New EU regulations, such as PSD2, are opening up financial services to competitors outside the sector thereby reducing the barriers for entry.
ING Group recorded a robust commercial and financial growth in 2016, with a full-year 2016 net profit of EUR 4,651 million, an increase of 16% year-on-year. We have already met several of our Ambition 2020 targets, including those for capital, leverage ratio and dividend.
Anti-competitive behaviour and corruption can damage our reputation and have a direct impact on our license to operate.
The future of banking will not be banking as we know it. The Yolt app, being tested by ING in the UK, allows consumers to manage their finances across multiple institutions in one mobile dashboard. We believe open platforms and digital ecosystems will define the customer experience of the future, also for financial services.
How we create value The role of a financial institution is to support and promote economic, social and environmental progress leading to a better quality of life for people in society, while generating adequate returns for shareholders. This is what the value we create for and with our stakeholders, such as customers and shareholders, should be about. This naturally fits with our purpose: “empowering people to stay a step ahead in life and in business”.
Paid taxes and regulatory costs • Responsible tax principles: global effective tax rate for continuing activities of 27.4%.
Providing a differentiating customer experience Our customer promise Technology and digitalisation are accelerating. Mobile interactions are growing quickly and mobile devices are becoming the channel of choice for customers, leading to more consistent digital customer behaviour.
Retail Banking – continued increased two percent, mainly due to volume growth in most countries and higher margins on consumer and business lending. This was partly offset by margin pressure on current accounts due to lower reinvestment yields. Commission income rose 5.1 percent, particularly in the Challengers & Growth Markets.
ING acted as adviser and underwriter to international waste-to-product business Shanks Group’s merger with leading Dutch waste processor Van Gansewinkel Groep. The merger will create one of Europe’s leading players in recycling. This transaction strengthens ING’s commitment to the circular economy, as both Shanks and Van Gansewinkel put circular economy at the heart of their businesses by making new products out of waste.
Engagement scores, on a country level, ranged from 64 percent to 84 percent. Following the survey, HR and local management teams develop action plans which aim to address the improvement areas identified.
In early 2017, we will set up a Innovation Council to define and align priorities and measure the bank’s innovation progress. It will replace the Innovation Fund Steering Committee. We will also set up Business Unit Innovation Councils for each country and bundle large internal start-up initiatives in a Scale-up Portfolio. This will help speed up ING’s transformation into an innovation-enabled organisation offering customers an integrated digital ecosystem beyond traditional banking.
To support orderly resolution, the BRRD requires banks to meet minimum requirements for own funds and eligible liabilities (MREL). In addition, ING as a Global Systemically Important Bank (G-SIB) needs to comply with the total * Excluding CCyB which is negligible at this stage.
In January 2016, ING successfully sold 33 million ordinary shares of NN Group, and in February 2016 it exchanged the final tranche of EUR 337.5 million mandatory exchangeable subordinated notes, which had been issued in 2014 as part of the anchor investment in NN Group. These transactions reduced ING’s remaining stake in NN Group from 25.8% to 14.1%. In April 2016, ING sold its remaining 14.1% stake in NN Group. The divestment of NN Group is the final step of ING´s programme to divest all of its insurance and investment management businesses as part of the restructuring agreement with the European Commission. As a result of the sale of the NN shares, Tier 1 instruments lent to NN Group no longer need to be deducted from available Tier 1 capital. This had a positive impact on available Tier 1 capital of EUR 0.8 billion.
Read more in the “Capital management”chapter, part of the Consolidated annual accounts in this Annual Report.
To the Supervisory Board and the Shareholders of ING Group N.V. Our conclusion We have reviewed the non-financial information in the Report of the Executive Board as defined in the table on pages 15 to 18 and in the ‘Non-financial appendix’ (hereafter: the Non-financial Information) of ING Group N.V. (hereafter: ING Group) based in Amsterdam, The Netherlands.
Our responsibilities for the review of the Non-financial Information Our responsibility is to plan and perform the review assignment in a manner that allows us to obtain sufficient and appropriate assurance evidence for our conclusion.
b. ING Group if, as a result of such acquisition or disposal the person’s net short position reaches, exceeds or falls below 0.5% of the issued share capital of ING Group and each 0.1% above that.
E.F.C.B. (Eric) Boyer de la Giroday (Born 1952, Belgian nationality, male: appointed in 2014, term expires in 2018) Former Vice-Chairman Management Board Banking ING Groep N.V. and ING Bank N.V.
Severance payments to members of the Executive Board The contracts entered into with the members of the Executive Board provide for severance payments, that become due upon termination of the applicable Executive Board member’s contract, including if this occurs in connection with a public bid as defined in section 5:70 of the Dutch Financial Supervision Act. For purposes of calculating the amounts due, it is not relevant whether or not termination of the employment or commission contract is related to a public bid. Severance payments to the members of the Executive Board are limited to a maximum of one year’s fixed salary, in line with the Corporate GovernanceCode.
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 for which it did not receive voting instructions, representing around 43 percent of the total votes that might be cast at the AGM 2016. In voting on 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 and 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.
The board consisted during the 2016 Report Year of Herman Hazewinkel, chairman, Mick den Boogert, Paul Frentrop, Harrie Noy and Jolanda Poots-Bijl.
• Instant Lending: Consumer loan production in Romania increased by 70% since 2015; Digital loan production in Poland increased by 45%.
f) Principles of valuation and determination of results Consolidation ING Group (the Group) comprises ING Groep N.V. (the Parent Company), ING Bank N.V. and all other subsidiaries. The consolidated financial statements of ING Group comprise the accounts of ING Groep N.V. and all entities in which it either owns, directly or indirectly, more than half of the voting power or over which it has control of their operating and financial policies through situations including, but not limited to: • Ability to appoint or remove the majority of the board of directors; • Power to govern such policies under statute or agreement; and • Power over more than half of the voting rights through an agreement with other investors.
Furthermore, in addition to the restrictions in respect of minimum capital requirements that are imposed by industry regulators in the countries in which the subsidiaries operate, other limitations exist in certain countries.
Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, the grant is recognised over the period necessary to match the grant on a systematic basis to the expense that it is intended to compensate. In such case, the grant is deducted from the related expense in the statement of profit or loss.
Approximately 97% (2015: 91%) of the exposure in the ABS portfolio is externally rated AAA up to and including A-.
Borrowed debt securities are not recognised in the statement of financial position and amount to nil (2015: nil).
The carrying value of the CGUs exceeds the recoverable amount for 2016 and 2015 and therefore no impairment is required.
Software Software, includes internally developed software amounting to EUR 395 million (2015: EUR 319 million).
Other accrued assets In 2016, Other accrued assets increased by EUR 167 million, mainly due to card transactions.
Discontinued operations - average number of employees at full time equivalent basis 2,652 6,851 2,181 5,635 4,833 12,486
Impairment losses Reversals of impairments Total 2016 2015 2014 2016 2015 2014 2016 2015 2014
Belgium Belgium ING België N.V. Wholesale banking/Retail banking 9,348 3,154 131,431 554 143
Switzerland Branch of ING België N.V. Wholesale banking 192 187 9,150 122 33
Amounts recognised in the statement of profit or loss during the year 277 12 –3 286
If ING had used input values from the upper and lower bound of this range of reasonable possible alternative input values when valuing these instruments as of 31 December 2016, then the impact would have been higher or lower as indicated below. The purpose of this disclosure is to present the possible impact of a change of unobservable inputs in the fair value of financial instruments where unobservable inputs are significant to the valuation.
Other financial instruments The fair values of the financial instruments carried at amortised cost in the statement of financial position, but for which fair values are disclosed are determined as follows: Financial assets
Other non-financial assets are recognised at fair value at the balance sheet date. For the methods and assumptions used by ING Group to estimate the fair value of these non-financial assets, reference is made to Note 1 ‘Accounting policies’, sections ‘Property in own use’ and ‘Investment properties’.
Gains and losses on the effective portions of derivatives designated under cash flow hedge accounting are recognised in Shareholders’ equity. Interest cash flows on these derivatives are recognised in the statement of profit or loss in net interest income consistent with the manner in which the forecast cash flows affect net result. The gains and losses on ineffective portions of such derivatives are recognised immediately in the statement of profit or loss.
Furthermore, ING Group leases assets from third parties under operating leases as lessee. The future rental commitments to be paid under non-cancellable operating leases are as follows: 1 Excludes future rental commitments related to businesses classified as held for sale.
ING is involved in several legal proceedings in the Netherlands with respect to interest rate derivatives that were sold to clients in connection with floating interest rate loans in order to hedge the interest rate risk of the loans. These proceedings are based on several legal grounds, depending on the facts and circumstances of each specific case, inter alia alleged breach of duty of care, insufficient information provided to the clients on the product and its risks and other elements related to the interest rate derivatives that were sold to clients. In some cases, the court has ruled in favour of the claimants and awarded damages, annulled the interest rate derivative or ordered repayment of certain amounts to the claimants. The total amounts that need to be repaid or compensated in some cases still need to be determined. ING may decide to appeal against adverse rulings. Although the outcome of the pending litigation and similar cases that may be brought in the future is uncertain, it is possible that the courts may ultimately rule in favour of the claimants in some or all of such cases. A provision has been taken. However, the aggregate financial impact of the current and future litigation could become material.
Expenses paid 8 1 Transactions with NN Group until deconsolidation at the end of May 2015.
On 7 November 2014, ING made the final repayment. This was achieved six months ahead of the repayment schedule agreed with the European Commission in 2012. Total repayments on the aid amounted to EUR 13.5 billion, resulting in an annualised return of 12.7% for the Dutch State.
As a result of the above, ING's ownership in NN Group declined from 100% to 68.14% in 2014. This transaction did not impact the statement of profit or loss of ING Group, as NN Group continued to be fully consolidated by ING Group. In 2014, the transactions had a negative impact on shareholders' equity of ING Group of EUR 3,251 million. This amount included: • EUR 2,590 million, being the difference between the net proceeds of the IPO to ING and the IFRS carrying value of the stake in NN
• The MBB is responsible for managing risks associated with all activities of ING Bank. The MBB’s responsibilities include ensuring that internal risk management and control systems are effective and that ING Bank complies with relevant legislation and regulations. On a regular basis, the MBB reports on these issues and discusses the internal risk management and control systems with the SB. On a quarterly basis, the MBB reports on the Bank’s risk profile versus its risk appetite to the Risk Committee, explaining changes in the risk profile.
However, given the current unusual situation with persistent low interest rates, ING Bank actively manages its interest-rate risk exposure and successfully maintained the Net Interest Margin (NIM) on its core lending in 2016. On mortgages, ING is confronted with higher than expected prepayment rates because of the difference between the rates of the existing mortgage portfolio and the prevailing market rates. On savings, NII and NIM are decreasing due to a further decline in yields on assets, while room for further reduction of client rates on savings deposits has diminished.
• Settlement risk: is the risk that arises when there is an exchange of value (funds or instruments) for the same value date or different value dates and receipt is not verified or expected until after ING has given irrevocable instructions to pay or has paid or delivered its side of the trade. The risk is that ING Bank delivers but does not receive delivery from its counterparty. ING manages settlement risk in the same way as other risks including a risk limit structure per borrower. Due to the short term nature (1 day), ING Bank does not hold provisions or capital for specific settlement risk. Although a relatively low risk, ING increasingly uses DVP (Delivery versus Payment) and FITO (First In Then Out) payment techniques to reduce settlement risk.
Client Assessment: • Customer Domain Units (CDU): verify compliance with the applicable ESR policy. CDUs are responsible to assure that information in the Client ESR Assessment has been duly completed.
• Other Retail includes all other credit obligations related to Retail SMEs (such as partnerships and one-man businesses) and private individuals (such as consumer loans, car loans and credit cards). Under these exposure class definitions, it is possible for a private individual to be included under both residential mortgages and retail other.
Risk concentration: ING Bank portfolio per economic sector, as % of total outstandings1
The table below represents the different types of outstandings in 2016 and 2015.
ING Bank’s forborne assets increased by EUR 4.2 billion (40%) to EUR 14.9 billion per December 2016, mainly driven by Wholesale Banking.
ING Bank periodically assesses the compliance of the IRC model with the regulatory requirements by performing gap analyses, substantiating the modelling choices and quantifying the impact of alternative approaches.
Non-Financial Risk Introduction The Non-Financial Risk (NFR) function encompasses the operational and compliance risk management functions. It ensures appropriate risk controls in these functional areas by implementing clear policies and minimum standards which are embedded in ING Bank business processes in all divisions. The necessary infrastructure is in place to enable management to track events and nonfinancial risk issues. A comprehensive system of internal controls that are reviewed and updated as necessary creates an environment of continuous improvement in managing non-financial risk.
Also in 2016, the Ukraine-related sanctions as imposed earlier by both the US and the EU remained in force. Those sanctions restrict amongst others the dealing in specific (financial) products with certain named parties. Management of ING Bank entities use their existing control framework to ensure compliance with these sanctions.
As at 31 December 2016, the Share of associates and joint ventures reserve includes an amount of EUR 1,325 million (2015: EUR 1,201 million) related to the former Stichting Regio Bank and the former Stichting Vakbondsspaarbank SPN that cannot be freely distributed.
We operate in highly regulated industries. Changes in laws and/or regulations governing financial services or financial institutions or the application of such laws and/or regulations governing our business may reduce our profitability. We are subject to detailed banking laws and government regulation in the jurisdictions in which we conduct business. Regulatory agencies and supervisors have broad administrative power over many aspects of our business, which may include liquidity, capital adequacy, permitted investments, ethical issues, money laundering, anti-terrorism measures, privacy, recordkeeping, product and sale suitability, marketing and sales practices, remuneration policies, personal conduct and our own internal governance practices. Also, regulators and other supervisory authorities in the European Union (‘EU’), the United States (‘U.S.’) and elsewhere continue to scrutinise payment processing and other transactions and activities of the financial services industry through laws and regulations governing such matters as money laundering, anti-terrorism financing, tax evasion, prohibited transactions with countries subject to sanctions, and bribery or other anti-corruption measures.
Introduction Basis of disclosure The information in this report relates to ING Group N.V. and all of its subsidiaries (hereafter ING Group). There are no differences between the scope of consolidation for prudential purposes and the scope of consolidation for accounting purposes as reported in the annual accounts in Note 1 ‘Accounting policies’, Note 47 ‘Principal subsidiaries’ and Note 48 ‘Structured entities’.
Developments in disclosure requirements BCBS Revised Pillar III framework (RPF) With respect to market information disclosures, the Basel Committee on Banking Supervision (BCBS) announced in 2014 its ambition to revise and consolidate the Pillar III disclosure requirements in a two-phase programme. The revised Pillar III framework (RPF) is the result of an extensive review of Pillar III reports, in which the existing Pillar III disclosure requirements are superseded. The result applies to internationally active banks at the highest consolidated level.
Countercyclical buffer As only a few countries had set a countercyclical buffer rate larger than zero and ING Group’s exposures in these countries relatively small, the resulting countercyclical buffer is small: 0.01% in 2016. See below an overview of the exposure distribution for the most relevant countries (having either a share larger than 1% or a positive countercyclical buffer rate).
Article 429b (4) and 222 of Regulation (EU) No 575/2013 15 Agent transaction exposures EU-15a (Exempted CCP leg of client-cleared SFT exposure) 16 Total securities financing transaction exposures (sum of lines 12 to 15a) 65,722 65,722 81,283 81,283 Other off-balance sheet exposures 17 Off-balance sheet exposures at gross notional amount 217,943 217,943 210,856 210,856 18 (Adjustments for conversion to credit equivalent amounts) -146,320 -146,320 -141,762 -141,762 19 Other off-balance sheet exposures (sum of lines 17 to 18) 71,623 71,623 69,093 69,093 Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet)
In the table below, the CRR categories for the AIRB and SA approach are given and are mapped to the ING Bank exposure classes. The CRR is the translation of the Basel Accords into the European and national regulations.
The decrease in RWA is mainly due to an improved risk profile, also observed in decreasing non-performing loans. The improving Dutch economy resulted in lower RWAs for mortgages. Furthermore the decline in READ in the Dutch portfolio was caused by the continued transfer of Westland Utrecht Bank (WUB) mortgages to NN Group and the run-off in the WUB mortgages portfolio.
The table shows the industry or counterparty types that represent at least 5% of the total net carrying value. In total the top 5 Counterparty or Industry types makes up 79% of the exposure. The other counterparty or industry types exposures are grouped under the Other Services. The way of allocating exposures to these counterparty sectors, explains largely the above table. Manufacturing is logically mostly found in the Corporate Exposure class and the Financing activities in the Institutions and Sovereign exposure classes.
The performance of AIRB PD models is statistically back-tested on a regular basis. There are currently no known issues of PD underestimation.
Standardised Approach A subset of the ING portfolio is treated with the Standardised Approach (SA approach). The SA approach applies fixed risk weights to each exposure class, split into credit quality steps (based on external ratings) as dictated by the Capital Requirement Directive (CRD). The SA approach is the least sophisticated of the CRR/CRD IV methodologies and is not as risk sensitive as the risk-based AIRB Approach.
Total 14,077 1,103,441 -5,363 1,112,154 Excludes Counterparty Credit Risk exposures, Securitisations, CVA RWA, Equities and ONCOA. 1 Includes 119 million for contingent liabilities
Total past due exposure for consumer loans decreased by EUR 0.36 billion. The decrease is mainly caused by an improved residential mortgages portfolio in Belgium and the Netherlands which is a result of the further improved economic environment and improved arrears. In the Other Europe Residential Mortgage portfolio an increase is observed in past due exposures payments between 1 to 90 days compared to end of 2015. This is mainly caused by the Turkish, Italian, and Romanian residential mortgage portfolios. In Asia / Pacific, the increase is mostly observed in Australia.
At the end of 2016, around 57% of the derivative portfolio (based on notional value) was novated via a central counterparty. 24% of the non-cleared trades were uncollateralized, which mainly relate to Corporates with small credit limits and mainly comprises of interest rate derivatives (53%) and FX Derivatives (32%). Among the collateralised, not cleared trades 84% is under a bilateral CSA. Unilateral CSA agreements relate mainly to agreements that are unilateral against ING and mainly consist of Interest Rate Derivatives with Sovereign counterparties.
ING Group Annual Report 2016 418 2016 2015 Delta % Geography 6,924 8,130 -17.4% America 2,908 3,388 -16.5% Asia 35 38 -9.6% Australia 19 13 31.9% Europe 3,962 4,692 -18.4%
Materiality research is constantly evolving, and we updated our methodology in 2016. We chose for the best of both worlds by combining quantitative and qualitative assessment. Adding a qualitative check to the quantitative outcome of 2015: - adds to the validity of the results and increased understanding of stakeholder priorities; - does justice to the goal of materiality, to check if we as a company and our stakeholders are truly aligned on material topics; - provides us with the opportunity to have an in-depth conversation with several stakeholder groups at once.
Governments Corporate income tax and bank taxes4 1,970 1,881 1,459 1 Refer to note 27 of the ING Group Consolidated Annual Accounts 2016. Includes: Computer costs, office expenses, travel and accommodation expenses, advertising and public relations, external advisory fees, audit and non-audit services and postal charges. 2 Refer to note 26 of the ING Group Consolidated Annual Accounts 2016. 3 Refer to the P&L of the ING Group Consolidated Annual Accounts 2016 in the Annual Report 2016. 4 Refer to note 27 and 36 of the ING Group Consolidated Annual Accounts 2016.
in percentage of employees 2016 2015 in percentage of employees 2016 2015 2014 in percentage of employees Female Male Female Male Female Male
1 In 2015 and 2014, the cotegory ‘education’ included the donations and volunteering hours for UNICEF. In 2016, this is reported under the ‘Financial empowerment’ category 2 In 2015 and 2014, this category was termed as ‘Financial Education and Entrepreneurship’
Integrated reporting An integrated report is a concise communication about how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term. The report should tell the overall story of an organisation in a manner that allows all stakeholders to assess its ability to create value.