Responsible business practices Corruption prevention Responsible finance and investment policies Transparency
• Utilising specific, in-depth knowledge of financial services, knowledge of customers and rigorous riskmanagement.
To remain relevant to customers we need to create a similar experience, one that is uniform wherever and through whatever channel they do business with us. We aim to be the go-to and open platform for all our customers’ financial needs, including providing relevant third-party offerings. And a platform that can integrate into other digital ecosystems so we are there for customers and other users wherever they need financial advice and services online.
Our strategy on a page With the launch of our Think Forward strategy in March 2014, a one-page overview was created to show our strategy in a clear and visual way.
Operational excellence We promise customers we’ll keep getting better. One way is by simplifying and standardising our core end-toend processes. Some processes are internal, such as for HR and compliance, others impact customers directly, like mortgages, lending and payments. Making them easier will lead to a superior customer experience, higher quality processes and greater efficiency. For example, we are rolling out a uniform way of handling and processing card transactions from a single hub in Poland. The system was introduced in France in 2017, with Czech Republic to follow in 2018.
Our Market Leaders businesses in the Netherlands, Belgium and Luxembourg are mature businesses with strong Retail and Wholesale Banking positions. Our Challengers businesses are in Australia, Austria, the Czech Republic, France, Germany, Italy and Spain. Here we aim to build a full bank relationship, digitally distributed at low cost via platforms like Model Bank, which we are developing for several European retail markets, and Welcome, in Germany. Our Growth Markets businesses are those in expanding economies with above-average growth potential: Poland, Romania and Turkey. ING also has stakes in the Bank of Beijing (China), TMB (Thailand) and Kotak Mahindra Bank (India).
We use the Net Promoter Score (NPS) to measure our progress. Our aim is to achieve a number one NPS ranking, with a 10-point lead over our main competitors in each Retail Banking market. Based on a rolling average of our NPS scores in 2017, ING was ranked number one in seven of our 13 markets and was second in a further four. a
Our Customer Promise ING innovates in pursuit of a better customer experience, both on its own and with partners. We believe this is what attracts people to ING as their main bank and we work hard to improve this experience and deliver on our Customer Promise to be clear and easy, anytime and anywhere, empower people and keep getting better.
Financial performance in 2017 Retail Banking recorded a strong set of 2017 results. Net profit rose to EUR 3,363 million from EUR 2,671 million in 2016, when result was negatively affected by the restructuring charges related to the digital transformation programmes announced in October 2016. Underlying net result (excluding special items) rose 2.1 percent to EUR 3,363 million from EUR 3,294 million in 2016. The underlying result before tax increased 3.1 percent to EUR 4,722 million in 2017.
It’s not just technology that drives innovation. ING works closely with clients to find sustainable solutions for the challenges they face and to put our sustainability ambitions into action. In 2017, we collaborated on several sustainable financing firsts: the first loan linking the interest rate to the client’s sustainability performance and rating (the better the company does on sustainability, the lower the interest rate); the first green hybrid bond ever, raising EUR 1 billion to fund wind energy in the Netherlands and Germany; and the UK’s first green bond in the public utilities sector (water).
For more information on the risk management function please refer to the ‘Risk Management’ chapter, part of the consolidated annual accounts of this Annual Report.
While it will adopt investment methods and portfolio management based on venture capital structures, the aim will not be to achieve a solely financial goal. The fund will focus on start-ups and companies that have already gained some market traction. The companies it will invest in are generally, but not exclusively, fintechs active in countries where ING has a presence or where ING has the intention to expand. As a responsible financial institution, ING ensures that these platforms are aligned with ING’s risk appetite and standards. Furthermore, ING is putting in place a dedicated risk control framework for ING Ventures aimed at properly identifying, measuring and managing the risks arising from its activities.
In 2017, the Compliance Risk Management function released a new, comprehensive policy covering all US withholding tax and information reporting regulations.
The CCB and the SRB are scheduled to phase in to 2.5% and 3.0% respectively by 1 January 2019. Consequently, the fully-loaded Maximum Distributable Amount (MDA) trigger level is expected to rise from 9% in 2017 to 11.8% in 2019 and assumes a stable Pillar 2 requirement. In the event that ING Group breaches the MDA level it may face restrictions on paying dividends, coupons on AT1 instruments and bonuses. With a fully-loaded Group CET1 ratio of 14.7% as at 31 December 2017, ING is already in compliance with the current, fully-loaded requirement of 11.8%.
Our responsibilities under this standard are further described in ‘Our responsibilities for the review of the Non-financial Information and audit of the Four Specific Topics’ of our report.
The Executive Board is also responsible for such internal control as it determines is necessary to enable the preparation of the Non-financial Information that is free from material misstatement, whether due to fraud or error.
The Supervisory Board met nine times in 2017. On average, 99 percent of the Supervisory Board members were present at the meetings. This attendance rate illustrates that the members of the Supervisory Board are engaged with ING and are able to devote sufficient time and attention to oversee ING’s affairs. The Executive Board and Management Board Banking were present during each Supervisory Board meeting. For part of the meetings only the chief executive officer was present; this was dependent on the nature of the topics addressed. The Supervisory Board also met in closed sessions, with Supervisory Board members only, in advance of the regular Supervisory Board meetings. The purpose of these pre-meetings is to have a Supervisory Board only reflection moment on the to-be-dealt-with agenda items and to provide an opportunity for airing concerns in advance of the regular meetings. The Supervisory Board members continued to interact with senior management outside the regular Supervisory Board meetings for discussion and information sharing. This included speed-meet sessions, which contribute to a better mutual understanding of and alignment on what matters most to ING and the Supervisory Board. To take the interaction even further, the Supervisory Board met with local country management teams and several senior managers during its annual business visit. After having visited the local teams in the US and Asia in the previous two years, in September 2017 the Supervisory Board’s focus was the Benelux, where it met with the local teams in Amsterdam and Brussels. It will continue this practice of meeting with local teams in the future. The Supervisory Board finds it important to strike a balance between the interests of all the stakeholders and to maintain an open dialogue on this with all sections within ING.
The Audit Committee discussed the quarterly results, the interim accounts and the annual accounts. Key audit matters, as included in the auditors’ reports and management letter were also a topic of discussion. In addition to the financial results and accounts, the subjects of the Audit Committee’s regular deliberations also included financial reporting, auditor’s independence and fees, the overall internal control environment, the internal controls over financial reporting, the internal and external auditor reports, the management letter, and capital management-related matters. The Audit Committee also reviewed the press releases related to the periodic results, the Annual Report, the 6-K and 20-F forms and the SOX404 Report, and discussed and approved the internal audit plan.
This chapter, including the parts of this Annual Report incorporated by reference, with the separate publication ‘ING’s application of the Dutch Corporate Governance Code’ dated 8 March 2018, (see www.ing.com), together comprise the ‘corporate governance statement’ as specified in section 2a of the decree with respect to the contents of the Annual Report (‘Besluit inhoud bestuursverslag’)1.
The Corporate Governance Code can be downloaded from the website of the Dutch Corporate Governance Code Monitoring Committee www.commissiecorporategovernance.nl.
ING Group publishes a comprehensive quarterly disclosure package that includes extensive and detailed financial figures with relevant explanatory remarks. This information is discussed thoroughly on the day of the earnings release during media, analyst and investor conference calls. These are broadly accessible to interested parties. The publication dates of quarterly earnings releases are announced in advance on ING Group’s website.
These guidelines, that relate to the composition of the Executive Board, are laid down in the Executive Board Profile. Based on this profile, the Supervisory Board is responsible for selecting and nominating candidates for appointment or reappointment to the Executive Board. During 2017, two new members were appointed to the Executive Board. The current members have been with ING in several positions and therefore jointly possess the right experiences and affinity with ING’s activities, culture and market environment. In the wider Management Board Banking a female board member was appointed in 2016. Currently, there are no female members in the Executive Board, although that ambition of gender diversity remains unchanged. This remains a key topic for the Supervisory Board with respect to
Transactions involving actual or potential conflicts of interest In accordance with the Corporate Governance Code, transactions involving members of the Supervisory Board in which there are material conflicting interests are disclosed in the Annual Report.
It should be noted that the above does not imply that these systems and procedures provide absolute assurance to ING as to the realisation of financial and strategic business objectives, or that internal risk management and control systems can prevent or detect all misstatements, inaccuracies, errors, fraud and non-compliances with legislation, rules and regulations.
If new shares other than cumulative preference shares are subsequently issued, ING Continuity Foundation may again exercise its right, subject to the provisions of the preceding sentence. On acquisition of cumulative preference shares, at least 25 percent of the nominal value must be paid on said shares.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statements of financial position of the Company as of December 31, 2017 and 2016, the related consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements), and our report dated March 5, 2018 expressed an unqualified opinion on those consolidated financial statements.
Shareholders’ mandate ING’s Remuneration Policy is compliant with (inter)national laws and regulations. The Dutch law, Wet Beloningsbeleid Financiële Ondernemingen (hereafter: WBFO) sets various requirements, especially with respect to variable remuneration. These include requirements for mandatory holdback and claw back provisions, variable remuneration caps, special conditions linked to retention, sign on, severance payments and the requirement that variable remuneration must be based for at least 50% on non-financial performance. ING applies all these requirements.
Steven van Rijswijk¹ 274,000 - 1 Koos Timmermans and Steven van Rijswijk were appointed to the Executive Board as per 8 May 2017, while Patrick Flynn and Wilfred Nagel left as per 8 May 2017 and 1 August 2017 respectively. Thus the figures for Koos Timmermans, Steven van Rijswijk, Patrick Flynn and Wilfred Nagel reflect a partial year as an Executive Board member.
2 Deferred share units of Ralph Hamers are cash settled instruments of which the ultimate value will be based on ING Group’s share price at the vesting date.
Remuneration report – continued would count as variable compensation under the 20% cap). Once awarded, they cannot be taken away at a later stage, even though the value of these fixed shares will vary in line with variations in ING’s share price. As per the Dutch Corporate Governance Code, a retention period of five years will apply from the date of conversion to fixed shares.
In view of the fact that total remuneration levels of the other two Executive Board members, the CFO and the CRO, are much closer to the median of their relative market, the Supervisory Board decided not to adjust their remuneration this year.
4 Jan Peter Balkenende was appointed to the Supervisory Board by the 8 May 2017 AGM. He joined the meetings of the Supervisory Board as an observer in between 9 May and 1 September 2017. His Supervisory Board membership became effective as of 1 September 2017. The remuneration figures for 2017 reflect a partial year as a member of the Supervisory Board.
Consolidated statement of changes in equity of ING Group - continued
Unrealised revaluations available-for-sale investments and other revaluations –528 –528 114 –414
– other financial assets at fair value through profit or loss 441 –3,401 –256
Net cash flow from/(used in) investing activities 30 11,754 6,134 4,196
Net cash flow from/(used in) operating activities –5,253 8,553 10,577 Net cash flow from/(used in) investing activities 30 11,754 6,134 4,196
Major new IFRSs IFRS 9 ‘Financial Instruments’ IFRS 9 ‘Financial Instruments’ was issued by the IASB in July 2014 and endorsed by the EU in November 2016. IFRS 9 replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’ and includes requirements for the classification and measurement of financial assets and liabilities, impairment of financial assets, and hedge accounting. The new requirements are effective for annual periods beginning on or after 1 January 2018 and will be applied by ING Group as of 1 January 2018. ING Group applies the classification, measurement, and impairment requirements retrospectively by adjusting the opening balance sheet and opening equity at 1 January 2018, and has decided not to restate comparative periods and not to early apply the changed own credit risk requirements, as permitted by IFRS 9. In October 2017, the IASB issued an amendment to IFRS 9 with regard to prepayment features with negative compensation. This change allows financial assets with prepayment features that permit or require a party to a contract either to pay or receive reasonable compensation for the early termination of the contract, to be measured at amortised cost or at fair value through other comprehensive income. The amendment will be effective for annual period beginning or after 1 January 2019. If the amendment is endorsed by the EU, ING will early adopt the amendment to IFRS 9 as of 1 January 2018 as permitted. Based on the assessments carried out, ING Group does not expect that this change will have an impact.
Impairment The implementation of IFRS 9 has a significant impact on ING’s impairment methodology. The Expected Credit Loss (ECL) model is a forward-looking model. The ECL estimates are unbiased, probability-weighted, and include supportable information about past events, current conditions, and forecasts of future economic conditions. ING’s ECL model reflects three macroeconomic scenarios via a baseline, up and down scenario and include the time value of money. The model applies to on-balance sheet financial assets accounted for at AC and FVOCI such as loans, debt securities and lease receivables, as well as off-balance sheet items such as undrawn loan commitments, certain financial guarantees, and undrawn committed revolving credit facilities. Compared to the scope under IAS 39, the main change is the inclusion of off-balance sheet exposures and HtC&S financial assets. ING aligned the definition of credit impaired under IFRS 9 with the definition of default for prudential purposes.
Macroeconomic scenarios ING has established a quarterly process whereby forward-looking macroeconomic scenarios and probability weightings are developed for ECL calculation purposes. ING applies predominantly data from a leading service provider enriched with the internal ING view. To reflect an unbiased and probability-weighted ECL amount, a baseline, an up-scenario and a down-scenario are determined. As a baseline scenario, ING applies the market-neutral view combining consensus forecasts for economic variables such as unemployment rates, GDP growth, house prices, commodity prices, and short-term interest rates. Applying market consensus in the baseline scenario ensures unbiased estimates of the expected credit losses.
Exchange rate differences –308 –72 –535 –16 –232 –19 –1,075 –107
No individual loan or advance has terms and conditions that significantly affect the amount, timing or certainty of the 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’.
Movement in loan loss provisions is presented as Addition to loan loss provisions in the Consolidated statement of profit or loss.
The cost or the purchase price amounted to EUR 1,044 million (2016: EUR 1,400 million). Cost or the purchase price less accumulated depreciation and impairments would have been EUR 495 million (2016: EUR 625 million) had property in own use been valued at cost instead of at fair value.
The total amount of borrowing costs relating to Property development and obtained from foreclosures, capitalised in 2017 is nil (2016: nil).
More than 4 years but less than 5 years 5,411 8,674
Shareholders’ equity (parent) 50,406 49,793 47,832 Non-controlling interests 715 606 638
During the Annual General Meeting of Shareholders in 2016, it was decided to reduce the par value per ordinary share from EUR 0.24 (2015) to EUR 0.01. As a result of this, EUR 891 million is attributed to the Share premium. For further information, reference is made to the section ‘Depository receipts for ordinary shares’, below.
Changes in composition of the group and other changes 113 119
Changes in composition of the group and other changes 22 –371
Cash received from stock option exercises for the year ended 31 December 2017 is EUR 10 million (2016: EUR 7 million; 2015: EUR 16 million).
Net result IFRS attributable to equity holder of the parent 4,010
Austria Branch of ING DiBa A.G. Wholesale banking/Retail banking 225 80 682 25 –1
Financial liabilities designated as at fair value through profit or loss 1,285 1,348 9,829 10,795 101 123 11,215 12,266
Transfers out of Level 3 –111 –86 –9 –63 –120 –149
Non-listed equity investments Level 3 equity securities mainly include corporate investments, fund investments, real estate positions, and other equity securities which are not traded in active markets. In the absence of an active market, fair values are estimated on the basis of the analysis of fund managers reports, company’s financial position, future prospects, and other factors, considering valuations of similar positions or by the reference to acquisition cost of the position. For equity securities best market practice will be applied using the most relevant valuation method.
The table above shows the fixed remuneration, expense allowances and attendance fees for the Supervisory Board for 2017 and 2016.
Risk Appetite Framework ING uses an integrated risk management approach for its banking activities. The uses the Risk Appetite Framework (RAF) to set both boundaries for the Medium Term Plan (MTP) budget process and to monitor and manage the actual risk profile in relation to the risk appetite.
Net interest income Trading income Commission income Other income Credit risk costs CVA/DVA Expenses Revaluation reserves Liquid asset buffer Inflow/outflow Non-financial risk costs LGD, EAD, RWA, EL INCAP, Economic Capital Cash & Collateral Funding mix diversification Intra-group Funding LT/ST funding diversification Incremental Risk Charge Etc.
• Exposure at Default (EAD): The second element is the counterparty’s exposure at default. EAD models are intended to estimate the outstanding amount or obligation at the moment of default in the future. Since the fact that a client will go into default is not known, and the level of outstanding that may occur on that date is also not known, ING uses a combination of statistical and hybrid models to estimate the EAD. With the exception of guarantees and letters of credit, the EAD is always equal to or higher than the associated credit risk outstanding, under the assumption that clients tend to absorb liquidity from available credit resources before financial problems become apparent to the client’s creditors. EAD is largely a function of the type of credit facility (overdraft, revolving, term) offered to the borrower.
Credit risk systems and data standards The acceptance, maintenance, measurement, management and reporting of credit risks at all levels of ING is executed through promotion of single, common credit risk data standards and the integration into common credit risk tools that support standardised and transparent credit risk practices. ING has chosen to develop credit risk tools centrally. The philosophy is use a single source of data, in an integrated approach that includes ING policy, the regulatory environment in which we operate, and the daily processes which are active throughout the group. Application to these three areas is the essential requirement to ensure data quality standards and discipline remains high.
Chemicals, Health & Pharmaceuticals 1 Based on the total amount of credit risk in the respective column using ING’s internal credit risk measurement methodologies. Economic sectors below 2% are not shown separately but grouped in Other.
- The scenarios for the earnings perspective (NII) are applied gradually over a 12 month (ramped) period whereas previously the scenarios were applied instantaneously.
Year-on-year variance analysis NPV-at-Risk for the downward scenario changed by EUR 865 million during 2017. The main driver of the positive change is the Corporate Line Banking due to the removal of the floor. The removal of the floor is the main contributor to the change in the downward scenario for the other business lines next to the model updates for the savings portfolio for Retail Banking Benelux and Retail Challengers & Growth Markets.
Stress testing allows ING to examine the effect of exceptional but plausible future events on the liquidity position of the bank and provides insight into which entities, business lines or portfolios are vulnerable to which type of risks and/or in which type of scenarios. In line with SREP and EBA guidance, ING’s liquidity position is stress tested on a monthly basis under a particular scenario that is a mix between a market event and an ING specific event. The outcomes of stress tests are evaluated and provide input to any follow-up on the need for additional contingency measures.
Cybercrime Cybercrime remains a continuous threat to companies in general and to financial institutions specifically. Both the frequency and the intensity of attacks increase on a global scale.
ING Group Annual Report 2017 295 in EUR million 2017 2016
Notes to the parent company annual accounts amounts in millions of euros, unless stated otherwise
Claim agreements In the ordinary course of business we have entered into a number of agreements whereby we are provided and being provided indemnifications related to sale of our past businesses and agreements whereby we made detailed arrangements regarding allocation and handling of claims.
To: the Annual General Meeting of Shareholders and the Supervisory Board of ING Groep N.V. Report on the audit of the annual accounts 2017 included in the annual report Our opinion In our opinion: • the accompanying consolidated annual accounts give a true and fair view of the financial position of ING
Based on the following procedures performed, we conclude that the Other information: • is consistent with the annual accounts and does not contain material misstatements; • contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.
Improving our climate-related disclosures We believe transparency will encourage investors and banks to shift to more low-carbon and climate-smart options as companies become more open about reporting on the current and potential financial implications of climate change – an important step towards delivering on the commitments of the Paris Agreement to keep global warming below two degrees Celsius.
Total donations ALL in EUR thousands 2017 2016 2015 ING Bank Direct business donations Donations business 12,323 11,248 10,325
More information on ING’s stance on Palm Oil can be found at: www.ing.com/17ar26
NCP complaint 8 May 2017, Oxfam Novib, Greenpeace, BankTrack and Milieudefensie (NGOs) requested the Dutch National Contact Point for the OECD Guidelines (the notification) make a statement on ING’s climate policy regarding the following: measuring its indirect carbon footprint, disclosure of said carbon footprint and alignment of the bank’s lending portfolio with a the 1.5-degree scenario.