedges, are included in the line Exchange rate differences and other.
In February, March and September 2016 respectively, ING Groep N.V. redeemed the final tranche of subordinated loans from the Anchor investors (EUR 338 million), GBP 66 million 5.14% Bond and the USD 800 million 7.05% ING Perpetual Debt Securities. Reference is made to the ING Group Consolidated annual accounts, Note 18 ‘Subordinated loans’ and Note 19 ‘Equity’.
Dividend of EUR 0.66 per ordinary share 15 Subsequent events There are no subsequent events to report.
Foreign Account Tax Compliance Act and other US withholding tax regulations Under provisions of U.S. tax law commonly referred to as FATCA, non-U.S. financial institutions are required to provide certain information on their U.S. account holders and/or certain U.S. investors to the U.S. Internal Revenue Service (“IRS”). A 30% withholding tax is imposed on ‘withholdable payments’ made to non-compliant non-U.S. financial institutions. In addition to FATCA, non-U.S. financial institutions are required to comply with other U.S. withholding and reporting requirements on certain payments. The Group intends to take all necessary steps to comply with FATCA and other U.S. withholding tax regulations. ING is for example updating and strengthening its withholding compliance programme and reviewing, amending and filing the necessary tax returns and information reports.
Market conditions, including those observed over the past few years, may increase the risk of loans being impaired. We are exposed to the risk that our borrowers (including sovereigns) may not repay their loans according to their contractual terms and that the collateral securing the payment of these loans may be insufficient. We may continue to see adverse changes in the credit quality of our borrowers and counterparties, for example, as a result of their inability to refinance their indebtedness, with increasing delinquencies, defaults and insolvencies across a range of sectors. This may lead to impairment charges on loans and other assets, higher costs and additions to loan loss provisions. A significant increase in the size of our provision for loan losses could have a material adverse effect on our financial position and results of operations.
The amounts presented in this section relate to amounts used for Credit Risk Management purposes, which follow ING Bank’s internal interpretation of the definitions as prescribed under CRR/CRD IV. Therefore, the numbers can be different from the accounting numbers as reported in the annual accounts under IFRS-EU. An example is the treatment of ONCOA (Other Non-Credit Obligation Assets) items – while the accounting numbers include ONCOA, they are excluded from the credit risk section of Pillar III.
realignments. 4 Methodology and policy: methodology changes to the calculations driven by internal changes in policy and regulatory policy changes.
Retail PD Bands 337,217 333,876 1% 68,964 70,647 -2% <0.05% 28,159 25,288 11% 1,773 1,521 17% 0.05% to 0.5% 217,248 206,862 5% 22,646 20,853 9% 0.5% to 5% 77,923 85,664 -9% 29,472 30,734 -4% 5% to 10% 3,253 3,215 1% 2,870 2,796 3% 10% to 20% 3,458 3,599 -4% 3,394 3,679 -8% 20% to 50% 1,951 2,084 -6% 2,293 2,480 -8% more than 50% 5,225 7,164 -27% 6,516 8,584 -24%
Central Governments and Central Banks 10.00 to < 100.00 3 17 24% 7 16.3% 54 20% 2.94 9 119%
Backtesting observed default rates and observed losses for 2016 show observed results that are below predicted levels for all exposure classes except for Institutions. This can be explained by the improved economic conditions that were experienced in 2016. In 2016, no defaults were recorded for Sovereigns while default rates of corporates, residential mortgages and other retail loans have continued to improve compared to the previous year. The observed losses for institutions were mainly witnessed for institutions in Africa.
Of which performing but past due >30 days and <=90 days of which performing forborne
Protection bought Protection sold Notionals Single-name credit default swaps -15,894 14,396 Index credit default swaps -680 828 Total return swaps - - Credit options - - Other credit derivatives - - Total notionals -16,574 15,224 Fair values -33 97 Positive fair value (asset) 114 179 Negative fair value (liability) -148 -81
Other Retail 26 25 25 41 26,495 1,146 1,516 2,312 Securitisations 336 336 336 388 6,151 Total AIRB 172,903 58,788 45,120 49,602 735,010 553,813 33,822 92,397 89,633
The standby liquidity facilities are reported under irrevocable facilities. All facilities, which vary in risk profile, are granted to the SPE subject to normal ING Bank credit and liquidity risk analysis procedures. The fees received for services provided and for facilities are charged subject to market conditions. Mont Blanc is consolidated by ING Bank. These transactions are therefore on-balance sheet arrangements.
ING Bank has created a number of these securitisations with a 31 December 2016 position of approximately EUR 75.5 billion of AAA rated notes and unrated subordinated notes. The underlying exposures are residential mortgages in the Netherlands, Germany, Belgium, Spain, Italy and Australia and SME Loans in the Netherlands and Belgium.
EU MR2-B: RWA flow statements of market risk exposures under the IMA
We set an ambition to make 25 million people feel financially empowered by 2020
South- and Mid-America 88 88 2016 Number of employees Female Male Not recorded Total
6 The reported number consists of adolescents reached from July 2015 - December 2015.
Supplier Sustainability Performance Assessments # of Suppliers Engaged 647 596 243
ING Bank Ślaski has been encouraging Poles to save, both via its marketing campaigns and by offering suitable products. In 2016, ING Bank Śląski launched index funds – a solution geared towards clients who want to diversify their investment portfolio. This enables clients to invest in key stock exchanges in Europe, including Poland, as well as in the US. The launch of this product was supported by a press conference and multiple media interviews.
Special items include items of income or expense that are significant and arise from events or transactions that management consider distinct from the regular operating activities. These may either be recurring or non-recurring in nature but must be of a significant size to qualify as a special item. Disclosures on comparative periods also reflect the impact of current period's divestments. Legacy Insurance consists of the intercompany eliminations between ING Bank and NN Group until deconsolidation of NN Group at the end of May 2015, the results from Insurance Other and the results from discontinued operations. Insurance Other reflects (former) insurance related activities that are not part of the discontinued operations. The items excluded from the GAAP measures in 2016 are: • Restructuring charges and impairments related to the intended digital transformation programmes amounting to EUR –799 million after tax • Results of Insurance other, primarily consisting of the results of the Voya- and NN warrants, amounting to EUR 33 million after tax • Results from discontinued operations, primarily consisting of the results of the sale of the remaining NN shares, amounting to EUR
Earnings sensitivity (ES) Measures the impact of changing interest rates on (beforetax ) net interest income.
ESR policies Our financing and investment policies, as well as our broader business ambitions, are structured around strongly embedded social, ethical and environmental criteria. Our Environmental and Social Risk (ESR) policies guide our decisions for customer engagement and assessing finance proposals.
Internal rate of return (IRR) Internal rate of return is the calculated discount rate at which the present value of distributable earnings from new business equals the investment in new business (i.e. the projected return on the investment in new business).
Master agreement Contract between parties in which agreements are reached for most of the terms and conditions of future transactions, so that negotiations only focus on deal-specific terms. Wellknown master agreements include ISDA (for over-the-counter derivative transactions), GMRA (for repo or repurchase transactions) and GMSLA (for securities-lending transactions).