2019 ING Group Annual Report on Form 20-F
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 20-F
(Mark One)
☐
REGISTRATION
STATEMENT
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF
1934
OR
☒
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 31 December 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
☐
SHELL COMPANY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 001-14642
ING GROEP N.V.
(Exact name of Registrant as specified in its charter)
ING GROUP
(Translation
of Registrant’s name into English)
The Netherlands
(Jurisdiction of incorporation or organization)
ING Groep N.V.
Bijlmerdreef 106
1102 CT Amsterdam
P.O.
Box 1800, 1000 BV Amsterdam
The Netherlands
(Address of principal executive offices)
Erwin Olijslager
Telephone: +31 20 564 7705
E-mail: Erwin.Olijslager@ing.com
Bijlmerdreef 106
1102 CT Amsterdam
The Netherlands
(Name, Telephone, E-mail and/or
Facsimile number and Address of Company
Contact Person)
Securities registered or to
be registered pursuant to
Section 12(b) of the Act.
Title of each class
Trading symbols
Name of each exchange on which registered
American Depositary Shares
ING
New York Stock Exchange
Ordinary shares
New York Stock Exchange
(i)
6.125% ING Perpetual Debt Securities
ISG
New York Stock Exchange
3.150% Fixed Rate Senior Notes due 2022
ING22
New York Stock Exchange
3.950% Fixed Rate Senior Notes due 2027
ING27
New York Stock Exchange
Floating Rate Senior Notes due 2022
ING22A
New York Stock Exchange
Floating Rate Senior Notes due 2023
ING23A
New York Stock Exchange
4.100% Fixed Rate Senior Notes due 2023
ING23
New York Stock Exchange
4.550% Fixed Rate Senior Notes due 2028
ING28
New York Stock Exchange
3.550% Fixed Rate Senior Notes due 2024
4.05% Fixed Rate Senior Notes due 2029
4.05% Fixed Rate Senior Notes due 2029
ING24
New York Stock Exchange
4.050% Fixed Rate Senior Notes due 2029
ING29
New York Stock Exchange
(i)
Not for trading, but only in connection with the registration of American Depositary Shares
representing such ordinary shares,
pursuant to the requirements of the Securities and
Exchange Commission.
2019 ING Group Annual Report on Form 20-F
2
Securities registered or to
be registered pursuant to Section
12(g) of the Act.
None
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares
of each of the issuer’s classes of capital or common stock as of the close of
the period covered
by the annual report.
Ordinary Shares, nominal value
EUR 0.01 per Ordinary Share
3.896.734.271
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐
☒
If this report is an annual or transition report,
indicate by check mark if the registrant
is not required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934.
☐
☒
Note — Checking the box above will
not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from their obligations under
those Sections.
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant
was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
☒
☐
Indicate by check mark whether the registrant
has submitted electronically every
Interactive Data File required
to be submitted pursuant
to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant
was required to submit
and post such files).
☒
☐
Indicate by check mark whether the registrant
is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or an emerging
growth company. See definition of “large accelerated
filer,” accelerated filer,” and “emerging growth company”
in Rule 12b-2 of the
Exchange Act.
Large accelerated
filer
☒
☐
☐
☐
If an emerging growth company
that prepares its financial statements in accordance
with U.S. GAAP, indicate by check mark if
the
registrant has elected not to use the extended
transition period for complying with any
new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange
Act.
☐
†
The term “new or revised financial accounting standard”
refers to any update issued by the Financial
Accounting Standards Board
to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the
registrant has used to prepare
the financial statements included in this filing:
U.S. GAAP
☐
International Financial Reporting Standards
as issued
by the International Accounting Standards
Board
☒
Other
☐
If “Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant
has elected to follow.
☐
☐
If this is an annual report, indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
☐
☒
2019 ING Group Annual Report on Form 20-F
3
ING Group
Filed with the United States Securities and Exchange Commission for the year ended December 31st, 2019
Annual Report 2019 on Form 20-F
Contents
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Part I
|
Part II
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Part III
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Additional Information
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Financial Statements
2019 ING Group Annual Report on Form 20-F
4
Contents
PART
I
PRESENTATION
OF INFORMATION
5
CAUTIONARY STATEME
NT WITH RESPECT TO FORWARD
-LOOKING STATEMENTS
7
1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
9
2.
OFFER STATISTICS
AND EXPECTED TIMETABLE
9
3.
KEY INFORMATION
9
4.
INFORMATION ON THE COMPANY
33
4A.
UNRESOLVED
STAFF COMMENTS
66
5.
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
66
6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
91
7.
MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
130
8.
FINANCIAL INFORMATION
132
9.
THE OFFER AND LISTING
133
10.
ADDITIONAL INFORMAT ION
136
11.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
140
12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
141
PART
II
13.
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
144
14.
MATERIAL MODIFICATIONS
TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
144
15.
CONTROLS AND PROCEDURES
144
16A.
AUDIT COMMITTEE FINANCIAL EXPERT
146
16B.
CODE OF ETHICS
146
16C.
PRINCIPAL ACCOUNTANT
FEES AND SERVICES
147
16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR
AUDIT COMMITTEES
148
16E.
PURCHASES OF REGISTERED EQUITY SERVICES BY THE ISSUER AND AFFILIATED
PURCHASERS
148
16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
149
16G.
CORPORATE GOVERNANCE
149
16H.
MINE SAFETY DISCLOSURE
151
PART
III
17.
FINANCIAL STATEMENTS
152
18.
FINANCIAL STATEMENT
S
152
19
EXHIBITS
153
ADDITIONAL INFORMATION
RISK MANAGEMENT
156
SELECTED STATISTICAL
INFORMATION ON BANKING OPERATIONS
239
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Financial Statements
2019 ING Group Annual Report on Form 20-F
5
PRESENTATION
OF INFORMATION
In this Annual Report, and unless otherwise stated or the context otherwise dictates, references to
"ING Groep N.V.",
"ING Groep" and "ING Group" refer
to ING Groep N.V.
and references to "ING", the
"Company", the "Group", "we" and "us" refer to ING Groep
N.V.
and its consolidated subsidiaries.
ING Groep N.V.'s
primary
banking subsidiary is ING Bank N.V.
(together with its consolidated
subsidiaries, "ING Bank"). References to "Executive Board"
and "Supervisory Board" refer to the
Executive Board or Supervisory Board of ING Groep
N.V.,
respectively.
ING presents its consolidated financial statements in euros, the currency of the European Economic
and Monetary Union. Unless otherwise specified
or the context otherwise requires, references
to
“$”, “US$” and “Dollars” are to the United States dollars and references to “EUR” are
to euros.
Solely for the convenience of the reader, this Annual Report contains translations of certain euro
amounts into U.S. dollars at specified rates. These translations should not be construed as
representations that the translated
amounts actually represent such dollar or euro amounts, as
the case may be, or could be converted into U.S. dollars or euros, as the case may be, at the rates
indicated or at any other rate. Therefore,
unless otherwise stated, the translations of euros into U.S.
dollars have been made at the rate of EUR 1.00 = U.S. $ 1.0855, the noon buying rate in New York
City for cable transfers in euros as certified for customs purposes by the Federal Reserve Bank of
New York
(the “Noon Buying Rate”) on 21 February 2020.
ING prepares financial information in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board (“IFRS-IASB”) for purposes of reporting
with the U.S. Securities and Exchange Commission (“SEC”), including financial information
contained in this Annual Report on Form 20-F.
ING Group’s accounting policies and its use of various
options under IFRS-IASB are described under ‘Principles of valuation and determination of results’ in
the consolidated financial
statements. In this document the term “IFRS-IASB” is used to refer to
IFRS-IASB as applied by ING Group.
The published 2019 Annual Accounts of ING Group, however, are
prepared in accordance
with IFRS-
EU. IFRS-EU refers to International Financial Reporting Standards (“IFRS”) as adopted by the
European Union (“EU”), including the decisions ING Group made with regard
to the options available
under IFRS as adopted by the EU (IFRS-EU).
IFRS-EU differs from IFRS-IASB, in respect of certain paragraphs in IAS 39 ‘Financial Instruments:
Recognition and Measurement’ regarding
hedge accounting for portfolio hedges of interest rate
risk. Under IFRS-EU, ING Group applies fair value hedge accounting for portfolio hedges of interest
rate risk (fair value macro
hedges) in accordance with the EU “carve-out” version of IAS 39. Under
the EU “IAS 39 carve-out”, hedge accounting may be applied, in respect of fair value macro hedges,
to core deposits and hedge ineffectiveness is only recognised when the revised estimate of the
amount of cash flows in scheduled time buckets falls below the original designated amount
of that
bucket, and is not recognised when the revised amount of cash flows in scheduled time buckets is
more than the original designated amount. Under IFRS-IASB, hedge accounting for fair value macro
hedges cannot be applied to core deposits and hedge ineffectiveness arises whenever the revised
estimate of the amount of cash flows in scheduled time buckets is either
more or less than the
original designated amount of that bucket. IFRS-IASB financial
information is prepared by reversing
the hedge accounting impacts that are applied under the EU “carve-out”’ version of IAS 39.
Financial information under IFRS-IASB accordingly does not take account of the possibility that, had
ING Group applied IFRS-IASB as its primary accounting framework, it might have applied alternative
hedge strategies where those alternative hedge strategies could
have qualified for IFRS-IASB
compliant hedge accounting. These decisions could have resulted
in different shareholders’ equity
and net result amounts compared to those indicated in this Annual Report on Form 20-F.
Other than for the purpose of SEC reporting, ING Group intends to continue to prepare
its Annual
Accounts under IFRS-EU. A reconciliation between IFRS-EU and IFRS-IASB for shareholders’
equity
and net result is included in Note 1 ‘accounting policies’ to the consolidated financial statements.
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2019 ING Group Annual Report on Form 20-F
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In addition to the consolidated financial
statements, which are prepared
in accordance with IFRS-
IASB, this Annual Report on Form 20-F contains certain measures that are not defined by generally
accepted accounting principles (GAAP) such as IFRS. Our management uses these financial
measures, along with the most directly comparable GAAP financial measures, in evaluating
segment performance and allocating resources. We
believe that presentation of this information,
along with comparable GAAP measures, is useful to investors because it allows investors to
understand the primary method used by management to evaluate performance on a meaningful
basis. Non-GAAP financial
measures should not be considered in isolation from, or as a substitute
for, financial information presented in compliance with GAAP, including the consolidated financial
statements. Non-GAAP financial
measures as defined by us may not be comparable with similarly
titled measures used by other companies.
Certain amounts set forth herein, such as percentages, may not sum due to rounding.
This Annual Report on Form 20-F contains inactive textual addresses to Internet websites operated
by us and third parties. Reference to such websites is made for information purposes only, and
information found at such websites is not incorporated by reference
into this Annual Report on
Form 20-F.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
7
CAUTIONARY STATEMENT
WITH RESPECT TO
FORWARD
-LOOKING
STATEMENTS
Certain
of
the
statements
contained
herein
are
not
historical
facts,
including,
without
limitation,
certain
statements
made
of
future
expectations
and
other
forward-looking
statements
that
are
based on management’s current views and assumptions and involve known and unknown risks and
uncertainties that could cause actual results,
performance or events
to differ materially from
those
expressed or implied
in such
statements. Actual
results, performance or
events may differ
materially
from those in such statements due to a number of factors, including, without limitation,
●
changes
in
general
economic
conditions,
in
particular
economic
conditions
in
ING’s
core
markets;
●
changes affecting interest rate levels;
●
changes in performance of financial markets,
including developing markets;
●
changes
in
the
fiscal position
and
the
future
economic
performance
of
the
US
including
potential consequences
of a
downgrade of
the sovereign credit
rating of
the US
government;
●
consequences of the United Kingdom’s withdrawal from the European
Union;
●
introduction of, changes in or discontinuation of ‘benchmark’ indices;
●
inflation
and
deflation
in
our
principal
markets;
changes
in
conditions
in
the
credit
and
capital
markets
generally,
including
changes
in
borrower
and
counterparty
creditworthiness;
●
changes
in
laws
and
regulations,
including
those
governing
financial services
or
financial
institutions, and the interpretation and application thereof;
●
changes in compliance obligations;
●
geopolitical
risks,
political
instability
and
policies
and
actions
of
governmental
and
regulatory authorities;
●
ING’s ability to meet minimum capital and other prudential regulatory requirements;
●
the outcome of current and future legal and regulatory proceedings;
●
changes in tax laws;
●
operational risks, such
as system
disruptions or
failures, breaches of security,
cyber-attacks,
human error,
changes in
operational practices,
inadequate controls
including in
respect of
third
parties
with
which
we
do
business,
natural
disasters
or
outbreaks
of
communicable
diseases;
●
risks and changes related to cybercrime including the effects
of cyber-attacks and changes
in legislation and regulation related to cybersecurity and data privacy;
●
changes in general competitive factors;
●
the inability to protect our intellectual property and infringement claims by third parties;
●
changes in credit ratings;
●
business, operational,
regulatory,
reputation
and other
risks and
challenges in
connection
with climate change;
●
the inability to attract and retain key personnel;
●
conclusions with
regard to purchase
accounting assumptions
and methodologies,
and other
changes in
accounting
assumptions and
methodologies including
changes in
valuation
of
issued securities and credit market exposure;
●
changes in investor and customer behavior;
●
changes
in
the
availability
of,
and
costs
associated
with,
sources
of
liquidity
such
as
interbank funding;
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2019 ING Group Annual Report on Form 20-F
8
●
changes affecting currency exchange rate;
●
changes in ownership
that could affect
the future availability to
us of net
operating loss, net
capital and built-in loss carry forwards;
●
ING’s ability
to achieve
its strategy,
including projected
operational
synergies
and change
programmes, and
●
the other risks
and uncertainties
detailed in the
most recent annual
report of ING
Groep N.V.
(including the
Risk Factors
contained therein)
and ING’s
more
recent
disclosures,
including
press releases, which are
available on www.ING.com.
This annual report contains inactive textual addresses to internet websites operated by us and third
parties. Reference to such websites is made for information purposes only, and information found
at such websites is not incorporated by reference
into this annual report. ING does not make any
representation or warranty
with respect to the accuracy or completeness of, or take any
responsibility for, any information found at any websites operated by third
parties. ING specifically
disclaims any liability with respect to any information found at websites operated by third parties.
ING cannot guarantee that websites operated by third
parties remain available following the filing
of this annual report or that any information found at such websites will not change following the
filing of this annual
report. Many of those factors are beyond ING’s control.
Any forward looking statements made by or on behalf of ING speak only as of the date they are
made, and ING assumes no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information or for any other reason.
This document does not constitute an offer to sell, or a solicitation of an offer
to purchase, any
securities in the United States or any other jurisdiction.
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2019 ING Group Annual Report on Form 20-F
9
PART
I
Item
1.
Identity
of Directors,
Senior
Management
And Advisors
Not Applicable.
Item
2.
Offer
Statistics
and Expected
Timetable
Not Applicable.
Item
3.
Key Information
A.
Selected financial data
The selected consolidated financial
information data is derived from the IFRS-IASB consolidated
financial statements
of ING Group.
The following information should be read in conjunction with, and is qualified by reference to the
Group’s consolidated financial statements and other financial
information included elsewhere
herein.
IFRS-IASB Consolidated Income Statement
Data
for the years ended 31 December
2019
2019
2018
2017
2016
2015
In millions except amounts per share
US$
EUR
EUR
EUR
EUR
EUR
Continuing operations
Interest income
30,571
28,163
28,129
43,890
44,182
46,321
Interest expense
15,580
14,353
14,169
30,243
30,941
33,760
Net interest result
14,992
13,811
13,960
13,647
13,241
12,561
Net fee and commission income
3,113
2,868
2,798
2,710
2,433
2,318
Other income
485
446
1,566
2,233
2,228
3,128
Total
income
18,589
17,125
18,324
18,590
17,902
18,007
Addition to loan loss provision
1,215
1,120
656
676
974
1,347
Operating expenses
11,238
10,353
10,682
9,829
10,614
9,326
Total
expenses
12,453
11,472
11,338
10,505
11,588
10,673
Result before tax
from continuing operations
6,136
5,653
6,986
8,085
6,314
7,334
Taxation
1,793
1,652
2,116
2,539
1,705
1,924
Net result from continuing operations
4,344
4,001
4,869
5,546
4,609
5,410
Net result from discontinued operations
0
0
0
0
441
–76
Net result attributable to Non-controlling
interests
107
99
108
82
75
408
Net result ING Group
IFRS-IASB attributable to
Equityholders of the parent
4,236
3,903
4,761
5,464
4,975
4,926
Addition to shareholders’ equity
1,318
1,214
2,115
2,861
2,415
2,411
Dividend
2,919
2,689
2,646
2,603
2,560
2,515
Basic earnings per Ordinary Share
1.09
1.00
1.22
1.41
1.28
1.27
Diluted earnings per Ordinary Share
1.09
1.00
1.22
1.41
1.28
1.27
Dividend per Ordinary Share
0.75
0.69
0.68
0.67
0.66
0.65
Number of Ordinary Shares outstanding in the
market (in millions)
3,896.7
3,896.7
3,891.7
3,884.8
3,877.9
3,868.7
Euro amounts have been translated
into U.S. dollars at the exchange rate of $ 1.0855 to EUR 1.00,
the Noon Buying Rate in New York
City on 21 February 2020 for cable transfers in euros
as certified
for customs purposes by the Federal Reserve
Bank of New York.
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2019 ING Group Annual Report on Form 20-F
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Reference is made to Note 1 'Accounting policies' for information on Changes in accounting
principles, estimates and presentation of the consolidated financial
statements and related notes.
Dividend reported is the amount declared over the year.
Basic earnings per share amounts have been calculated based on the weighted average number of
ordinary shares of ING Groep
N.V.
(“Ordinary Shares”) outstanding during the relevant
period. For
purposes of this calculation, Ordinary Shares held by Group companies are
deducted from the total
number of Ordinary Shares in issue. The effect of dilutive securities is also adjusted.
IFRS-IASB Consolidated Balance Sheet Data
as at 31 December
2019
2019
2018
2017
2016
2015
In billions except amounts per share or otherwise
indicated
US$
EUR
EUR
EUR
EUR
EUR
Total
assets
964.5
888.5
884.6
843.9
842.2
1,002.3
Financial assets at fair value through profit or
loss
104.4
96.2
120.5
123.2
122.1
138.0
Loans and advances to customers
660.0
608.0
589.7
571.9
560.2
696.9
354.6
326.7
322.7
319.7
315.7
305.9
268.8
247.7
233.0
220.1
207.2
358.3
Customer deposits
623.5
574.4
555.7
539.8
522.9
664.2
Deposits from banks
37.8
34.8
37.3
36.8
32.0
33.8
Shareholders' equity
55.4
51.0
49.0
48.4
47.3
45.0
Non-voting equity securities
Shareholders' equity per Ordinary Share
oustanding
14.21
13.09
12.61
12.47
12.19
11.62
Number of Ordinary shares outstanding (in millions)
3,895.8
3,895.8
3,890.6
3,885.8
3,878.5
3,870.2
Euro amounts have been translated
into U.S. dollars at the exchange rate of $ 1.0855 to EUR 1.00,
the Noon Buying Rate in New York
City on 21 February 2020 for cable transfers in euros
as certified
for customs purposes by the Federal Reserve
Bank of New York.
ING has changed its accounting policy for the netting of cash pooling arrangements in the second
quarter of 2016. Loans and advances to customers and Customer deposits, as at 31 December
2015, are adjusted as a result.
The amounts for the period ended 31 December 2019 and 31 December 2018 have been prepared
in accordance with IFRS 9. ING Group has applied the classification, measurement, and impairment
requirements of IFRS 9 retrospectively
as of 1 January 2018 by adjusting the opening balance sheet
and opening equity at 1 January 2018. ING Group decided not to restate comparative periods as
permitted by IFRS 9. Reference is made to Note 1 'Accounting policies' for information on Changes
in accounting principles, estimates and presentation of the consolidated financial statements
and
related
notes.
Shareholders’ equity per ordinary share amounts have been calculated based on the number of
Ordinary Shares outstanding at the end of the respective periods.
B.
Capitalization and indebtedness
This item does not apply to annual reports on Form 20-F.
C.
Reasons for the offer
and use of proceeds
This item does not apply to annual reports on Form 20-F.
D.
Risk Factors
Any of the risks described below could have a material adverse effect on the business activities,
financial condition,
results and prospects of ING. ING may face a number of the risks described
below simultaneously and some risks described below may be interdependent. While the risk
factors below have been divided into categories, some risk factors could belong in more than one
category and investors should carefully consider all of the risk factors set out in this section.
Additional risks of which the Company is not presently aware, or that are
currently viewed as
immaterial, could also affect the business operations of ING and have a material adverse effect on
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2019 ING Group Annual Report on Form 20-F
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ING’s business activities, financial
condition, results and prospects. The market price of ING shares
or other securities could decline due to any of those risks including the risks described below, and
investors could lose all or part of their investments.
Risks related to financial conditions,
market environment
and general economic
trends
Because we are a financial services company conducting business
on a global basis,
our revenues
and earnings are affected by the volatility
and strength of the
economic, business, liquidity, funding and capital
markets environments
of the
various geographic regions
in which we conduct business, and an adverse
change in
any one region could have
an impact on our business, results and financial condition.
Because ING is a multinational banking and financial
services corporation, with a global presence
and serving around 38.4 million customers, corporate clients and financial institutions in over 40
countries, ING’s business, results and financial condition may be significantly
impacted by turmoil
and volatility in the worldwide financial
markets or in the particular geographic areas in which we
operate. In Retail Banking, our products include savings, payments, investments, loans and
mortgages in most of our retail markets. In Wholesale Banking, we provide specialised lending,
tailored corporate finance, debt and equity market solutions, payments & cash management and
trade and treasury services. As a result,
negative developments in financial markets and/or regions
in which we operate have in the past had and may in the future have a material adverse impact on
our business, results and financial condition, including as a result of the potential consequences
listed below.
Factors such as interest rates, securities prices, credit
spreads, liquidity spreads, exchange rates,
consumer spending, changes in client behaviour, business investment, real estate values and
private equity valuations, government spending, inflation or deflation,
the volatility and strength of
the capital markets, political events and trends, terrorism, pandemics and epidemics (such as
COVID-19) or other widespread health emergencies all impact the business and economic
environment and, ultimately, our solvency, liquidity and the amount and profitability of business
we conduct in a specific
geographic region. Certain of these risks are
often experienced globally as
well as in specific geographic regions and are described in greater detail below under the headings
“–Interest rate volatility and other interest
rate changes may adversely affect our business, results
and financial condition”, “–Inflation
and deflation may negatively affect
our business, results and
financial condition”, “–Market conditions, including those observed over the past few years and the
application of IFRS 9 may increase the risk of loans being impaired and have a negative effect on
our results and financial condition” and “–Continued risk of political instability and fiscal uncertainty
in Europe and the United States, as well as ongoing volatility in the financial markets and the
economy generally have adversely affected, and may continue to adversely affect, our business,
results and financial condition”.
In case one or more of the factors mentioned above adversely affects the profitability of our
business, this might also result, among other things, in the following:
◾
reserve and provisions inadequacies, which could ultimately be realised
through profit and loss
and shareholders’ equity;
◾
the write-down of tax assets impacting net results and/or equity;
◾
impairment expenses related to goodwill and other intangible assets, impacting net result;
and/or
◾
movements in risk weighted assets for the determination of required capital.
In particular, we are exposed to financial, economic, market and political conditions
in the Benelux
countries and Germany, from which we derive a significant portion of our revenues in both Retail
Banking and Wholesale Banking, and which present risks of economic downturn. Though less
material, we also derive substantial revenues in the following geographic regions:
Turkey, Eastern
Europe (primarily Poland among others), Southern Europe
(primarily Spain among others), East
Asia (primarily Singapore among others) and Australia which also present risks of economic
downturn. In an economic downturn, we expect that higher unemployment, lower family income,
lower corporate earnings, higher corporate and private
debt defaults, lower business investments
and lower consumer spending would adversely affect the demand for banking products, and that
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ING may need to increase its reserves and provisions,
each of which may result in overall
lower
earnings. Securities prices, real estate values and private equity valuations may also be adversely
impacted, and any such losses would be realised through profit and loss and shareholders’ equity.
We also offer a number of financial products that expose
us to risks associated with fluctuations
in
interest rates, securities prices, corporate
and private default rates, the value of real
estate assets,
exchange rates and credit spreads.
For further information on ING’s exposure to particular geographic areas, see Note 35 ‘Information
on geographic areas’ to the consolidated financial statements.
Interest rate
volatility and other interest
rate changes may adversely
affect our
business, results and financial condition.
Changes in prevailing interest
rates may negatively affect our business, including the level of net
interest revenue
we earn, and the levels of deposits and the demand for loans. A sustained
increase in the inflation rate in our principal markets may also negatively affect
our business,
results and financial condition. For example, a sustained increase in the inflation rate may result in
an increase in nominal market interest rates. A failure
to accurately anticipate higher inflation and
factor it into our product pricing assumptions may result in mispricing of our products, which could
materially and adversely impact our results. On the other hand, recent concerns regarding
negative interest rates and the low level
of interest rates generally
may negatively impact our net
interest income, which may have an adverse impact on our profitability.
A prolonged period of low interest rates has resulted
in, and may continue to result in:
◾
lower earnings over time on investments, as reinvestments will earn lower
rates;
◾
increased prepayment or redemption of mortgages and fixed maturity securities in our
investment portfolios, as well as increased prepayments of corporate
loans. This as borrowers
seek to borrow at lower interest
rates potentially combined with lower credit spreads.
Consequently, we may be required to reinvest
the proceeds into assets at lower interest rates;
◾
lower profitability as the result of a decrease in the spread between
client rates earned on assets
and client rates paid on savings, current account
and other liabilities;
◾
higher costs for certain derivative instruments that may be used to hedge certain of our product
risks;
◾
lower profitability since we may not be able to fully track the decline in interest rates in our
savings rates;
◾
lower profitability since we may not always be entitled to impose surcharges to customers to
compensate for the decline in interest rates;
◾
lower profitability since we may have to pay a higher premium for the defined contribution
scheme in the Netherlands for which the premium paid is dependent on interest rate
developments and DNB’s methodology for determining the ultimate forward rate;
◾
lower interest rates
may cause asset margins to decrease thereby lowering our results.
This may
for example be the consequence of increased competition for investments as result
of the low
rates, thereby driving margins
down; and/or
◾
(depending on the position) a significant
collateral posting requirement
associated with our
interest rate hedge programs,
which could materially and adversely affect liquidity and our
profitability.
The foregoing impacts have been and may be further amplified
in a negative interest rate
environment, since we may not be able earn interest on our assets (including reserves), or may be
forced to pay negative interest
on our assets, while still paying a positive interest or no interest to
others to hold our liabilities, resulting in an adverse impact on our credit spread and lowering of our
net interest income. Furthermore,
in the event that a negative interest rate
environment results
in
ING’s depositors being forced to pay a premium to ING to hold cash deposits, some depositors may
choose to withdraw their deposits in lieu of making such payments to ING, which would have an
adverse effect on our reputation, business, results and financial condition.
Alternatively, any period of rapidly increasing
interest rates may result
in:
◾
a decrease in the demand for loans;
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◾
higher interest rates to be paid on debt securities that we have issued or may issue on the
financial markets
from time to time to finance our operations and on savings, which would
increase our interest expenses and reduce
our results;
◾
higher interest rates can lead to lower investments
prices reduce the revaluation reserves,
thereby lowering IFRS equity and the capital ratios. Also the lower
securities value leads to a loss
of liquidity generating capacity which needs to be compensated by attracting new liquidity
generating capacity which reduces our results;
◾
prepayment losses if prepayment rates are
lower than expected or if interest rates increase
too
rapidly to adjust the accompanying hedges; and/or
◾
(depending on the position) a significant
collateral posting requirement
associated with our
interest rate hedge program.
The default of a major market
participant could disrupt the markets and may have
an adverse effect on our business, resu
lts and financial condition.
Within the financial
services industry, the severe distress or default
of any one institution (including
sovereigns and central
counterparties (CCPs)) could lead to defaults by, or the severe distress of,
other market participants. While prudential regulation may reduce the probability of a default by a
major financial
institution, the actual occurrence of such a default could have a material adverse
impact on ING. Such distress of, or default by, a major financial institution
could disrupt markets or
clearance and settlement systems and lead to a chain of defaults by other financial institutions,
since the commercial and financial soundness of many financial
institutions may be closely related
as a result of credit, trading,
clearing or other relationships. Even the perceived
lack of
creditworthiness of a sovereign
or a major financial
institution (or a default by any such entity)
may lead to market-wide liquidity problems and losses or defaults by us or by other institutions.
This risk is sometimes referred to as ‘systemic risk’ and may adversely affect financial
intermediaries, such as clearing agencies, clearing houses, banks, securities firms
and exchanges
with whom we interact on a daily basis and financial
instruments of sovereigns in which we invest.
Systemic risk could impact ING directly, by exposing it to material credit losses on transactions with
defaulting counterparties or indirectly by significantly
reducing the available market liquidity on
which ING and its lending
customers depend to fund their operations and/or leading to a write
down of loans or securities held by ING. Systemic risk could have a material adverse effect on our
ability to raise new funding and on our business, results and financial condition. In addition, such
distress or failure could
impact future product sales as a potential result of reduced confidence in
the financial services
industry.
Continued risk of political instability and
fiscal uncertainty in Europe
and the United
States, as well as ongoing volatility
in the financial markets and the economy
generally have adversely
affected, and may continue to adversely
affect, our
business, results and financial condition.
Our global business and results are materially affected by conditions in the global capital markets
and the economy generally. In Europe,
there are continuing concerns over
weaker economic
conditions, as well as concerns in relation to European
sovereign debt, the uncertain outcome of
the negotiations between the UK and the EU following the Brexit decisions in UK parliament,
increasing political instability, levels of unemployment, the availability and cost of credit, credit
spreads, and the impact of continued quantitative easing within the Eurozone through bond
repurchases and the ECB’s targeted
longer-term refinancing operation (‘TLTRO’). In the United
States, political uncertainty, US national debt levels and changes in US trade and foreign
investment policies (including tensions with China and Eurozone) may result
in adverse economic
developments. In addition, geopolitical issues, including with respect to the Middle East,
Russia/Ukraine and North Korea may all contribute to adverse developments in the global capital
markets and the economy generally.
Adverse developments in the market have included, for example, decreased liquidity, increased
price volatility, credit downgrade events,
and increased probability of default for fixed income
securities. Moreover, there
is a risk that an adverse credit event at one or more European
sovereign
debtors (including a credit rating downgrade or a default) could
trigger a broader economic
downturn in Europe and elsewhere.
In addition, the confluence of these and
other factors has
resulted in volatile foreign
exchange markets. Securities that are less liquid are more difficult to
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value and may be hard to dispose of.
International equity markets have also continued to
experience heightened volatility and turmoil, with issuers, including ourselves, that have exposure
to the real estate, mortgage, private equity and credit markets particularly affected. These events,
market upheavals and continuing risks, including high levels of volatility, have had and may
continue to have an adverse effect on our results, in part because we have a large investment
portfolio.
There is also continued uncertainty over the long-term outlook for the tax, spending and borrowing
policies of the US, the future economic performance of the US within the global economy and any
potential future budgetary restrictions in the US, with a potential impact on a future sovereign
credit ratings downgrade
of the US government, including the rating of US Treasury
securities. A
downgrade of US Treasury
securities could also impact the ratings and perceived creditworthiness
of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly
linked to the US government. US Treasury
securities and other US government-linked securities are
key assets on the balance sheets of many financial
institutions and are widely used as collateral by
financial institutions
to meet their day-to-day cash flows in the short-term
debt market. The
impact of any further downgrades to the sovereign credit rating
of the US government or a default
by the US government on its debt obligations would create broader financial turmoil and
uncertainty, which would weigh heavily on the global financial
system and could consequently
result in a significant adverse impact to the Group’s business and operations.
In many cases, the markets for investments and instruments have been and remain illiquid, and
issues relating to counterparty credit ratings and other factors have exacerbated pricing and
valuation uncertainties. Valuation of such investments and instruments is a complex process
involving the consideration of market transactions, pricing models, management judgment and
other factors, and is also impacted by external factors, such as
underlying mortgage default rates,
interest rates, rating
agency actions and property valuations. Historically these factors have
resulted in, among other things, valuation and impairment issues in connection with our exposures
to European sovereign
debt and other investments.
Any of these general developments in global financial and political conditions could negatively
impact to our business, results and financial condition
in future periods.
The uncertainty surrounding the
United Kingdom’s withdrawal
from the European
Union may have adverse effects on our
business, results and financial condition.
Although the UK is not a member state of the Eurozone, the departure of the UK from the
EU
(commonly referred to as ‘Brexit’)
remains a major political and economic event whose
consequences are not fully known or understood and may further destabilize the Eurozone.
The UK
withdrew from the EU on January 31, 2020, though the relationship between
the UK and the EU
remains uncertain during the ongoing transition period, which largely maintains current
arrangements and provides time for the UK and the EU to negotiate the details of their future
relationship. The transition period is currently
expected to end on December 31, 2020, and, if no
agreement is reached, the default scenario would be
a non-negotiated Brexit. In the event of a
non-negotiated Brexit, the UK will depart the EU with no agreements in place beyond any
temporary arrangements which have been or may be put in place by the EU or individual EU
Member States, and the UK as part of no-deal contingency efforts
and those conferred by mutual
membership of the World Trade
Organization. Accordingly, there
continues to be uncertainty with
respect to the process surrounding Brexit
and the outcome of the ongoing Brexit negotiations,
including any related regulatory changes, and over the future
economic relationship between the
UK and the rest of the world (including the EU). Any of these developments could have an adverse
effect on economic and financial
conditions in the UK, the EU or globally. Although ING has
continued to take further steps throughout 2019 to prepare for known risks related
to Brexit, such
as substantially progressing applications for a Third Country
Branch banking licence in the UK,
taking actions for contract continuity and working to establish alternatives in the EU for those euro
clearing activities that may be expected to move from London following Brexit, the possible
economic and operational impacts of Brexit on the Group and its counterparties remain uncertain.
Given ING’s significant pre-existing EU-licensed banking network and the various scenario analyses
performed by ING on its Brexit sensitive clients and sectors, ING believes that it is positioned to
largely avoid, or has taken significant steps to mitigate, potential direct adverse effects of Brexit.
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However, the regulatory
impact of Brexit continues to present material risks and uncertainties,
particularly as to how regulations may diverge between the EU and the UK, which could materially
increase ING’s compliance costs and have a material adverse effect on ING’s business, results and
financial condition.
Discontinuation of or changes to ‘benchmark’ indices
may negatively affect our
business, results and financial condition.
The London Interbank Offered Rate (‘LIBOR’), the Euro
OverNight Index Average
(‘EONIA’), the Euro
Interbank Offered Rate (‘EURIBOR’) and other interest rates or other types of rates
and indices
which are deemed to be ‘benchmarks’ are the subject of ongoing national and international
regulatory reform. Following
the implementation of any such potential reforms, the manner of
administration of benchmarks may change, with the result that they may perform or be calculated
differently than in the past, or benchmarks could cease to exist entirely, or there could be other
consequences which cannot be predicted. Although the UK Financial Conduct Authority (‘FCA’) has
authorized ICE Benchmark Administration as administrator of LIBOR, on 27 July 2017 the FCA
announced that it will no longer persuade or compel banks to submit rates for the calculation of
the LIBOR benchmark after 2021. The announcement indicates that the continuation
of the LIBOR
on the current basis cannot and will not be guaranteed after 2021. In addition, as of October 2019,
the new euro risk-free rate
euro short-term rate (€STR) is being published and the EONIA
benchmark was reformed, making it dependant to the €STR benchmark. The reformed EONIA
benchmark will cease to exist by 1 January 2022 and therefore the European Money Markets
Institute (EONIA’s administrator) has indicated that EONIA cannot be used in any contracts that will
be outstanding as of 1 January 2022. Public authorities have initiated industry working groups in
various jurisdictions to search for and recommend alternative risk-free rates
that could serve
alternatives if current benchmarks like LIBOR and EONIA cease to exist or materially change. The
work of these working groups is still ongoing, though certain such organizations have advanced
proposals for benchmark replacements. For example,
the US Federal Reserve’s
Alternative
Reference Rates
Committee (commonly referred
to as ‘ARRC’) has recommended adoption of the
Secured Overnight Financing Rate (commonly referred
to as ‘SOFR’) as an alternative to US dollar
LIBOR.
The potential discontinuation of the LIBOR and EONIA benchmarks or any other benchmark, or
changes in the methodology or manner of administration of any benchmark, could result in a
number of risks for the Group, its clients, and the financial services industry
more widely. These
risks include legal risks in relation to changes required to documentation for new and existing
transactions may be required. Financial risks may also arise from
any changes in the valuation of
financial instruments
linked to benchmark rates, and changes to benchmark indices could impact
pricing mechanisms on some instruments. Changes in valuation, methodology or documentation
may also result into complaints or litigation. The Group may also be exposed to operational risks or
incur additional costs due to the potential requirement to adapt IT systems, trade reporting
infrastructure and operational processes, or in relation
to communications with clients or other
parties and engagement during the transition period.
Except for EONIA, the replacement of benchmarks together with the timetable and mechanisms for
implementation have not yet been confirmed
by central banks. Accordingly, it is not currently
possible to determine whether, or to what extent, any such changes would affect
the Group.
However, the implementation of alternative benchmark rates may have a material adverse effect
on our business, results and financial condition.
Inflation and deflation may negatively affect our business, results and financial
condition.
A sustained increase in the inflation rate in our principal markets would have multiple impacts on
us and may negatively affect our business, results and financial
condition. For example, a sustained
increase in the inflation rate may result in an increase in market interest rates,
which may:
◾
decrease the estimated fair value of certain fixed income securities that we hold in our
investment portfolios, resulting in:
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◾
reduced levels of unrealised
capital gains available to us, which could negatively impact our
solvency position and net income, and/or
◾
a decrease in collateral values,
◾
result
in increased withdrawal of certain savings products, particularly those with fixed rates
below market rates,
◾
require us, as an issuer of securities, to pay higher interest rates
on debt securities that we issue
in the financial markets
from time to time to finance our operations, which would increase our
interest expenses and reduce our results.
A significant and sustained increase in inflation
has historically also been associated with
decreased prices for equity securities and sluggish performance of equity markets generally. A
sustained decline in equity markets may:
◾
result in impairment charges to equity securities that we hold in our investment portfolios and
reduced levels of unrealised
capital gains available to us which would reduce our net income,
and
◾
lower the value of our equity investments impacting our capital position.
In addition, a failure to accurately anticipate higher inflation and factor it into our product pricing
may result in a systemic mispricing of our products, which would negatively impact our results.
On the other hand, deflation
experienced in our principal markets may also adversely affect
our
financial performance. In recent years, the risk of low inflation
and even deflation (i.e., a continued
period with negative rates of inflation) in the Eurozone has materialized. Deflation may erode
collateral values and diminish the quality of loans and cause a decrease in borrowing
levels, which
would negatively affect our business and results.
Market conditions, including those
observed over the past few
years, and the
application of IFRS 9 may increase
the risk of loans being impaired and have
a
negative effect on our results
and financial condition.
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 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 business, results and financial condition.
IFRS 9 ‘Financial Instruments’ became effective as per 1 January 2018 and
results in loan loss
provisions that may be recognized earlier, on a more
forward looking basis and on a broader scope
of financial instruments
than was previously the case under IAS 39. ING has applied the
classification, measurement, and impairment requirements retrospectively by adjusting the
opening balance sheet and opening equity as at 1 January 2018. As a result of applying IFRS 9
going forward, a shift in the forward looking consensus view of economic conditions may materially
impact the models used to calculate loan loss provisions under IFRS 9 and cause more volatility in,
or higher levels of, loan loss provisions, any of which could adversely affect the Group’s results,
financial condition
or regulatory capital position.
Economic and other factors could lead to contraction in the residential mortgage and commercial
lending market and to decreases in residential and commercial property prices, which could
generate substantial increases in impairment losses. Additionally, continuing low oil prices could
have an influence on the repayment capacity of certain corporate borrowers active in the oil and oil
related services industries.
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We may incur
losses due to failures
of banks falling under the scope of state
compensation schemes.
While prudential regulation is intended to minimize the risk of bank failures, in the event such a
failure occurs, given our size, we may incur significant compensation payments to be made under
the Dutch Deposit Guarantee Scheme (DGS), which we may be unable to recover from
the bankrupt
estate, and therefore the consequences of any future
failure of such a bank could be significant to
ING. Such costs and the associated costs to be borne by us may have a material adverse effect
on
our results and financial condition.
On the basis of the EU Directive on deposit guarantee schemes,
ING pays quarterly risk-weighted contributions into a DGS-fund.
The DGS-fund is to grow to a
target size of 0.8% of all deposits guaranteed under the DGS, which is expected to be reached in
July 2024. In case of failure of a Dutch bank, depositor
compensation is paid from the DGS-fund. If
the available financial means of the
fund are insufficient,
Dutch banks, including ING, may be
required pay to extraordinary
ex-post contributions not exceeding 0.5% of their covered deposits
per calendar year.
In exceptional circumstances and with the consent of the competent authority,
higher contributions may be required. However,
extraordinary ex-post contributions may be
temporarily deferred if, and for so long as, they would
jeopardise the solvency or liquidity of a bank.
Depending on the size of the failed bank, the available financial
means in the fund, and the required
additional financial
means, the impact of the extraordinary ex-post contributions on ING may be
material.
Since 2015, the EU has been discussing the introduction of a pan-European deposit guarantee
scheme (‘EDIS’), (partly) replacing or complementing national compensation schemes in two or
three phases. Proposals contain elements of (re)insurance,
mutual lending and mutualisation of
funds. The new model is intended to be ‘overall cost-neutral’. Discussions have continued in 2019,
but it remains uncertain when EDIS will be introduced and, if introduced, what impact EDIS would
have on ING’s business and operations.
Risks related to the regul
ation and supervision of the Group
Non-compliance with laws and/or
regulations concerning financial services or
financial institutions could result in fines and other liabilities,
penalties or
consequences for us, which
could materially affect our business and reduce
our
profitability.
Despite our efforts to maintain effective
compliance procedures and to comply with applicable laws
and regulations, we have faced, and in the future
may continue to face, the risk of consequences in
connection with non-compliance with applicable laws and regulations. For additional information
on legal proceedings, see Note 46 ‘Legal proceedings’
to the consolidated financial
statements.
There are a number of risks in areas where
applicable regulations may be unclear, subject to
multiple interpretations or under development, or where regulations
may conflict with one
another, or where regulators revise
their previous guidance or courts overturn previous rulings,
which could result in our failure
to meet applicable standards. Regulators and other authorities
have the power to bring administrative or judicial proceedings against us, which could result,
among other things, in suspension or revocation of our licenses, cease and desist orders, fines, civil
penalties, criminal penalties or other disciplinary action,
which could materially harm our results
and financial condition.
If we fail to address, or appear to fail to address, any of these matters
appropriately, our reputation could be harmed and we could be subject to additional legal risk,
which could, in turn, increase the size and number of claims and damages brought against us or
subject us to enforcement actions, fines
and penalties.
Changes in laws and/or
regulations governing
financial services or financial
institutions or the application of such laws
and/or regulations
may increase our
operating costs and limit our
activities.
We are
subject to detailed banking laws and government regulation in the jurisdictions in which we
conduct business.
Regulation of the industries in which we operate is becoming increasingly more
extensive and complex, while also attracting scrutiny from regulators. Compliance with applicable
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and new laws and regulations is resources
-intensive, and may materially increase our operating
costs. Moreover, these regulations can limit our activities, among others, through stricter net
capital, customer protection and market conduct requirements and restrictions on the businesses
in which we can operate or invest.
Our revenues and profitability and those of our competitors have been and will continue to be
impacted by requirements relating to capital, additional loss-absorbing capacity, leverage,
minimum liquidity and long-term funding levels, requirements related to resolution
and recovery
planning, derivatives clearing and margin rules and levels of regulatory
oversight, as well as
limitations on which and, if permitted, how certain business activities may be
carried out by
financial institutions.
We are
subject to additional legal and regulatory
risk in certain countries where
we
operate with less developed
or predictable legal and regulatory
frameworks.
In certain countries in which we operate, judiciary and dispute resolution systems may be less
developed. As a result, in case of a breach
of contract, we may have difficulties
in making and
enforcing claims against contractual counterparties and, if claims are made against us, we might
encounter difficulties
in mounting a defence against such allegations. If we become party to legal
proceedings in a market with an insufficiently
developed judicial system, it could have an adverse
effect on our operations and net results.
In addition, as a result of our operations in certain countries, we are subject to risks of possible
nationalisation, expropriation, price controls, exchange controls and other restrictive
government
actions, as well as the outbreak of hostilities and or war, in these markets. Furthermore, the current
economic environment in certain countries in which we operate may increase the likelihood
for
regulatory initiatives to enhance consumer protection or to protect homeowners from foreclosures.
Any such regulatory initiative could have an adverse impact on our ability to protect our economic
interest, for instance in the event of defaults
on residential mortgages.
We are
subject to the regulatory supervision of the ECB and other
regulators with
extensive supervisory and investigatory
powers.
In its capacity as principal bank supervisor in the EU, the ECB has extensive supervisory and
investigatory powers, including the ability to issue requests for information, to conduct regulatory
investigations and on-site inspections, and to impose monetary and other sanctions.
For example,
under the SSM, the regulators with jurisdiction over the Group, including the ECB, may conduct
stress tests and have discretion to impose capital surcharges
on financial institutions
for risks that
are not otherwise recognised in risk-weighted assets or other surcharges
depending on the
individual situation of the bank and take or require other measures, such as restrictions on or
changes to the Group’s business. Competent regulators may also, if the Group fails to comply with
regulatory requirements,
in particular with minimum capital requirements (including buffer
requirements) or with liquidity requirements, or if there
are shortcomings in its governance and risk
management processes, prohibit the Group from
making dividend payments to shareholders or
distributions to holders of its regulatory capital instruments. Generally, a failure to comply with the
new quantitative and qualitative regulatory requirements
could have a material adverse effect on
the Group’s business, results and financial condition.
Failure
to meet minimum capital and other prudential
regulatory requir
ements as
applicable to us from time to
time may have a material adverse
effect on our
business, results and financial condition and on our
ability to make payments on
certain of our securities.
We are
subject to regulations that require us to comply with minimum requirements
for capital
(own funds) and additional loss absorbing capacity, as well as for liquidity, and to comply with
leverage restrictions. These are
developed or enacted by various organisations such as the Basel
Committee on Banking Supervision (‘BCBS’), the Financial Stability Board (‘FSB’) and the European
Union (‘EU’). The main pieces of legislation in this field
that apply to us are the EU’s Capital
Requirements Directive (‘CRD’) and Capital Requirements
Regulation (‘CRR’), and the Bank Recovery
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and Resolution Directive, all as amended from time to time and as implemented in national law
where required.
The capital and liquidity requirements and leverage
restrictions that apply to us result in various
minimum capital ratios (of capital to risk-weighted assets) and liquidity ratios that we must
maintain, and in a minimum leverage ratio
(based on unweighted assets). A key capital ratio is the
Common Equity Tier 1 ratio or CET1 ratio,
which is the ratio of common equity tier 1 capital to the
total risk exposure amount (‘TREA’, often referred to as risk-weighted assets or ‘RWA’).
In addition
to the capital requirements, we must maintain at all times a sufficient aggregate amount of own
funds and ‘eligible liabilities’ (that is, liabilities that may be bailed in using the bail-in tool),
known as
the minimum requirements for own funds and eligible liabilities (‘MREL’).
Capital, liquidity and leverage requirements
and their application and interpretation may change.
Any changes may require us to maintain more capital or to raise
a different type of capital by
disqualifying existing capital instruments from continued inclusion in regulatory capital, requiring
replacement with new capital instruments that meet the new criteria. Sometimes changes are
introduced subject to a transitional period during which the new requirements are
being phased in,
gradually progressing to a fully
phased-in, or fully-loaded, application of the requirements.
Any failure to comply with these requirements
may have a material adverse effect on our business,
results and financial condition, and may require us to seek additional capital. It may also prohibit us
from making payments on certain of our securities. Our business, results and financial condition
may also be adversely affected if these requirements change, which may also require us to seek
additional capital or a different type of capital. Because implementation phases and transposition
into EU or national regulation where required
may often involve a lengthy period, the impact of
changes in capital, liquidity and leverage regulations on our business, results
and financial
condition, and on our ability to make payments on certain of our securities, is often
unclear.
Our US commodities and derivatives
business is subject to CFTC and SEC regulation
under the Dodd-Frank
Act.
Title VII of Dodd-Frank created
a new framework for regulation
of the over-the-counter derivatives
markets and certain market participants which has affected
and could continue to affect various
activities of the Group and its subsidiaries. ING Capital Markets LLC, a wholly-owned indirect
subsidiary of ING Bank N.V.,
has registered with the US Commodity Futures
Trading
Commission
(‘CFTC’) as a swap dealer and intends to register with the SEC as a securities-based swap dealer.
The
SEC has adopted regulations, among others, establishing registration, reporting, risk management,
business conduct, and margin and capital requirements for security-based swaps. Such regulations
are expected to be effective on or around September 1, 2021.Additionally, the CFTC recently re-
proposed, and is expected to adopt, capital requirements for swap dealers, although the specific
requirements, and any available exemptions, have not been finalized. If these requirements are
applicable to ING, and no exemptions are available, it is possible that these requirements will be
difficult
for ING to comply with and may, as a result, materially and adversely impact ING’s ability
to operate as a swap dealer in the US. Other CFTC regulatory requirements,
already implemented,
include registration of swap dealers, business conduct rules imposed on swap dealers,
requirements that some categories of swaps be centrally executed
on regulated trading facilities
and cleared through regulated
clearing houses, and initial and variation margin requirements for
uncleared swaps. In addition, new position limits requirements for market participants that have
been proposed and may be contained in final regulations to be adopted by the CFTC could limit
ING’s position sizes in swaps referencing specified physical commodities and similarly limit the
ability of counterparties to utilize certain of our products by narrowing the scope of hedging
exemptions from position limits for commercial end users and the trading activity of speculators.
All of the foregoing areas of regulation
of the derivative markets and market participants will likely
result in increased cost of hedging and other trading activities, both for ING and its customers,
which could expose our business to greater risk and could reduce the size and profitability of our
customer business. In addition, the imposition of these regulatory restrictions and requirements,
could result in reduced
market liquidity, which could in turn increase market volatility and the risks
and costs of hedging and other trading activities.
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We are
subject to the ‘Bank Recovery
and Resolution Directive’
(‘BRRD’) among
several
other bank recovery
and resolution regimes
that include statutory write
down and conversion
as well as other powers, which remains
subject to significant
uncertainties as to scope and impact on us.
We are
subject to several recovery
and resolution regimes, including the Single Resolution
Mechanism (‘SRM’), the BRRD as implemented in national legislation, and the Dutch ‘Intervention
Act’ (Wet bijzondere maatregelen
financiële
ondernemingen. as implemented in the Dutch
Financial Supervision Act). The aim of the BRRD is to provide supervisory authorities and resolution
authorities with common tools and powers to address banking crises pre-emptively in order to
safeguard financial stability and minimise taxpayers’ exposure to losses.
The powers granted to authorities include, among others, a statutory ‘write-down and conversion
power’ and a ‘bail-in’ power, which gives the resolution authority the power to, as a resolution
action or when the resolution authority determines that otherwise we would no longer be viable,
inter alia, (i) reduce or cancel existing shares, (ii) convert relevant
capital instruments or eligible
liabilities or bail-inable liabilities into shares or other instruments of ownership of the relevant entity
and/or (iii) write down relevant
capital instruments or eligible liabilities or reduce or cancel the
principal amount of, or interest on, certain unsecured liabilities (which could include certain
securities that have been or will be issued by us), whether in whole or in part and whether or not on
a permanent basis.
In addition to the ‘write-down and conversion power’ and the ‘bail-in’ power, the powers granted to
the resolution authority include the power to (i) sell and transfer a banking group or all or part of its
business on commercial terms without requiring the consent of the shareholders or complying with
the procedural requirements
that would otherwise apply, (ii) transfer a banking group or all or part
of its business to a ‘bridge institution’ (a publicly controlled entity) and (iii) separate and transfer all
or part of a banking group’s business to an asset management vehicle (a publicly controlled entity)
to allow them to be managed over time.
In addition, among the broader powers granted to the resolution authority, the BRRD provides
powers to the resolution authority to amend the maturity date and/or any interest payment date
of, or the interest amount payable under, debt instruments or other bail-inable liabilities, including
by suspending payment for a temporary period.
The Intervention Act confers wide-ranging powers to the Dutch Minister of Finance, including,
among other things, in relation to shares and other securities issued by us or with our cooperation
or other claims on us (including, without limitation, expropriation thereof)
if there is a grave and
immediate threat to the stability of the financial system.
None of these actions would be expected to constitute an event of default under our securities
entitling holders to seek repayment. If these powers were to be exercised in
respect of us, there
could be a material adverse effect on us and on holders of our securities,
including through a
material adverse effect on credit ratings and/or the price of our securities. Investors in our securities
may lose their investment if resolution measures are taken under current
or future regimes.
For further discussion of the impact of bank recovery and resolution regimes
on ING, see “Item 4.
Information on the Company—Regulation and Supervision—Regulatory Developments—Bank
recovery and resolution
directive.”
Risks related to changes
in laws of general application, litigation,
enforcement
proceedings and investigations
We may be subject to
litigation, enforcement
proceedings, investigations
or other
regulatory actions, and adverse
publicity.
We are
involved in governmental, regulatory,
arbitration and legal proceedings and investigations
involving claims by and against us which arise in the ordinary course of our businesses, including in
connection with our activities as financial
services provider, employer, investor and taxpayer.
As a
financial institution,
we are subject to specific laws and regulations governing financial
services or
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financial institutions.
See “– Changes in laws and/or regulations governing
financial services or
financial institutions
or the application of such laws and/or regulations may increase
our operating
costs and limit our activities” above. Financial reporting irregularities involving other large
and well-
known companies, possible findings
of government authorities in various jurisdictions which are
investigating several rate
-setting processes, notifications made by whistleblowers, increasing
regulatory and law enforcement scrutiny of ‘know your customer’ anti-money laundering, tax
evasion, prohibited transactions with countries or persons subject to sanctions, and bribery or other
anti-corruption measures and anti-terrorist-financing procedures and their effectiveness,
regulatory investigations of the banking industry, and litigation that arises from the failure or
perceived failure
by us to comply with legal, regulatory, tax and compliance requirements could
result in adverse publicity and reputational harm, lead to increased regulatory
supervision, affect
our ability to attract and retain customers and maintain access to the capital markets, result in
cease and desist orders, claims, enforcement actions, fines and civil and criminal penalties,
other
disciplinary action or have other material adverse effects
on us in ways that are not predictable.
Some claims and allegations may be brought by or on behalf of a class and claimants may seek
large or indeterminate amounts of damages, including compensatory, liquidated, treble and
punitive damages. Our reserves for litigation liabilities may prove to be inadequate.
Claims and
allegations, should they become public, need not be well founded, true or successful to have a
negative impact on our reputation. In addition, press reports and other public statements that
assert some form of wrongdoing could result in inquiries or investigations by regulators, legislators
and law enforcement officials, and
responding to these inquiries and investigations, regardless of
their ultimate outcome, is time consuming and expensive. Adverse publicity, claims and
allegations, litigation and regulatory investigations and sanctions may have a material adverse
effect on our business, results, financial
condition and/or prospects in any given period.
We are
subject to different tax regulations
in each of the jurisdictions where we
conduct business, and are exposed
to changes in tax laws, and risks of non-
compliance with or proceedings
or investigations with respect to,
tax laws.
Changes in tax laws (including case law) could increase our taxes and our effective tax rates and
could materially impact our tax receivables and liabilities as well as deferred tax assets and
deferred tax liabilities, which could have a material adverse effect on our business, results and
financial condition.
Changes in tax laws could also make certain ING products less attractive, which
could have adverse consequences for our businesses and results. Because of the geographic
spread
of its business, ING may be subject to tax audits, investigations and procedures in numerous
jurisdictions at any point in time. Although we believe that we have adequately provided for all our
tax positions, the ultimate resolution of these audits, investigations and procedures
may result in
liabilities which are different from the amounts recognized.
Increased bank taxes in countries where the Group
is active result in increased taxes on ING’s
banking operations, which could negatively impact our operations, financial condition and liquidity.
We may be subject to
withholding tax if we fail
to comply with the Foreign
Account
Tax
Compliance Act and other US withholding
tax regulations
Under provisions of US tax law commonly referred
to as FATCA,
non-US financial institutions
are
required to provide
to the US Internal Revenue Service (‘IRS’) certain information about financial
accounts held by US taxpayers or by foreign entities in which US taxpayers hold a substantial
ownership interest. Every
three years, certain ING branches and subsidiaries are required
to certify
their compliance with FATCA
requirements to the IRS. If the IRS determines that any such branches
and/or subsidiaries are not in compliance with the FATCA
requirements, then the FATCA
regulations
would impose a 30 percent penalty tax on all US-source payments (e.g.,
interest and dividends)
made to the branch/subsidiary, regardless
of whether the branch/subsidiary is the beneficial owner
of such payment or is acting as an intermediary for customers/payees.
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Under provisions of other US tax law concerning withholding
tax, non-US financial
institutions
acting as intermediaries are required to withhold tax on US-source
payments to payees and remit
the tax to the IRS. Every three years, certain ING branches and subsidiaries are
required to certify
their compliance with such Qualified
Intermediary (‘QI’) requirements to the IRS. If the IRS
determines that any such branches and/or subsidiaries are not in compliance with
the QI
requirements, then it would not be commercially
feasible for ING to offer certain products to
customers.
Failure to comply with FATCA
and/or QI requirements
and regulations could also harm our
reputation and could subject the Group to enforcement
actions, fines
and penalties, which could
have a material adverse effect on our business, reputation, revenues, results, financial condition
and prospects. For additional information with respect to specific proceedings, see Note 46 ‘Legal
proceedings’ to the consolidated financial statements.
ING is exposed to the risk of claims from
customers who feel
misled or treated
unfairly because of advice or information
received.
Our banking products and advice services for third-party products are exposed to claims from
customers who might allege that they have received misleading advice or other information from
advisers (both internal and external) as to which products were most appropriate for them, or that
the terms and conditions of the products, the nature of the products or the circumstances under
which the products were sold, were
misrepresented to them. When new financial products are
brought to the market, ING engages in a multidisciplinary product approval process
in connection
with the development of such products, including production of appropriate marketing and
communication materials. Notwithstanding these processes, customers may make claims against
ING if the products do not meet their expectations. Customer protection regulations, as well as
changes in interpretation and perception by both the public at large and governmental authorities
of acceptable
market practices, influence customer expectations.
Products distributed through person-to-person sales forces have a higher exposure to such claims
as the sales forces provide
face-to-face financial planning and
advisory services. Complaints may
also arise if customers feel that they have not been treated reasonably or fairly, or that the duty of
care has not been complied with. While a considerable amount of time and resources
have been
invested in reviewing and assessing historical sales practices and products that were
sold in the
past, and in the maintenance of risk management, legal and compliance procedures to monitor
current sales practices, there can be no assurance
that all of the issues associated with current and
historical sales practices have been or will be identified, nor that any issues
already identified will
not be more widespread than presently estimated.
The negative publicity associated with any sales practices, any compensation payable in respect of
any such issues and regulatory changes resulting from such issues, has had and could have a
material adverse effect on our reputation, business, results, financial condition and
prospects. For
additional information regarding legal proceedings or claims, see Note 46 ‘Legal
proceedings’ to the
consolidated financial statements.
Risks related to the Group’s
business and operations
Operational risks, such as
systems disruptions or failures,
breaches of security,
cyber attacks, human error,
changes in operational practices, inadequate
controls
including in respect of third parties with which
we do business, natural
disasters or
outbreaks of communicable diseases
may adversely impact our reputation, business
and results.
We face the risk that the design and operating effectiveness of our controls and procedures
may
prove to be inadequate. Operational
risks are inherent to our business. Our businesses depend on
the ability to process a large number of transactions efficiently and accurately. In addition, we
routinely transmit, receive
and store personal, confidential and proprietary information by email
and other electronic means. Although we endeavour to safeguard our systems and processes,
losses can result from inadequately trained
or skilled personnel, IT failures (including due to a
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computer virus or a failure to anticipate or prevent
cyber attacks or other attempts to gain
unauthorised access to digital systems for purposes of misappropriating assets or sensitive
information, corrupting data, or impairing operational performance, or security breaches by third
parties), inadequate or failed internal control processes and systems, regulatory breaches,
human
errors, employee misconduct, including fraud, or from natural disasters or other external events
that interrupt normal business operations. Such losses may adversely affect our reputation,
business and results. We depend on the secure
processing, storage and transmission of
confidential and other information in
our computer systems and networks. The equipment and
software used in our computer systems and networks may not always be capable of processing,
storing or transmitting information as expected. Despite our business continuity plans and
procedures, certain of our computer systems and networks may have insufficient recovery
capabilities in the event of a malfunction or loss of data. As part of our Accelerated Think Forward
strategy, we are consistently managing and monitoring our IT risk profile globally. ING is subject to
increasing regulatory requirements
including EU General Data Protection Regulation (‘GDPR’) and
EU Payment Services Directive (‘PSD2’). Failure
to appropriately manage and monitor our IT risk
profile could affect
our ability to comply with these regulatory requirements, to securely
and
efficiently
serve our clients or to timely, completely or accurately process, store
and transmit
information, and may adversely impact our reputation, business and results. For further description
of the particular risks associated with cybercrime, see “–We are subject to increasing risks related
to cybercrime and compliance with cybersecurity regulation”
below.
Widespread outbreaks of communicable diseases may impact the health of our employees,
increasing absenteeism, or may cause a significant increase in the utilisation of health benefits
offered to our employees, either or both of which could adversely impact our business. We also
face physical risks, including as a direct result of climate change, such as extreme weather events
or rising water levels, which could have a material adverse effect on our operations, particularly
where our headquarters may be impacted.
In addition, other events including unforeseeable
and/or catastrophic
events can lead to an abrupt interruption of activities, and our operations may
be subject to losses resulting from such disruptions. Losses can result
from destruction or
impairment of property, financial assets,
trading positions, and the loss of key personnel. If our
business continuity plans are not able to be implemented, are not effective or do not sufficiently
take such events into account, losses may increase further.
We are
subject to increasing risks related
to cybercrime and compliance
with
cybersecurity regulation.
Like other financial
institutions and global companies, we are regularly the target
of cyber attacks.
In particular, threats from Distributed Denial of Service (‘DDoS’), targeted attacks (also called
Advanced Persistent Threats) and Ransomware
intensify worldwide, and attempts to gain
unauthorised access and the techniques used for such attacks are increasingly sophisticated. We
have faced, and expect to continue to face, an increasing number of cyber attacks (both successful
and unsuccessful) as we have further digitalized. This includes the continuing expansion of our
mobile- and other internet-based products and services, as well as our usage and reliance on cloud
technology. In 2019 we experienced continuous DDoS attacks, of which one DDoS attack breached
our DDoS defences (compared to two attacks in 2018). This DDoS attack caused an outage of
approximately four-hours, which affected customers of ING in Romania. In addition, ING Philippines
experienced one virus infection on a vendor-supplied server for two hours, which had no customer
impact. Furthermore, due to our reliance on national critical infrastructure and interconnectivity
with third-party vendors, exchanges, clearing houses, financial institutions
and other third parties,
we could be adversely impacted if any of them is subject to a successful cyber attack or other
information security event.
Cybersecurity, customer data and data privacy have become the subject of increasing legislative
and regulatory focus. The EU’s second Payment Services Directive (‘PSD2’), implemented in 2019,
and GDPR are examples of such regulations. In certain locations where ING is active, there
are
additional local regulatory requirements and legislation on top of EU regulations
that must be
followed for business conducted in that jurisdiction. Some of these legislations and regulations may
be conflicting
due to local regulatory interpretations. We
may become subject to new EU and local
legislation or regulation concerning cybersecurity, security of customer data in general or the
privacy of information we may store or maintain. Compliance with such new legislation or
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regulation could increase
the Group’s compliance cost. Failure
to comply with new and existing
legislation or regulation could harm our reputation and could subject the Group to enforcement
actions, fines
and penalties.
ING may be exposed to the risks of misappropriation, unauthorised access, computer viruses or
other malicious code, cyber attacks and other external attacks or internal breaches that could have
a security impact. These events could also jeopardise our confidential information or that of our
clients or our counterparties and this could be exacerbated by the increase in data protection
requirements as a result
of GDPR. These events can potentially result in financial loss and harm to
our reputation, hinder our operational effectiveness, result in regulatory censure,
compensation
costs or fines resulting from regulatory investigations and could have a material adverse effect on
our business, reputation, revenues, results,
financial condition and prospects.
Even when we are
successful in defending against cyber attacks, such defence may consume significant resources or
impose significant
additional costs on ING.
Because we operate
in highly competitive markets,
including our home market, we
may not be able to increase or
maintain our market share,
which may have an
adverse effect on our results.
There is substantial competition in the Netherlands and the other countries in which we do
business for the types of wholesale banking, retail banking, investment banking and other products
and services we provide. Customer loyalty and retention can
be influenced by a number
of factors,
including brand recognition, reputation, relative
service levels, the prices and attributes of products
and services, scope of distribution, credit ratings and actions taken by existing or new competitors
(including non-bank or financial
technology competitors). A decline in our competitive position as
to one or more of these factors could adversely impact our ability to maintain or further increase
our market share, which would adversely affect our results. Such competition is most pronounced
in our more mature markets of the Netherlands, Belgium, the rest of Western
Europe and Australia.
In recent years, however, competition in emerging
markets, such as Latin America, Asia and
Central and Eastern Europe,
has also increased as large financial services companies from more
developed countries have sought to establish themselves in markets which are perceived
to offer
higher growth potential, and as local institutions have become more sophisticated and competitive
and proceeded to form alliances, mergers or strategic
relationships with our competitors. The
Netherlands is our largest market. Our main competitors in the banking sector in the Netherlands
are ABN AMRO Bank and Rabobank.
Competition could also increase due to new entrants
(including non-bank and financial
technology
competitors) in the markets that may have new operating models that are not burdened by
potentially costly legacy operations and that are subject to reduced regulation. New
entrants may
rely on new technologies, advanced data and analytic tools, lower cost to serve, reduced
regulatory burden and/or
faster processes in order to challenge traditional
banks. Developments in
technology has also accelerated the use of new business models, and ING may not be successful in
adapting to this pace of change or may incur significant
costs in adapting its business and
operations to meet such changes. For example, new business models have been observed in retail
payments, consumer and commercial lending (such as peer-to-peer lending), foreign exchange
and low-cost investment advisory services. In particular, the emergence of disintermediation in the
financial sector
resulting from new banking, lending and payment solutions offered by rapidly
evolving incumbents, challengers and new entrants, in particular with respect to payment services
and products, and the introduction of disruptive technology may impede our ability to grow or
retain our market share and impact our revenues
and profitability.
Increasing competition in the markets in which we operate (including from non-banks and financial
technology competitors) may significantly
impact our results if we are unable to match the
products and services offered by our competitors. Future economic turmoil may accelerate
additional consolidation activity. Over time, certain sectors
of the financial services industry have
become more concentrated,
as institutions involved in a broad range
of financial
services have
been acquired by or merged into other firms or have declared bankruptcy. These developments
could result in our competitors gaining greater access to capital
and liquidity, expanding their
ranges of products and services, or gaining geographic diversity. We
may experience pricing
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pressures as a result
of these factors in the event that some of our competitors seek to increase
market share by reducing
prices.
We may not
always be able to protect our intellectual
property developed
in our
products and services and may be subject to infringement claims,
which could
adversely impact our core business,
inhibit efforts to monetize our internal
innovations and restrict our
ability to capitalize on future
opportunities.
In the conduct of our business, we rely on a combination of contractual rights with third parties and
copyright, trademark, trade name, patent and trade secret
laws to establish and protect our
intellectual property, which we develop in connection with our products and services. Third parties
may infringe or misappropriate our intellectual property. We may have to litigate to enforce
and
protect our copyrights, trademarks, trade names, patents,
trade secrets and know-how
or to
determine their scope, validity or enforceability. In that event, we may be required
to incur
significant costs, and
our efforts may not prove successful. The inability to secure or protect our
intellectual property assets could have an adverse effect on our core business and our ability to
compete, including through the monetization of our internal innovations.
We may also be subject to claims made by third parties for (1) patent, trademark or copyright
infringement, (2) breach of copyright, trademark or licence usage rights, or (3) misappropriation of
trade secrets. Any such claims and any resulting litigation could
result in significant expense and
liability for damages. If we were found to have infringed or misappropriated a third
-party patent or
other intellectual property right, we could in some circumstances be enjoined from providing
certain products or services to our customers or from utilizing and benefiting
from certain methods,
processes, copyrights, trademarks, trade
secrets or licences. Alternatively, we could be required
to
enter into costly licensing arrangements with third parties or to implement a costly workaround.
Any of these scenarios could have a material adverse effect on our business and results and could
restrict our ability to pursue future business opportunities.
The inability of counterparties to meet their financial obligations
or our inability to
fully enforce our
rights against counterparties could have
a material adverse effect
on our results.
Third parties that owe us money, securities or other assets may not pay or perform under their
obligations. These parties include the issuers and guarantors (including sovereigns) of securities we
hold, borrowers under loans originated, reinsurers,
customers, trading counterparties, securities
lending and repurchase counterparties, counterparties under swaps, credit default and other
derivative contracts, clearing agents, exchanges, clearing houses and other financial
intermediaries. Defaults by one or more of these parties on their obligations to us due to
bankruptcy, lack of liquidity, downturns in the economy or real estate values, continuing low oil or
other commodity prices, operational failure or other factors, or even rumours about potential
defaults by one or more of these parties or regarding a severe
distress of the financial services
industry generally, could have a material adverse effect on our results, financial condition and
liquidity. Given the high level of interdependence between financial institutions, we are and will
continue to be subject to the risk of deterioration of the commercial and financial soundness,
or
perceived soundness, of sovereigns
and other financial
services institutions. This is particularly
relevant to our franchise
as an important and large counterparty in equity, fixed
income and
foreign exchange markets, including related derivatives.
We routinely
execute a high volume of transactions, such as unsecured debt instruments,
derivative transactions and equity investments with counterparties and customers in the financial
services industry, including brokers and dealers, commercial and investment banks, mutual and
hedge funds, insurance companies, institutional clients, futures clearing merchants, swap dealers,
and other institutions, resulting in large periodic settlement amounts, which may result in our
having significant credit exposure to one or more of such counterparties or customers. As a result,
we could face concentration risk with respect to liabilities or amounts we expect to collect from
specific counterparties
and customers. We are exposed to increased counterparty risk as a result
of
recent financial institution failures and weakness and will continue to be exposed to the risk of loss
if counterparty financial
institutions fail or are otherwise unable to meet their obligations. A default
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by, or even concerns about the creditworthiness of, one or more
of these counterparties or
customers or other financial
services institutions could therefore have
an adverse effect on our
results or liquidity.
With respect to secured transactions, our credit risk may be exacerbated when the collateral held
by us cannot be or is liquidated at prices not sufficient
to recover the full amount of the loan or
derivative exposure due to us. We
also have exposure to a number of financial institutions
in the
form of unsecured debt instruments, derivative transactions and equity investments. For example,
we hold certain hybrid regulatory capital instruments issued by financial institutions
which permit
the issuer to cancel coupon payments on the occurrence of certain events or at their option. The EC
has indicated that, in certain circumstances, it may require
these financial
institutions to cancel
payment. If this were to happen, we expect that such instruments may experience ratings
downgrades and/or
a drop in value and we may have to treat
them as impaired, which could result
in significant losses.
There is no assurance that losses on, or impairments to the carrying value of,
these assets would not materially and adversely affect our business, results or financial
condition.
In addition, we are subject to the risk that our rights against third parties may not be enforceable in
all circumstances. The deterioration or perceived
deterioration in the credit quality of third parties
whose securities or obligations we hold could result in losses and/ or adversely affect our ability to
rehypothecate or otherwise use those securities or obligations for liquidity purposes. A significant
downgrade in the credit ratings
of our counterparties could also have a negative impact on our
income and risk weighting, leading to increased capital requirements. While in many cases we are
permitted to require additional collateral
from counterparties that experience financial difficulty,
disputes may arise as to the amount of collateral we are entitled to receive
and the value of
pledged assets. Also in this case, our credit risk may also be exacerbated when the collateral we
hold cannot be liquidated at prices sufficient
to recover the full amount of the loan or derivative
exposure due to us, which is most likely to occur during periods of illiquidity and depressed asset
valuations, such as those experienced during the financial
crisis of 2008. The termination of
contracts and the foreclosure on collateral
may subject us to claims. Bankruptcies, downgrades
and disputes with counterparties as to the valuation of collateral tend to increase in times of
market stress and illiquidity. Any of these developments or losses could materially and adversely
affect our business, results, financial
condition, and/or prospects.
Ratings are important to our
business for a number of reasons,
and a downgrade or
a potential downgrade in our
credit ratings could
have an adverse impact on our
results and net results.
Credit ratings represent
the opinions of rating agencies regarding an entity’s ability to repay its
indebtedness. Our credit ratings are important to our ability to raise capital and funding through
the issuance of debt and to the cost of such financing.
In the event of a downgrade, the cost of
issuing debt will increase, having an adverse effect on our net results. Certain institutional investors
may also be obliged to withdraw their deposits from ING following a downgrade, which could have
an adverse effect on our liquidity. We have credit ratings from
S&P, Moody’s Investor Service and
Fitch Ratings. Each of the rating
agencies reviews its ratings and rating
methodologies on a
recurring basis and may decide on a downgrade at any time.
Furthermore, ING Bank’s assets are risk-weighted. Downgrades
of these assets could result in a
higher risk-weighting, which may result in higher capital requirements. This may impact net
earnings and the return on capital, and may have an adverse impact on our competitive position.
As rating agencies continue to evaluate the financial services industry, it is possible that rating
agencies will heighten the level of scrutiny that they apply to financial
institutions, increase the
frequency and scope of their credit reviews,
request additional information from the companies
that they rate and potentially adjust upward the capital and other requirements
employed in the
rating agency models for maintenance of certain ratings levels. It is possible that the outcome of
any such review of us would have
additional adverse ratings consequences, which could have a
material adverse effect on our results and financial
condition. We may need to take actions in
response to changing standards or capital requirements
set by any of the rating agencies, which
could cause our business and operations to suffer.
We cannot predict what additional actions
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rating agencies may take, or what actions we may take in response to the actions of rating
agencies.
We may be exposed
to business, operational, regulatory,
reputational and other
risks in connection with climate change.
Climate change is an area of significant focus for governments and regulators, investors and ING’s
customers, and developments with respect to climate change topics may expose ING to significant
risks. The perception of climate change as a risk by civil society, shareholders, governments and
other stakeholders continues to increase, including in relation to the financial sector’s
operations
and strategy, and international actions regulating or restricting CO2 emissions, such as the Paris
agreement, may also result in financial institutions coming under increased pressure from such
stakeholders regarding the management and disclosure of their climate risks and related lending
and investment activities. For further information regarding the alignment of ING’s lending portfolio
with its climate-related goals, see “Item 4. – Information on the Company – Business Overview –
Responsible finance” below.
Additionally, rising climate change concerns may lead to additional
regulation that could increase our operating
costs or negatively impact the profitability of our
investments and lending activities, including those involving the natural resources sector.
ING may
incur substantial costs in complying with current or future laws and regulations relating
to climate
change, including with respect to international actions regulating or restricting CO2 emissions or
changes in capital requirements regulations
in response to climate change. In addition, ING is
exposed to transition risks related to climate change, which result from
changes in the behaviour of
economic and financial actors
in response to the implementation of energy policies or
technological changes. Any of these risks may result in changes in our business activities or other
liabilities or costs, including exposure to reputational risks, any of which may have a material and
adverse impact on our business, results or financial condition.
For a description of the physical risks to our business resulting from climate change, see “–
Operational risks, such as systems disruptions or failures, breaches of security, cyber attacks,
human error, changes in operational practices, inadequate controls including in respect of third
parties with which we do business, natural disasters or outbreaks of communicable diseases may
adversely impact our reputation, business and results” above.
An inability to retain or attract
key personnel may affect our business
and results.
ING Group relies to a considerable
extent on the quality of its senior management, such as
members of the executive committee, and management in the jurisdictions which are material to
ING’s business and operations. The success of ING Group’s operations is dependent, among other
things, on its ability to attract and retain highly qualified personnel. Competition for key personnel
in most countries in which ING Group operates, and globally for senior management, is intense. ING
Group’s ability to attract and retain key personnel, in senior management and in particular areas
such as technology and operational management, client relationship management, finance,
risk
and product development, is dependent on a number of factors, including prevailing market
conditions and compensation packages offered by companies competing for the same talent.
The (increasing) restrictions on remuneration, plus the public and political scrutiny especially in the
Netherlands, will continue to have an impact on existing ING Group remuneration policies and
individual remuneration packages for personnel. For example,
under the EU’s amended
Shareholder Rights Directive, known as ‘SRD II’, which came into effect on June 10, 2019, ING is
required to hold a shareholder
advisory vote
on ING’s remuneration policy for directors (including
members of the executive board and the supervisory board) and on the annual remuneration
report for such directors. 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, which, in turn, may affect our
business and results.
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We may incur
further liabilities in respect of our defined benefit retirement
plans if
the value of plan assets is not sufficient to cover
potential obligations, including as a
result of differences
between results and underlying actuarial assumptions
and
models.
ING Group companies operate various defined benefit
retirement plans covering
a number of our
employees. The liability recognised in our consolidated balance sheet in respect of our defined
benefit plans is the
present value of the defined benefit
obligations at the balance sheet date, less
the fair value of each plan’s assets, together with adjustments for unrecognised actuarial gains and
losses and unrecognised past service costs. We determine our defined benefit
plan obligations
based on internal and external actuarial models and calculations using the projected unit credit
method. Inherent in these actuarial models are assumptions, including discount rates, rates of
increase in future salary and benefit levels, mortality rates, trend rates in health care
costs,
consumer price index, and the expected return on plan assets. These assumptions are based on
available market data and the historical performance of plan assets, and are updated annually.
Nevertheless, the actuarial assumptions may differ significantly
from actual results due to changes
in market conditions, economic and mortality trends and other assumptions. Any changes in these
assumptions could have a significant impact
on our present and future liabilities to and costs
associated with our defined
benefit retirement plans.
Risks related to the Group’s
risk management practices
Risks relating to our use
of quantitative models or assumptions to
model client
behaviour for the purposes of our market
calculations may adversely impact our
reputation or results.
We use quantitative methods, systems or approaches that apply statistical, economic financial, or
mathematical theories, techniques and assumptions to process input data into quantitative
estimates. Errors in the development, implementation, use or interpretation of such models, or
from incomplete or incorrect data, can lead to inaccurate, noncompliant or misinterpreted
model
outputs, which may adversely impact our reputation and results. In addition, we use assumptions
in order to model client behaviour for the risk calculations in our banking books. Assumptions are
used to determine the interest rate risk profile of savings and current accounts and to estimate the
embedded option risk in the mortgage and investment portfolios. Assumptions
based on past client
behaviour may not always be a reliable indicator of future behaviour.
The realisation or use of
different assumptions to determine client behaviour could have a material adverse effect on the
calculated risk figures and, ultimately, our future results or reputation. Furthermore,
we may be
subject to risks related to changes in the laws and regulations governing the risk management
practices of financial institutions. For further information, see “Risks related to the regulation and
supervision of the Group – Changes in laws and/or regulations governing
financial services or
financial institutions
or the application of such laws and/or regulations may increase
our operating
costs and limit our activities” above.
We may be unable
to manage our risks successfully through
derivatives.
We employ various economic hedging strategies with the objective of mitigating the market risks
that are inherent in our business and operations. These risks include currency fluctuations, changes
in the fair value of our investments, the impact of interest rates, equity markets and credit spread
changes, the occurrence of credit defaults and changes in client behaviour.
We seek to control
these risks by, among other things, entering into a number of derivative instruments, such as
swaps, options, futures and forward contracts, including, from
time to time, macro hedges for parts
of our business, either directly as a counterparty or as a credit support provider to affiliate
counterparties. Developing an effective strategy for dealing with these risks is complex, and no
strategy can completely insulate us from risks associated with those fluctuations. Our hedging
strategies also rely on assumptions and projections regarding
our assets, liabilities, general market
factors and the creditworthiness of our counterparties that may prove to be incorrect or prove
to
be inadequate. Accordingly, our hedging activities may not have the desired beneficial impact on
our results or financial condition. Poorly designed strategies or improperly executed transactions
could actually increase our risks and losses. Hedging strategies involve transaction costs and other
costs, and if we terminate a hedging arrangement, we may also be required to pay additional
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costs, such as transaction fees or breakage costs. There have been periods in the past, and it is
likely that there will be periods in the future, during which we have incurred
or may incur losses on
transactions, possibly significant, after
taking into account our hedging strategies. Further, the
nature and timing of our hedging transactions could actually increase our risk and losses. Hedging
instruments we use to manage product and other risks might not perform as intended or expected,
which could result in higher (un)realised losses, such as credit
value adjustment risks or unexpected
P&L effects, and unanticipated cash needs to collateralise or settle such transactions. Adverse
market conditions can limit the availability and increase the costs of hedging instruments, and
such costs may not be recovered
in the pricing of the underlying products being hedged. In
addition, hedging counterparties may fail to perform their obligations, resulting in unhedged
exposures and losses on positions that are not collateralised. As such, our hedging strategies and
the derivatives that we use or may use may not adequately mitigate or offset the risks they intend
to cover, and our hedging transactions may result in losses.
Our hedging strategy additionally relies on the assumption that hedging counterparties remain
able and willing to provide the hedges required by our strategy.
Increased regulation, market
shocks, worsening market conditions (whether due to the ongoing euro crisis or otherwise), and/or
other factors that affect or are perceived to affect the financial
condition, liquidity and
creditworthiness of ING may reduce the ability and/or
willingness of such counterparties to engage
in hedging contracts with us and/or other parties, affecting our overall ability to hedge our risks and
adversely affecting our business, results and financial
condition.
Our risk management policies and guidelines may prove
inadequate for the risks
we
face.
[We have developed
risk management policies and procedures and will continue to review
and
develop these in the future. Nonetheless, our policies and procedures
to identify, monitor and
manage risks may not be fully effective, particularly during
extremely turbulent times. The
methods we use to manage, estimate and measure risk are partly based on historic market
behaviour.
The methods may, therefore, prove
to be inadequate for predicting future risk exposure,
which may be different than suggested by historical experience. For instance, these methods may
not predict the losses seen in the stressed conditions in recent periods, and may also not
adequately allow prediction of circumstances arising due to government interventions and
stimulus packages, which increase the difficulty
of evaluating risks. Other methods for risk
management are based on evaluation of information regarding
markets, customers, catastrophic
occurrence or other information that is publicly known or otherwise available to us. Such
information may not always be accurate, complete, updated or properly evaluated.
Management
of operational, compliance, legal and regulatory risks requires,
among other things, policies and
procedures to record
and verify large numbers of transactions and events. These policies and
procedures may not be fully effective, resulting in a material and adverse impact on our
competitive position, reputation, business, results and financial condition.
Risks related to the Group’s
liquidity and financing activities
We depend
on the capital and credit markets,
as well as customer deposits, to
provide the liquidity and capital
required
to fund our operations, and adverse
conditions in the capital and credit
markets, or significant withdrawals
of customer
deposits, may impact our liquidity, borrowing and
capital positions, as well as the
cost of liquidity, borrowings
and capital.
Adverse capital market conditions have in the past affected, and may in the future affect,
our cost
of borrowed funds and our ability to borrow on a secured
and unsecured basis, thereby impacting
our ability to support and/or grow our businesses. Furthermore,
although interest rates are
at or
near historically low levels, since the recent financial crisis, we have experienced increased funding
costs due in part to the withdrawal of perceived government support of such institutions in the
event of future financial crises. In addition, liquidity in the financial
markets has also been
negatively impacted as market participants and market
practices and structures adjust to new
regulations.
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We need liquidity to pay our operating expenses, interest on our debt and dividends on our capital
stock, maintain our securities lending activities and replace certain maturing liabilities. Without
sufficient
liquidity, we will be forced to curtail our operations and our business will suffer.
The
principal sources of our funding include a variety of short-and long-term instruments, including
deposit fund, repurchase agreements, commercial
paper, medium- and long-term debt,
subordinated debt securities, capital securities and shareholders’ equity.
In addition, because we rely on customer deposits to fund our business and operations, the
confidence of customers in
financial institutions
may be tested in a manner that may adversely
impact our liquidity and capital position. Consumer confidence
in financial
institutions may, for
example, decrease due to our or our competitors’ failure to communicate to customers the terms
of, and the benefits
to customers of, complex or high-fee financial
products. Reduced confidence
could have an adverse effect on our liquidity and capital position through withdrawal of deposits, in
addition to our revenues and results. Because
a significant percentage of our customer deposit
base is originated via Internet banking, a loss of customer confidence
may result in a rapid
withdrawal of deposits over the Internet.
In the event that our current resources
do not satisfy our needs, we may need to seek additional
financing. The availability of additional
financing will
depend on a variety of factors, such as market
conditions, the general availability of credit, the volume of trading
activities, the overall availability
of credit to the financial services industry, our credit ratings and credit capacity, as well as the
possibility that customers or lenders could develop a negative perception of our long- or short-term
financial prospects. Similarly, our access
to funds may be limited if regulatory authorities or rating
agencies take negative actions against us. If our internal sources of liquidity prove to be insufficient,
there is a risk that we may not be able to successfully obtain additional financing on favourable
terms, or at all. Any actions we might take to access financing
may, in turn, cause rating agencies
to re-evaluate our ratings.
Disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to
capital. Such market conditions may in the future limit our ability to raise additional capital to
support business growth, or to counterbalance the consequences of losses or increased regulatory
capital and rating agency capital requirements. This could
force us to (i) delay raising capital,
(ii)
reduce, cancel or postpone payment of dividends on our shares, (iii) reduce, cancel or postpone
interest payments on our other securities, (iv) issue capital of different types or under different
terms than we would otherwise, or (v) incur a higher cost of capital than in a more stable market
environment. This would have the potential to decrease both our profitability and our financial
flexibility. Our results, financial
condition, cash flows, regulatory capital and rating agency capital
position could be materially adversely affected by disruptions
in the financial markets.
Furthermore, regulatory
liquidity requirements in certain jurisdictions in which we operate are
becoming more stringent, undermining our efforts to maintain centralised management of our
liquidity. These developments may cause trapped pools of liquidity and capital, resulting in
inefficiencies
in the cost of managing our liquidity and solvency, and hinder our efforts to
integrate
our balance sheet. An example of such trapped liquidity includes our operations in Germany where
German regulations impose separate liquidity requirements
that restrict ING’s ability to move a
liquidity surplus out of the German subsidiary.
As a holding company, ING Groep
N.V.
is dependent for liquidity on payments
from
its subsidiaries, many of which are subject to regulatory
and other restrictions on
their ability to transact with affiliates.
ING Groep N.V.
is a holding company and, therefore, depends on dividends, distributions and other
payments from its subsidiaries to fund dividend payments and to fund all payments on its
obligations, including debt obligations. Many of our subsidiaries, including our bank subsidiaries,
are
subject to laws that restrict dividend payments or authorize regulatory bodies to block or reduce
the flow of funds from those subsidiaries to ING Groep N.V.
In addition, our bank subsidiaries are subject to restrictions on their ability to lend or transact with
affiliates
and to minimum regulatory capital and other requirements, as well as restrictions on their
ability to use client funds deposited with them to fund their businesses. Additional
restrictions on
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related-party transactions, increased capital and liquidity requirements and additional limitations
on the use of funds in client accounts, as well as lower earnings, can reduce the amount of funds
available to meet the obligations of ING Groep N.V.,
and even require
ING Groep N.V.
to provide
additional funding to such subsidiaries. Restrictions or regulatory action of that kind could impede
access to funds that ING Groep N.V.
needs to make payments on its obligations, including debt
obligations, or dividend payments. In addition ING Groep N.V.’s
right to participate in a distribution
of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the
subsidiary’s creditors.
There is a trend towards
increased regulation and supervision of our subsidiaries by the
governments and regulators in the countries in which those subsidiaries are located or do business.
Concerns about protecting clients and creditors of financial institutions that are controlled by
persons or entities located outside of the country in which such entities are located or do business
have caused or may cause a number of governments and regulators to take additional steps to
“ring fence” or maintain internal total loss-absorbing capacity at such entities in order to protect
clients and creditors of such entities in the event of financial difficulties
involving such entities. The
result has been and may continue to be additional limitations on our ability to efficiently
move
capital and liquidity among our affiliated
entities, thereby increasing the overall
level of capital and
liquidity required by ING on a consolidated basis.
Furthermore, ING Groep N.V.
has in the past and may in the future guarantee the payment
obligations of certain of its subsidiaries, including ING Bank N.V.,
subject to certain exceptions. Any
such guarantee may require
ING Groep N.V.
to provide substantial funds or assets to its subsidiaries
or their creditors or counterparties at a time when ING Groep N.V.
or its subsidiaries are in need of
liquidity to fund their own obligations.
The requirements for ING Groep
N.V.
to develop and submit recovery and resolution
plans to
regulators, and the incorporation of feedback received
from regulators, may require
us to increase
capital or liquidity levels or issue additional long-term debt at ING Groep N.V.
or particular
subsidiaries or otherwise incur additional or duplicative operational or other costs at multiple
entities, and may reduce our ability to provide ING Groep N.V.
guarantees for the obligations of our
subsidiaries or raise debt at ING Groep N.V.
Resolution planning may also impair our ability to
structure our intercompany and external activities in a manner that we may otherwise deem most
operationally efficient.
Furthermore, arrangements to facilitate
our resolution planning may cause
us to be subject to additional costs such as resolution planning related taxes and funds. Any such
limitations or requirements would be in addition to the legal and regulatory restrictions described
above on our ability to engage in capital actions or make intercompany dividends or payments.
Additional risks relating to
ownership of ING shares
Holders of ING shares may experience
dilution of their holdings.
ING’s AT1 Securities may, under certain circumstances, convert into equity securities, and such
conversion would dilute the ownership interests of existing holders of ING shares and such dilution
could be substantial. Additionally, any conversion, or the anticipation of the possibility of a
conversion, could depress the market price of ING shares. Furthermore,
we may undertake future
equity offerings with or without subscription rights. In case of equity offerings
with subscription
rights, holders of ING shares in certain jurisdictions, however, may not be entitled to exercise such
rights unless the rights and the related shares are registered
or qualified
for sale under the relevant
legislation or regulatory framework. Holders of ING shares in these jurisdictions may suffer dilution
of their shareholding should they not be permitted to, or otherwise chose not to, participate in
future equity offerings with subscription rights.
Because we are incorporated
under the laws of the Netherlands and many of the
members of our Supervisory and Executive
Board and our officers reside outside
of
the United States, it may be difficult to enforce
judgments against ING or the
members of our Supervisory and Executive
Boards or our officers.
Most of our Supervisory Board members, our Executive Board members and some of the experts
named in this Annual Report, as well as many of our officers
are persons who are not residents of
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the United States, and most of our and their assets are located outside the United States. As a
result, investors may not be able to serve process
on those persons within the United States or to
enforce in the United States judgments obtained in US courts against us or those persons based on
the civil liability provisions of the US securities laws.
Investors also may not be able to enforce judgments of US courts under the US federal securities
laws in courts outside the United States, including the Netherlands. The United States and the
Netherlands do not currently have a treaty providing
for the reciprocal recognition
and
enforcement of judgments (other than arbitration awards) in civil and commercial
matters.
Therefore, we
may not be able to enforce in the Netherlands a final judgment
for the payment of
money rendered by any US federal
or state court based on civil liability, even if the judgment is not
based only on the US federal securities laws, unless a competent court in the Netherlands gives
binding effect to the judgment.
Therefore, a final judgment for the payment of money rendered by any federal or state court in the
United States based on civil liability, whether or not predicated solely upon the U.S. federal
securities laws, would not be enforceable in the Netherlands unless the underlying claim is re-
litigated before a Dutch court. However, under current
practice, the courts of the Netherlands may
be expected to render a judgment in accordance with the judgment of the relevant
U.S. court,
provided that such judgment (i) is a final judgment and has been rendered by a court which has
established its jurisdiction on the basis of internationally accepted grounds of jurisdictions, (ii) has
not been rendered in violation of elementary principles of fair trial, (iii) is not contrary to the public
policy of the Netherlands, and (iv) is not incompatible with (a) a prior judgment of a Netherlands
court rendered in a dispute between the same parties, or (b) a prior judgment of a foreign court
rendered in a dispute between
the same parties, concerning the same subject matter and based
on
the same cause of action, provided that such prior judgment is not capable of being recognized in
the Netherlands. It is uncertain whether this practice extends to default judgments as well.
Based on the foregoing, there can be no assurance
that U.S. investors will be able to enforce
against us or members of our board of directors, officers
or certain experts named herein who are
residents of the Netherlands or countries other than the United States any judgments obtained in
U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities
laws.
In addition, there is doubt as to whether a Dutch court would impose civil liability on us, the
members of our board of directors, our officers or certain
experts named herein in an original
action predicated solely upon the U.S. federal securities laws brought in a court of competent
jurisdiction in the Netherlands against us or such members,
officers
or experts, respectively.
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Item
4.
Information
on the
Company
A.
History
and development
of the
company
General
ING Groep N.V.
was established as a Naamloze Vennootschap (a Dutch public limited liability
company) on March 4, 1991. ING Groep N.V.
is incorporated under the laws of the Netherlands.
The corporate site of ING, www.ing.com,
provides news, investor relations
and general information
about the company.
ING is required to file certain documents and information with the United States Securities and
Exchange Commission (SEC). These filings relate primarily to periodic reporting requirements
applicable to issuers of securities, as well as to beneficial
ownership reporting requirements as a
holder of securities. The most common filings
we submit to the SEC are Forms 6-K and 20-F
(periodic reporting requirements) and Schedules 13D and 13G (beneficial ownership requirements).
The SEC maintains an internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
ING’s
electronic filings are available on the SEC’s internet site under CIK ID 0001039765 (ING Groep N.V.).
The official
address of ING Group is:
The name and address of ING
Group’s agent for service of process
in the United States in connection
with ING’s registration statement on
Form F-3 is:
ING Groep N.V.
Bijlmerdreef 106
1102 CT
Amsterdam
P.O.
Box 1800,
1000 BV Amsterdam
The Netherlands
ING Financial Holdings Corporation
1133 Avenue of the Americas
New York, NY
10036
United States of America
Telephone
+31 20 563 9111
Telephone
+1 646 424 6000
Changes in the composition of the Group
For information on changes in the composition of the Group, reference
is made to Note 47
‘Consolidated companies and businesses acquired and divested’.
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Our strategy
and how we create
value
ING’s
Think
Forward
strategy
continued
to
guide
us
during
2019.
It
was
a year
of
rapid
transformation
in
the
competitive
landscape,
regu
lation,
customer
preferences
and
the
economic
context.
It
was
marked
as
well
by
the
growing
threat
of
climate
change.
These
developments
present
both
challenges
and
opportunities
.
There were numerous
developments in 2019 with important implications for financial
services
providers and their future strategic
direction. Digitalisation increased,
with a growing percentage of
customers doing their banking with mobile devices. Big Tech platforms continued to leverage
their
expertise in the digital customer experience to encroach on banks’ market share by targeting
lucrative parts of their traditional value chains, such as payments.
Competition was further spurred by implementation in 2019 of the EU’s PSD2 directive opening the
payments market to non-bank competitors. Persistently low interest rates in Europe
edged still
lower, pressuring banks’ interest income and profits. And the growing threat of climate change
intensified the debate about
the role business can and should play to promote a sustainable future.
Think Forward
Our Think Forward strategy
– with its purpose to empower people to stay a step ahead in life and in
business – continued to guide our strategic response to the challenges and opportunities these
developments present. Chief among these is how banks can master the digital customer
experience and tap into its opportunities.
The strategic priorities that are the focus of the Think Forward
strategy aim to create a
differentiated customer experience. They do that by deepening the relationship with the customer,
by providing us with tools to know our customers better and to anticipate their evolving needs, and
by fostering an innovation culture that will ensure we
are able to continuously adapt our offerings
and business model to anticipate and meet those needs in future.
And the Customer Promise –
clear and easy, anytime anywhere, empower, and keep getting better – forms the basis of the
customer experience we aim for.
In concrete terms, this translates into a focus on primary relationships. These are
relationships
where we serve multiple banking or other needs of retail customers and wholesale banking clients
and which allow us to know these customers and their needs better so we can add value for them
and grow the relationship. To
do this, we aim to master data management and analytics skills,
including artificial
intelligence. To
provide for future
needs, we promote a culture of innovation
within ING and partner with fintechs
and other innovative partners to develop interesting
propositions, both in financial services and beyond banking
that can add value for our customers
and others.
Platform approach
The competitive landscape that banks face is increasingly being shaped by Big Tech
companies.
They offer customers a superior digital experience through an open platform approach that delivers
a range of their primary needs in a go-to digital ecosystem. This ability to provide for primary
needs, with both proprietary and third-party offerings that are easily accessed through mobile
devices, defines their success. Banking, by contrast, is a facilitator and not a primary need. The
choice for banks is to challenge their existing business models, to disrupt themselves, or risk being
disintermediated and relegated to a status of white label facilitators of others’ platforms.
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ING chooses to pursue its own platform approach. It aims to create a go-to financial services
platform offering one customer experience wherever we operate and one that’s mobile-first in
keeping with ING’s clear and easy, anytime anywhere Customer Promise. To
support this ambition,
we’re evolving to a single global modular technological foundation that can be easily scaled up to
accommodate growth, and one that’s open so it’s ready to connect to other platforms and offers
users relevant third
-party products and services.
Innovation and transformation
To
pursue this aim, we are converging businesses with similar customer propositions. The Unite
be+nl initiative is combining the Netherlands and Belgium. The Maggie (formerly Model Bank)
transformation programme is standardising
our approach in four European markets -
Czech
Republic, France,
Italy and Spain - similar to our successful digital approach in Germany based on a
standardised omnichannel customer experience across mobile devices and web. We
pursue a plug-
and-play approach to product development to ensure we can share
innovations quickly across our
businesses. Examples of this in practice include the One App now active in Belgium, Germany and
the Netherlands, offering one mobile customer experience in those markets.
And we’re evolving
toward a uniform approach
to data and its management, to processes and to one way of working
to support this transformation and accelerate innovation.
Increasing the pace of innovation is a strategic priority and core
to ensuring we remain relevant to
our customers and can live up to our purpose to empower people to stay a step ahead in life and in
business. And it is a prerequisite for realising
our platform ambitions. We do this by fostering an
internal culture of innovation through
customised methodologies and by providing resources
to our
business through the ING Innovation Fund.
And we collaborate with a wide range of fintechs and
other external parties to accelerate the development of innovative solutions for customers.
To
spur this collaboration, ING in 2019 opened the Cumulus Park innovation district in Amsterdam
Zuidoost, an initiative together with local government and educational institutions offering
businesses, academics and innovators workspaces designed to co-create, learn, research
and
inspire in a collaborative atmosphere
around the themes of urbanisation and digital identity.
And through ING Labs in Amsterdam,
Brussels, London and Singapore we’re
also collaborating with
fintechs and others
on disruptive innovations in value spaces that best match the expertise and
ecosystems in those locations.
Examples of collaborative innovations
include beyond banking initiatives for retail customers. In
2019 we launched the first
protection products as part of the global insurance partnership with
AXA, distributed primarily through our mobile app. Examples in Wholesale Banking include Cobase,
a platform that enables companies to manage accounts at multiple banks through one interface,
and blockchain solutions in areas like trade finance that drastically reduce the time and complexity
of trades.
In 2019, resources were
devoted to improving our capabilities in the areas
of know your customer
and fighting financial
economic crime, causing some reprioritisation related to the pace of
implementation of innovation and transformation goals. However, our strategy
and priorities in
these areas remains unchanged.
Promoting
a sustainable society
ING’s empowerment purpose is not limited to our own customers. In striving to help people to stay
a step ahead in life and in business, we see a key role for ING in promoting a sustainable society, as
well as important opportunities both for us and our customers.
To
promote people’s financial health, we focus on giving them the knowledge and tools
to make
informed decisions, and we support initiatives that are developing awareness about the drivers
behind how people arrive at financial decisions
so better methods and tools can be developed in
the future. And through our financing we seek to positively influence society’s
transition to a more
sustainable, low-carbon economy. One of the important ways we do that is through our Terra
approach to steer the impact of our lending portfolio to support the Paris Climate Agreement’s goal
to limit the rise of global temperatures to well below two
degrees Celsius.
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Elements of our strategy
Our Think Forward strategy
was launched in 2014 and guides everything we do. It was visionary
then and today is ever more relevant
to our success. This section describes the strategy and
includes references to examples and additional information on how our strategy
links to the
material topics identified
by our stakeholders.
Strategic
priorities
To
deliver on our Customer Promise and create a differentiating customer experience, we have
identified four strategic priorities:
1. Earn the primary relationship
Earning the primary relationship is a strategic priority for ING as it leads to deeper relationships,
greater customer satisfaction and, ultimately, customers choosing us for more of their financial
needs. In Retail Banking we define primary customers
as those with multiple active ING products, at
least one of which is a current account where they deposit a regular income such as a salary. For
Wholesale Banking these are active clients with lending and daily banking products and at least
one extra product generating recurring revenues
over the last 12 months.
2. Develop data analytics
With the further digitalisation of banking, data is an important asset
that helps us improve the
customer experience and earn the strategically important primary relationship. We rely
on data to
understand what customers want and need. We use these insights to personalise our interactions
with customers and empower them to make their own financial
decisions. Data skills are also
essential to know our customers from a regulatory and risk perspective, to prevent fraud,
improve
operational processes and generate
services that go beyond traditional banking. At ING, we
recognise that excelling at data management is a core competency if we are
to realise our
ambition to create a personal digital experience for customers. We are
on course to implement one
global approach to data management to ensure we maximise the potential of this key resource.
Discussions in society about data privacy and the tightening of data privacy legislation and
regulations, as embodied in the EU’s General Data Protection Regulation (GDPR), are
raising
awareness of this important issue. At ING, we are
committed to handling customer data safely and
being open about how we use it.
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3. Increase the pace of innovatio
n
to serve changing customer needs
Evolving customer expectations, new technologies and new competitors are transforming banking.
Innovation is at the heart of the Think Forward strategy
and essential to develop the beyond
banking and disruptive products, services and experiences that support our platform ambitions. We
promote innovation internally through ING's own PACE
innovation methodology and by
earmarking funds to support businesses with innovative initiatives. To speed up the pace of
innovation, we also partner with outside parties, including fintechs.
4. Think beyond traditional banking to
develop new services and business
models
Persistent low interest rates
and disruption from the rise of new non-bank entrants in the financial
services sector are challenging banks’ traditional business models. Thinking beyond traditional
banking is crucial if we are to find new ways to be relevant to our customers. Here, open banking
offers opportunities. By partnering
with others or developing our own digital platforms, we can offer
customers new and complementary services that go beyond banking – and create new revenue
streams for ING.
Enablers
Four strategic enablers support the implementation of our strategy: simplifying and streamlining
our organisation, operational excellence, enhancing our performance culture
and diversifying our
lending capabilities.
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. To
support our ambition to evolve into one, scalable, mobile-first
digital platform that
offers a uniform and superior customer experience we are building a global foundation with the
same approach to data, IT infrastructure, and processes. This will feature
simplified
and
standardised products and systems and by modular architecture, integrated
and scalable IT
systems and shared services. We also apply one Way
of Working (WoW),
based on agile principles,
across many areas of ING to speed up the pace of innovation and bring new customer solutions to
market faster, as well as to enable global collaboration and knowledge sharing.
2. Operational excellence
Operational excellence requires
continuous focus. We need to ensure
that ING’s operations provide
a seamless and flawless customer
experience and that our operations remain safe and secure so
we can play our important role as gatekeepers to the financial system.
We invest to provide
stable
IT systems and platforms so we are there for our customers when they need us and to provide
them with the highest standards of data security. As part of our know your customer (KYC)
enhancement programme we are
developing a global approach to how we deal with customer due
diligence and transaction monitoring, supported by standardised tools, a uniform approach to data
and clear governance.
3. Performance
culture
We believe
there are strong
links between employee engagement, customer engagement and
business performance. We aim to continually improve
our performance culture by creating a
differentiating employee experience and enhancing the capabilities of our leaders.
By focusing on
delivering a great employee experience and by stepping up our leadership capabilities we develop
our employees’ engagement and ability to deliver on our purpose and strategy.
ING’s Think Forward Leadership
Programme (TFLP) aims to develop greater
leaders and better
managers who can engage staff and enhance team performance. Introduced for senior leaders in
2017, it was extended later that year to people managers globally as the TFL Experience (TFLE), a
four-day programme with follow-up learning activities. The first phase of the programmes focused
on the Orange Code, individual purpose and the Think Forward
strategy. Phase 2, launched for TFLP
in 2018, focused on high sustainable performance, talent management and performance
transparency. It will be extended to the TFLE in 2020.
We expect every ING employee to ensure we are
a bank people can trust and that we can be proud
of. This starts at the top as leaders should create the right conditions for our employees to
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safeguard the bank and society from financial economic crime. In 2019, we developed a new global
e-learning module that will be rolled out in early 2020 to all employees to enhance their KYC
awareness. And a global code of conduct was rolled out in the first quarter of 2020 that builds on
the Orange Code and gives employees worldwide concrete
examples of how to put the ING values
into practice.
We promote
a more diverse and inclusive workforce
by aiming for ‘mixed teams’. We have adopted
the 70 percent principle, which gives managers a basis for building mixed teams around
appropriate dimensions of diversity (with a focus on gender, nationality and age group) and strives
for a minimum 30 percent difference in team make-up. In 2019, we worked to further this aim by
deep-diving into diversity dimensions ING-wide and setting up dashboards to help different areas of
the business monitor their progress. Like many other financial organisations, getting the right mix
of people remains a challenge in parts of the business and there is more to be done to redress
imbalances that still exist.
4. Lending capabilities
Broadening and diversifying our lending capabilities to continue to grow client franchises is our
fourth strategic enabler.
To
do so, we are seeking opportunities in Retail, SME and Consumer
Lending segments, as well as focusing on Wholesale Banking lending growth in our businesses in
Challengers & Growth (C&G) markets and in our sector lending franchises. ING is also considered
one of the pioneers in sustainable finance,
having introduced the first sustainability ESG-linked
loan and a made-to-measure sustainability improvement loan. In 2019, ING continued to shape
this sector and open up new markets by developing sustainability improvement concepts and
financial products. In 2019, we continued to grow at resilient interest margins, with net core
lending
growth of €17.2 billion, or 2.9 percent, mainly realised in our Retail
markets. Our ambition is to
continue to grow profitably within our risk appetite, but given market dynamics we expect growth
at Wholesale Banking to be slightly lower than in Retail Banking.
B.
Business
overview
Corporate Organisation
ING Group’s segments are based on the internal reporting structure by lines of business. For more
information see ‘Item 5 Operating and Financial Review and Prospects”.
Our business
We
achieved
good
results
in
2019
with
solid
profitability
and
healthy
growth
in
both
lending
and
deposits.
Net
core
lending
grew
by
€17.2
billion
over
the
year,
with
net
inflow
of
customer
deposit
s
growing
by
€23.4
billion.
We
added
more
than
830,000
primary
customers,
which
shows
that
our
customer
experience
continues
to
be
differentiating
and
drives
growth.
With
digital
disruption
changing
customer
expectations
we’re
looking
for
new
ways
to
stand
out
from
the
crowd.
Our markets
ING’s retail business serves 38.8 million customers. In most of our retail markets we offer a full
range of banking products and services, covering payments, savings, insurance, investments and
secured and unsecured lending. Our wholesale banking business offers clients advisory value
propositions such as specialised lending, tailored corporate finance and debt and equity-market
solutions. Our clients range from large companies to multinational corporations and financial
institutions.
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Our
Market Leaders
where we have strong positions in retail
and wholesale banking. We’re investing in digital
leadership to deliver a uniform customer experience with one customer interaction platform and a
harmonised business model.
In 2019 the Market leader highlights were the following:
◾
Launched Payconiq in the Netherlands: customers can pay with their smartphone in stores and
online
◾
Apple Pay introduced for customers in the Netherlands
◾
Customers in Belgium can now use voice activated Google assistant to look up information on
ING
◾
In Belgium, customers can now start the mortgage process online
◾
We offer large mid-corporates in
the Netherlands a scalable self-service digital marketplace
called Invoice Trader
where they can trade their receivables
to external investors
Our
Challengers
markets are Australia, Austria, Czech Republic, France,
Germany, Italy and Spain.
Here we’re
aiming for a full retail and wholesale relationship, digitally distributed through low-cost
retail platforms. We
also aim to use our direct-banking experience to grow consumer and SME
lending, and our strong savings franchises to fund the expansion of wholesale banking in these
markets.
In 2019 the highlights for the Challenger Markets were the following:
◾
In Austria, we expanded our product range to include mortgages in cooperation with ING owned
mortgage broker Interhyp
◾
We help customers in Germany to better manage their money by notifying them of upcoming
payments
◾
Introduced
Apple Pay for customers in Spain. The use of mobile contactless payments in
Germany rose after the launch of Google and Apple Pay in Germany
◾
Australia and Spain achieved #1 NPS rankings, demonstrating
the value of our Think Forward
strategy
Our
Growth Markets
in countries whose economies have high growth potential. These include Poland, Romania and
Turkey. In these markets we’re
investing to achieve sustainable franchises and will focus on digital
leadership by converging to a mobile-first model and prioritising innovation. Our newest Growth
Market is ING in the Philippines, where we launched an all-digital retail
bank in November 2018.
In 2019 the highlights for the Growth market were the following:
◾
Apple Pay introduced for
customers in Romania
◾
In Poland, customers can add their Visa debit card to their Apple Wallet using the Moje ING app
◾
ING customers in Poland can now use voice-activated Google assistant - without logging in -
to
check their balances or to make transfers between accounts
◾
To
help customers In Poland better manage their money we now offer features notifying them of
upcoming payments
◾
In a first for ING countries business
customers in Poland
can use Garmin Pay and Apple Pay,
contributing to a further increase in mobile contactless payments there
◾
In Turkey, we
can see in real time when customers have a problem at our ATMs
and proactively
call them to try and solve it
Wholesale Banking
With a local presence in more than 40 countries, ours is a sector-focused client business providing
corporate clients and financial institutions with advisory
value propositions,
such as specialised
lending, tailored corporate finance and debt and equity market solutions. We also serve their daily
banking needs with payments and cash management, trade and treasury services.
In 2019 the following highlights were achieved within Wholesale Banking:
◾
Supported 62 green, social and sustainability bonds and 61 sustainable improvement loans
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◾
We issued the largest green
Schuldschein to date with Porsche
◾
Blockchain-based trade finance platform Contour, co-founded by ING Ventures, launched into
the $18 trillion global trade finance market
◾
We introduced
the first sustainable
improvement derivative to market
◾
We provided
a centralized digital vault for corporate
customers to store their KYC docs and
enhanced transaction monitoring tooling for our KYC purposes
◾
PSD2 APIs live on the open banking Developer portal
Achieving our business goals
Banks are operating in a fast-changing environment marked by new competitors, new customer
expectations, increased regulation and higher capital requirements. At
the same time, persistently
low interest rates put pressure
on our savings business model. We are finding new ways to be
relevant to our customers.
To
achieve our business goal of creating a superior customer experience, we focus on four strategic
priorities: earning the primary relationship; thinking beyond traditional banking to develop new
services and business models; using our advanced data capabilities to understand our customers
better and meet their changing needs, and innovating faster.
Earning the primary relationship
Earning the primary relationship is a strategic priority for ING as it leads to deeper relationships,
greater customer satisfaction and ultimately customers choosing us for more of their banking
needs.
We don’t only want our customers to do some of their banking with us, we want to be their first
partner, where they deposit their salary, handle their payments and do most of their other banking
business. At the moment, ING has 13.3 million primary relationships, and the target is to grow this
to over 16.5 million by 2022.
In Retail Banking, we define primary customers as
those with multiple active ING products, of which
one is a current account where they deposit a regular
income such as a salary. For Wholesale
Banking, a primary client is an active client with lending and daily banking
products, and at least
one extra product generating recurring revenues
over the last 12 months.
Customer numbers continued to grow in 2019. Primary customer growth across Retail
segments in
2019 included 63,000 for the Benelux, 526,000 for the Challenger markets, and 242,000 for Growth
Markets. In Wholesale Banking, the number of primary customers grew by three percent as we
deepened our relationships, particularly in the daily banking space with existing lending-only
clients in the US and EMEA.
Customer promise
Banking doesn’t have to be difficult
and time consuming. Clear products, plain language, fair prices
and simple processes save customers time and money. ING promises to make banking clear and
easy, to provide services anytime anywhere, and to keep getting better.
We are
driven by our purpose to empower people to stay a step ahead in life and in business. We
do this by constantly innovating to deliver a differentiating customer experience that aims to be
smart, personal and easy.
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Across ING, digital channels are accounting for an increased number of contacts with Retail
customers. For example, a growing
share of retail customers only interacts with ING on their mobile
device, up from 12 percent
in 2016 to 37 percent in 2019. The number of interactions grew by 80
percent since 2016, reaching 4.5 bln interactions in 2019, with mobile interactions increasing
to 82
percent in 2019, versus 52 percent in 2016.
Given the rise of digitalisation, and growing competition from disruptive newcomers
to our sector,
we want to do more than just live up to our Customer Promise.
We want to surpass people’s
expectations.
We want to use the insights from our 4.5 billion customer interactions to offer a personalised and
empowering experience, giving them even more reasons to interact
with us. This is how we can
differentiate ING from other banks and become an essential part of people’s digital lives.
One of the ways we measure our progress
is the Net Promoter Score (NPS), which measures
customer satisfaction and loyalty (whether they would recommend ING to others). The score is
calculated as the difference between the percentage of promoters
(who rate ING as 9 or 10 out of
10) and detractors (those scoring ING below a 6). Our aim is to achieve a number one NPS ranking
in all our retail markets, with a 10-point lead over our main competitors. Based on a rolling average
of our NPS scores in 2019, ING ranked number one in seven out of our 14 Retail markets.
In Wholesale Banking, the overall NPS score improved
by 11 percent year on year to 49.6 (on a
scale of -100 to +100), outperforming the industry benchmark. This suggests clients appreciate our
new approach (see ‘Unleashing sector potential’ below). The number of surveys sent increased by
28 percent year on year, and the response rate increased
from 46.6 percent to 50.6 percent.
The
NPS growth for Platinum clients decreased year on year but the NPS of all the other segments
increased. Overall level
of satisfaction went up from 8.4 to 8.5. We now have NPS scores
from WB
clients generating 42 percent of our revenues.
We added a further five countries to the NPS programme in 2019, which is now running in 26
Wholesale Banking markets. In 2019, NPS played an even more prominent role in gauging client
satisfaction in Wholesale Banking, with clearly defined
KPIs applied across all parts of the business
and a more active
feedback process.
Unleashing sector potential
In 2019, we remained focused on servicing our corporate clients with relevant
advice, data-driven
insights and customised, integrated solutions that make their day-to-day banking more efficient
and support their business ambitions.
This is in line with the revised Wholesale Banking strategy we introduced in 2018 to enable us to
adapt to and overcome a challenging and complex market environment, as well as increased
regulatory requirements,
evolving technology, greater competition and our clients’ changing
needs.
We developed
our sector strategy over the year, pairing local and global insight with sector
knowledge and financial expertise.
‘Commercial passports’ give us insight into what services we
provide to each client and the regions where
we serve them, while our uniform client segmentation
framework helps us tailor our daily banking and advisory value propositions to their specific needs.
Several deals in 2019 reflect this sector focus. In the telecom, media and technology space, ING
acted as financial
advisor for global asset management company DWS in the merger of leading
Dutch data centres NLDC (DWS's infrastructure business acquired
NLDC from Dutch telco KPN in
2019), and The Datacenter Group (TDCG) group.
By advising DWS, ING enabled it to make its
maiden investment in the telecom infrastructure sector and created the largest player in the Dutch
market. In the food and agribusiness sector, ING coordinated the largest-ever sustainability
improvement loan in commodity trading for China’s multinational leading food and agri company,
COFCO International. The $2.1 billion loan links COFCO International’s interest
rate to its
sustainability performance and rating. And in the sustainable finance space, ING added another
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first to its growing sustainable finance
deal portfolio in Asia/Pacific. We provided a subsidiary of
Sunseap Group, a Singapore-based renewable energy
company, with $37 million to build rooftop
solar projects in Singapore.
In Transaction
Services, we optimised our client-facing model, streamlining our products and
services and increasing efficiency
in sales support. We also brought together various client trading
activities scattered across Financial Markets into one team and further embedded the FM business
into our client organisation with a new sales model that is fully aligned with the rest of Wholesale
Banking. This will help to maximise cross-buy opportunities and improve our client-service delivery
with consistent products and a one-client approach everywhere.
Platform thinking
ING’s purpose is to empower people to stay a step ahead in life and in business. To continue doing
this in a world that is changing quicker than ever before, we need to be where our customers are –
on digital platforms.
Thinking beyond traditional banking is crucial to find
new ways to be relevant to customers. Here,
open banking offers opportunities.
By partnering with others or developing our own digital
platforms, we can offer customers new and complementary services that go beyond banking – and
create new revenue
streams for ING.
Platforms empower customers by providing them with a range of primary needs in one place.
Through frequent user interactions, platforms also generate
large amounts of data. By mastering
data skills, platforms get to know their customers and their needs increasingly well, enhancing the
platform’s value, and that of its users.
The other advantage with platforms is that they are scalable, open and borderless, offering their
users the same experience everywhere. With little to differentiate one bank’s products from
another, we believe it is customer experience that will set ING apart.
ING has different faces in different markets and different banking interfaces, each with its own look
and feel. By uniting our platforms, processes and products we can provide
a consistent customer
experience in every country. This is driven by a growing desire
for similar online experiences in an
increasingly digital world.
We are
making progress in achieving this in a number of ways, including by working internally to
establish a truly cross-border banking platform that aims to provide
one unique, uniform customer
experience that is best in class and leverages scale, and by pursuing strategic platform initiatives.
This was the year that Unite be+nl became a reality for our customers in the Netherlands and
Belgium, with the introduction of common digital channels in these countries. Unite be+nl is one of
several programmes
we are rolling out to build ‘one ING’ and is an important step towards a global
platform. Maggie (formerly Model Bank) is our transformation programme uniting our retail
strategy and capabilities in Spain, Italy, France
and the Czech Republic. Its emphasis is on
increasing our digital interaction with customers, improving customer satisfaction and boosting
sales.
Platform initiatives
Our Yolt aggregator
app was named Personal Finance App of the Year
at the 7th Annual Payments
Awards in the
UK. We extended the app with Yolt
Pay, a new feature that enables users to move
money between their accounts and make payments to friends and family from supported banks.
In 2019, we increased our stake in international payments platform Payvision to make it a wholly
owned subsidiary. This is an important step towards becoming the preferred platform
for business
customers and strengthens ING’s digital payments business, especially in e-commerce. Payvision
facilitates more than 80 payment methods in 150 currencies. In 2019, Payvision and ING
introduced the omnichannel (eCom + in-store) proposition for
corporate clients. The ING and
Payvision combined commerce solutions proposition helps merchants offer our clients’ shoppers a
seamless checkout experience across all channels.
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Through ING Ventures,
we are continuing to invest in fintechs, focusing on collaborations that
support our strategy of creating a differentiating customer experience. In 2019, we made a further
multi-million euro investment in Spanish-based fintech Fintonic. Fintonic is the leading finance
app
in Spain. It provides financing and savings solutions that help users
manage their personal finances
more effectively.
We’ve invested
in Flowcast, a tool we hope to use to benefit Wholesale
Banking clients The fintech
start-up uses machine learning algorithms to improve the credit decision process. Its predictive
models reduce risk and unlock credit to businesses. The investment is a boost to ING’s AI
capabilities.
We also invested in multibank platform Cobase,
which makes it easier and more efficient
for
international corporate clients to work with multiple banks. As a cloud solution, Cobase minimises
the IT effort for clients and does not require investments or long-term contracts for licences or
hardware.
Beyond banking platforms
In 2019, we introduced the first products resulting from our collaboration with insurer
AXA, offering
customers personalised insurance services in a clear and easy way via the ING mobile app.
Targeting
six of our Challengers markets, the partnership aims to provide insurance products and
related services through a central
digital insurance platform. We
launched seven products in four
countries: Italy, Australia, Germany and France,
and grew the team in our central Paris office,
working closely with all our markets. The first
product, instant travel insurance through
a mobile
phone, was launched in Italy. Geo-localised travel insurance can be activated with just a few clicks
on a smartphone from the airport or country of destination.
In Australia, we widened our digital insurance portfolio by adding motor and travel insurance
to our
existing home insurance offer.
The motor insurance coverage
has been particularly successful with
more than 1,000 new customers a week now covered
following its launch in May 2019. And in
Germany, ING customers can now secure the repayment of their mortgage in the event of death.
We built on our beyond banking proposition with third
-party offerings such as ING+Deals in Belgium
and ING Punten in the Netherlands. ING+Deals, launched in 4Q 2018, is a cashback platform for
customers, made possible by exclusive deals ING has negotiated with various A-brands (40+ brands
offering over 45 deals a month). It has 150,000 users who to date have received more than
€400,000 cash back, generating €2 million for the participating brands. In addition, participating
customers increased their interactions with ING’s online channels by more than 20 percent. ING
Punten, a shopping platform for customers in the Netherlands to increase loyalty and drive digital
interactions, is also partnering with trusted A-brands. In 2019, 1.1 million products were sold,
delivering a turnover of €31 million.
Following our 2018 acquisition of a 90 percent stake in Dutch digital real
-estate platform
Makelaarsland, which allows people to buy or sell homes online independently or with support
of a
local Makelaarsland agent, we achieved a number of milestones in 2019. These include successfully
launching a home
buying proposition, expanding the agent network to 20 agents – now covering
half of the Netherlands – and creating strong links between ING’s mortgage advisors and
Makelaarsland’s agents.
In the fourth quarter, ING launched real-estate marketplace Scoperty across Germany, a joint
venture with Pricehubble and Sprengnetter, which aims to bring transparency
to the German
housing market. Based on high-quality data and machine learning, the Munich-based
proptech
company aims to show all 40 million properties in Germany and to connect potential buyers and
sellers. Scoperty was initially piloted in Nuremberg with more than 100,000 properties, before
expanding nationwide by the end of 2019. More transparency in the German residential housing
market can mean a broader offering of properties for consumers. The team is working on pre-
qualifying potential homeowners by aligning with Interhyp’s mortgage process. Interhyp is ING’s
independent mortgage brokerage platform in Germany and Austria. For sellers and real-estate
brokers this pre-qualification has important value in their choice of accepting offers from buyers. As
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part of the network effect, pre-qualified
buyers may even benefit from three days access to new
home listings. Interhyp, which offers access to 500 mortgage lenders, had a
record year in 2019,
with €24.5 billion in new residential mortgages, and 9.0 percent market share in Germany.
Differentiating customer
experience
Understanding our customers better and meeting their changing needs is core to what we do. In
2019, we continued to innovate to improve
the banking experience for our customers, while helping
them transition to a more efficient and
more sustainable economy. ING’s ambition is to be a leader
in terms of the digital banking experience, offering our customers everywhere the same
empowering and differentiating experience and making banking frictionless. In addition to uniting
several of our Retail businesses on digital platforms that will provide
the same customer experience
everywhere, for the first time we also have a shared brand direction and our first global tagline. The
‘do your thing’ tagline articulates ING’s purpose and our customer promise. It encourages people to
do more of the things that move them or their business. It’s not about irresponsible behaviour, but
about people being free to live the life they want to live, knowing they are making their world a
little better for it.
Launched in the Netherlands in January 2020, the new brand direction and tagline will be rolled out
across ING during the year and used in all our business units to bring our customer experience to
life.
Our advanced data capabilities are an important asset in helping us improve the customer
experience and earn the strategically important primary relationship. We
rely on data to
understand what customers want and need. We use these insights to personalise our interactions
with customers and empower them to make their own financial
decisions.
Our customer-facing platforms offer multiple touch points to interact with customers and collect
data that we use to define customer
journeys; for example when and where they choose to do
their banking, the device they use and the services they prefer.
We test these insights with
feedback from customers to continuously improve
our services.
One of the ways we’re working to enhance the customer experience is through our transformation
to a customer-focused organisation. The benefits of introducing one Way of Working (WoW)
across
ING include transparency, wider alignment, increased speed and predictability in product delivery
and, most importantly, putting the customer first.
More examples of how we’re
providing a differentiating customer experience come from Poland,
where Wholesale Banking clients can now sign credit documentation electronically, and Belgium,
where customers are able to begin the mortgage process online.
In November 2019, we held our first global customer experience (CX) day.
The focus was on making
banking frictionless through many small improvements that make it more personal, easy and
smart, and by working to eliminate or minimise any compromises to the experience resulting from
backlogs or other priorities.
For example, in Poland one result
of CX day was an improvement to Moje ING that improves
the
communication process for entrepreneurs
applying for a loan, making it clearer and more timely.
ING in Romania introduced biometrics to authorise customers to do payments. Colleagues in Spain
found a better way to track their customers' experience and also developed functionality on their
banking app to allow them to easily schedule branch appointments. In the Netherlands and
Belgium, 2,000 participants made 565 improvements for our clients.
We’re
on the right track. Among other achievements, ING topped Forbes’ inaugural World’s
Best
Banks list in 2019. The survey asked 40,000 customers in almost 24 countries about their opinions
on the banks they use. ING was placed among the best-performing banks for customer-centricity in
Australia, Austria, Belgium, France,
Germany, Italy, Poland, and Spain. And we topped the rankings
on both trust and digital services.
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In Australia, new research
in 2019 found ING had the highest customer satisfaction among retail
banks, scoring well above the industry average.
The 2019 Australia Retail Banking Satisfaction
study by JD Power measured the satisfaction of nearly 5,000 banking customers.
Know your customer
Just as we need to know our customers better to deliver better products and services, we also need
this knowledge to ensure we do not accept people or institutions who misuse the financial
system.
We are
making ongoing progress strengthening our global KYC organisation
and activities
throughout ING. We are
using technology and our innovation skills to make improvements and
rolling out global KYC solutions that all countries can connect to.
ING continues to work on the global KYC enhancement programme, which emphasises regulatory
compliance as the key priority. This is a sizeable operation as we have activities in over 40 countries
and have more than 38 million customers. The programme encompasses all client segments in all
ING business units.
We are
also working with local authorities, law enforcement agencies and other financial
institutions to fight
financial and economic crime. In 2019, ING was one of five
banks in the
Netherlands to join forces in the fight against money laundering. The ambition
is to investigate the
set-up of a cross-bank organisation that will monitor payment transactions: Transaction
Monitoring
Netherlands (TMNL). Together with the Dutch Banking Association (NVB), we are involved
in a
feasibility study into the technical and legal challenges involved. In the proposed new plans, we are
collectively looking for cooperation with Dutch authorities, including the Financial Intelligence Unit
(FIU), the Public Prosecution Service, Fiscal Information and Investigation Service (FIOD) and relevant
ministries.
Continuing to innovate
In 2019, we continued to innovate to improve
the banking experience for our customers,
introducing several
innovations that make banking faster and more secure for our clients.
Our cutting-edge AI tool Katana – named
as an Innovator 2019 by Global Finance magazine – helps
to improve decision-making in bond trading. In 4Q, Katana
was spun out into an independent
London-based company called Katana Labs,
with backing from ING Ventures
and other investors.
This is in line with ING’s strategy to create innovative
fintech solutions
and then support them in
becoming independent companies.
The advanced analytics platform can aggregate vast amounts of data from multiple sources
to
predict the price and identify the most promising trades. The results
show traders using Katana win
20 percent more trades
and their prices are 20 percent sharper.
At the same time, it helps
investment managers to make faster, better informed, data-driven investment decisions.
We participated in the launch of instant payments in the Netherlands and Belgium by the Dutch
Payments Association and the Belgian Banking Federation. Funds now get credited
to the
beneficiary account within five
seconds, giving customers immediate access to their funds and
helping them optimise cash flows. We will extend this to the rest of Europe from
2020.
Wholesale Banking clients were able to initiate and receive instant payments in Hungary as of July
2019. Instant payments are now processed within five seconds, with a maximum amount of HUF
10 million. Instant payments make it possible to make payments 24/7,
365 days a year.
There is no
difference between ‘working days’ and ‘non-working days’.
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In another exciting payments innovation, ING is collaborating with Dutch retailer Albert Heijn, which
is piloting a fully digital supermarket. This physical store is packed with convenience-boosting and
time-saving technological innovations. ING helped to develop these in our FABlab
(fabrication
laboratory), which focuses on cross-industry collaborative innovation. Shoppers use their bank
cards to gain entry to the store. The items they select from the shelves are
registered
automatically. Payment, processed by ING, happens automatically when they leave.
We aim to ‘wow’ our customers with improvements
to their service experience. In Turkey, we can
now immediately identify when customers are having a problem at one of our ATMs; we
call them
at that moment to try and solve it. We also use our app to help customers in Turkey
who are more
than one kilometre away from an ING ATM
by granting them the right to use other banks’ ATMs
free of charge.
Together
with UniCredit, we invested in Axyon AI, an Italian company that helps banks offer better
and faster advice to their clients by using artificial
intelligence to, for example, identify investors
most likely to participate in a syndicated loan.
Our open-source software ‘FINN – Banking of Things’ was created within ING Labs
and enables
smart devices to pay for their own usage, such as allowing a car to pay for the car wash. We offer
this software to our business clients, who can use it to ‘wow’ their own customers.
In Wholesale Banking, highlights in innovation in the digitalisation space include two KYC initiatives:
Domino and CoorpID. Using advanced algorithms, Domino collects and connects payments, lending
and financing
data to provide insights that would not normally be readily available. The platform is
live in several departments and used by approximately 800 retail
and WB colleagues, of which 50
serve around 20 percent of ING’s Dutch corporate
clients. CoorpID provides a centralised
digital
vault for corporate customers to store and share
all their KYC documentation in a secure way. It
enables clients to manage their own KYC data and easily share it with other banks, insurance
companies, or auditors.
Blockchain and distributed ledger
technology (DLT)
ING is considered an industry leader in the distributed ledger technology (DLT) space.
In 2019,
Forbes ranked us fifth among global listed companies with high blockchain potential,
recognising
the pioneering work we’ve done in this area to improve
our product offering and make banking
even easier for our clients.
This includes breakthroughs in improving data privacy
within distributed or shared ledgers using
our open-source zero-knowledge range
proof
codes. Bulletproofs builds on these earlier codes,
making them even faster, safer and easier to use, while our zero-knowledge proof
notary service
improves the privacy and security of transactions on the Corda
blockchain platform. It evaluates
the validity of a blockchain transaction without revealing anything about it, except that it’s valid –
like a notary whose job is to witness the signing of documents to validate them.
Blockchain is reinventing commodity trading, making it quicker, easier and more efficient. ING’s
Easy Trading
Connect platform was one of the first to digitalise
commodity trade financing.
Building on its success, we’ve tested a number of successful experiments on the platform. These
include Vakt, announced in 2017, which manages physical energy transactions from
trade entry to
final settlement and
Komgo, the blockchain-based platform that transmits commodity
transactions in a secure environment. In August, we successfully executed
our first oil trade on
Komgo, which has evolved into a venture
with 15 corporates and financial institutions. The deal
was executed by the Commodity Trade
Finance branch in Geneva with a letter of credit
issued on
behalf of Mercuria Energy Trading
S.A.
We also teamed up with commodity companies and financial institutions to
launch Forcefield, a
blockchain-based inventory management system that makes post-trade commodity transaction
processing cheaper, safer, and more efficient. It manages commodities throughout their entire
supply chain life cycle and reduces the risks and costs of handling physical inventory.
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And we joined forces with other global banks to create a digital coin that can be used to settle
international money transfers instantly. This is a new step in the development of the Utility
Settlement Coin (USC) project, set up in 2015 by Swiss bank UBS to develop a blockchain-powered
payment mechanism to make transactions more efficient.
A digital version of existing currencies,
USC will cut out intermediaries, reduce exchange-rate risks, making the payments and settlements
process faster and lowering transaction costs.
In Q4, blockchain-based trade finance platform Contour, co-founded by ING Ventures, launched in
Singapore into the USD 18 trillion global trade finance market. Contour was co-created by ING and
seven other banks in 2018 to simplify letters of credit, reducing the amount of time needed to
process them from five to 10 days to under 24 hours. The launch follows a series of live pilots in 14
countries and a global trial with more than 50 banks and corporates. Ninety-six percent of
participants said Contour would accelerate their letters of credit process,
improve efficiencies and
reduce costs.
Open banking
We strive at all times to protect customer data and privacy in line with the new European
regulations. Customers’ needs and expectations are changing rapidly and companies have no
option but to embrace this shift and adapt. At the same time, open banking requires banks to
rethink traditional products and services, and go beyond traditional banking territory in creating
new customer experiences.
We’ve chosen a strategic
approach towards the revised
Payments Services Directive (PSD2) and
open banking. We invest in building one global platform serving all of our 38 million Retail
customers, and corporate and institutional clients, in more than 15 countries. This helps us to
become a global platform bank, scalable, open and borderless, with one user experience, one API
(application programming interface) solution and one developer portal to efficiently and
seamlessly connect and interact with customers and partners.
Open Banking is a key enabler for new open business propositions and strategic platform strategies
across all client segments. Since September 2019, all banks in Europe must implement PSD2. We
have three PSD2 APIs available to external parties on our developer portal. These give customers
the choice to use third-party apps to manage their money or make online payments. For business
clients in the Netherlands we launched a payment request API that enables them to enhance their
end-consumer experience by adding a convenient, simple payment functionality into their own
app.
Partnerships are becoming more and more important to the delivery of optimal client experiences.
APIs are essential for enabling digital businesses, as they are the de facto standard for integration
and co-creation with our partners. With open banking, we are laying the foundation for the bank of
the future. We
provide the key capabilities that allow ING to open up by establishing secure,
scalable, compliant and uniform connectivity with external parties via APIs.
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Our digitalisation journey
Digital banking, innovation and transformation are in
our DNA. ING’s aim is to be the next
generation digital bank, offering a single digital platform or ‘ecosystem’ where customers can find
solutions to all of their financial
and finance-related needs.
Digitalisation guides our investments and transformation efforts. Our ambition is to offer customers
everywhere the same empowering and differentiating experience. We
are going about this in
several ways.
In 2019, we continued to innovate to improve
the digital customer experience and to strengthen
our mobile-first approach. The number of mobile
card transactions increased six-fold in 2019 from
2018, boosted by the integration of third-party services like Apple Pay and Google Pay. The overall
share of customers who only interact with us on their mobile device increased to 37 percent in
2019 from 26 percent in 2018. The adoption of mobile payments will grow exponentially in coming
years, which is expected to boost mobile even further.
We are
digitalising more processes to make them convenient and time-saving for customers. For
example, in 2019, with Apple Pay, we enhanced the experience of our mobile app users in the
Netherlands, Germany, Romania and Spain. In Germany and Poland, we now offer features that
help customers to better manage their money by notifying them of upcoming payments,
similar to
the ‘Kijk Vooruit’ feature
in the Netherlands. We also made Google Pay available in Germany and
Poland.
Another highlight was the launch of our mobile-only bank offering
in the Philippines. ING has been
operating in the Philippines for nearly 30 years, but only moved into retail banking with the official
launch of our first all-digital
savings product in November 2018. It is the first bank savings
product
that allows transactions to be conducted solely on ING’s mobile app. creating an account is free.
Users only have to download the ING app and make sure they meet a number of requirements,
including being at least 18 years old and having one of three government-issued IDs. Since the
launch, there have been around one million app installations, we have signed up more than
100,000 customers and the app scores an average 4.2 rating.
In the Netherlands and Germany, Wholesale Banking clients can now easily open an account
digitally and directly from their
ERP via e-Bank Account Management, using a SWIFT standard. In
developing this, we enable clients to standardise the process for account
openings and later
mandate changes to be able to create the basis for digital lifecycle management.
In 2019, we saw increased uptake of our
Virtual Cash Management
manage their cash position via a single master account, while keeping local accounts across Europe
for local operations without the burden of managing all those accounts individually.
Our digital portal,
InsideBusiness
, is a key enabler of our ‘digital first’
philosophy in Wholesale
Banking. Our main interactive channel for business clients, it offers a single point of access to a
growing range of corporate
banking services, online and through a mobile app. It provides all the
touch points that business clients need, through a single sign-on, giving them real-time insights
and a single source to manage all their financial transactions at any
time, and on any device. We
launched InsideBusiness in 2015 and it now has around 18,000 companies using it, with 57,000
active users, 6,000 of whom use the mobile app. Large corporates
make up 32 percent of users,
with the rest being mid-corporates. Our goal is to have all our corporate clients using it
– and we’re
gradually closing in on that target.
A recent improvement
was the launch of Corporate Administrator.
This allows clients to decide for
themselves which employees can do certain things in their account. Clients can appoint one or two
of their own corporate administrators who can grant
access rights. Already, around 40 percent
of
our corporate clients are using Corporate
Administrator, which is ahead of our targets.
Another enhancement is the addition of a breakthrough feature called
M-Token
. This addresses the
priority we place on security combined with convenience. It replaces the previous
card-and-reader
access, which became increasingly inconvenient for our customers. M-Token,
via the InsideBusiness
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app, makes access a lot easier.
Now, to gain access, clients can simply launch the mobile app and
scan a QR code on the login page.
New-look branches
While banking is becoming increasingly digital, our branches still have an important role to play in
providing more complex, personal advice to customers.
This is driving ING to change its branches, making them even more personal, while equipping them
to meet today’s digital needs. The idea is to make customers feel at home. Some branches have a
big table, where customers can settle down, have a cup of coffee or do some work. There are
separate booths to get personal advice. There’s also a kid’s corner and a fully equipped ‘digi-corner’
for online banking or learn-how activities.
In time, all of ING’s branches will adopt this new, home-like concept. Some have already opened in
Turkey, Poland,
Spain, Romania, Belgium, the Netherlands, Italy, Austria and Luxembourg.
SME & Mid-Corp
The SME & Mid-Corp segment aims to empower people to manage and accelerate their business.
No matter how big or small, businesses everywhere are increasingly digitalised and expect their
bank to be connected and integrated into their world. They want digital solutions that are smart,
personal and easy. To meet these needs and deliver an exceptional experience for
these
customers, we’re transforming our current
service model and building digital capabilities to offer
compelling end-to-end digital customer journeys supported by a common infrastructure.
This includes enabling merchants in Turkey to accept
payments more easily via their smartphones
rather than expensive point-of-sale terminals; an online banking platform that gives businesses a
single access point to all their financial
products and services; and instant loans for entrepreneurs
in Germany through our acquisition of fintech Lendico. In November 2019, new loan utilisation
increased from €1 million to €14.4 million.
In Poland, ING’s online banking platform for business customers was named by Global Finance
Magazine as the world’s best Integrated Corporate Banking site for 2019. It currently
provides
around 65,000 SME and mid-corporate clients with a single access point for all their banking
products and services and handles more than 70 million transfer orders a year.
In Romania, the
business platform processed its first one million payments
in 3Q 2019.
Also in Poland, ING is the first bank to launch its own payment gateway – imoje – that provides
merchants with a unique ‘buy now, pay within 21 days’ payment option. Co-created with Czech
fintech Twisto, 1,500 shops are now using the payment gateway and 580,000 transactions have
been carried out on imoje since April 2018.
Responsible finance
ING is committed to contributing to a low-carbon and financially
healthy society, both through our
own efforts and by helping our clients to be more sustainable. As a bank, we make the most impact
through our financing, via the loans we provide to clients. This is why we announced in September
last year that we would steer our €600 billion lending portfolio towards meeting the well-below
two-degree goal of the Paris Climate Agreement.
Our strategy to get there is called the
Terra
approach.
One year later, we published our first
progress report
on Terra,
providing a status update on the
alignment of our lending portfolio with the pathway to the goal. The report presented our climate
alignment performance, targets, challenges and next steps for five of the nine sectors
with the
biggest influence on greenhouse gas emissions: power generation, automotive, commercial real
estate, residential real estate and cement.
For the remaining four in scope, fossil
fuels, shipping, aviation and steel, we provided an update on
progress to date, initiatives and next steps. Quantitative results
for these four sectors are expected
to be disclosed in 2020.
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The report’s centrepiece, the Climate Alignment Dashboard (CAD), discloses quantitative results
on
the climate alignment of our lending portfolio. It shows the CO2e intensity per sector of our
portfolio compared to the market and the relevant below two
-degrees climate scenario. It also
displays the climate alignment target per sector and ING’s intended decarbonisation pathway per
sector to converge towards
the target.
While Terra
is supporting our responsible finance business
and will guide ING towards new
opportunities to support our clients, Terra will also help us to build a more climate-resilient portfolio
as it guides our strategies towards two
-degree alignment. Terra,
therefore, forms part of our
alignment with the Taskforce
for Climate-related Financial Disclosures (TCFD)
recommendations.
As each sector requires a custom approach, Terra
draws upon more than one methodology for
target-setting. Currently, we focus on the Paris
Alignment Capital Transition
Assessment (PACTA)
for corporate lending, and the Science Based Targets
Initiative’s Sectoral Decarbonisation Approach
(SBTi SDA).
PACTA
was co-developed with the 2˚ Investing Initiative (2˚ii), a global think-tank developing
climate metrics in financial
markets. It looks at the technology shift that’s needed
across certain
sectors to slow global warming and then measures this against the actual technology clients are
using – or plan on using in the future. The SBTi SDA sets out sector-specific decarbonisation
pathways designed so as to be in line with the science-based scenarios using intensity metrics.
Both methodologies use science-based scenarios developed by independent organisations like the
International Energy Agency and inform us what needs to shift, by how much and by when. This is
where financing comes in – and ING can have an impact.
The client data underlying the Terra
approach is obtained from global databases that track public
and private asset level and company data worldwide in the sectors in scope. This is easier for
clients, as they are not required
to provide any additional data themselves.
In December 2018, the global banks BBVA,
BNP Paribas, Société Générale, and Standard Chartered
joined ING in making the Katowice Commitment to align their loan portfolios with global climate
goals using a similar approach. We have
also personally and individually engaged with more than
40 banks interested in the work ING is doing and the positive results are
visible.
Since its launch at ING’s offices
in London in February 2019, more
than 17 systemically important
banks, including ING, have joined the 2˚ii PACTA
pilot for banks. ING was also among the first
signatories of the UNEP-FI Principles for Responsible Banking (PRB). In addition, ING co-chaired the
sub-group that developed the PRB Collective Commitment on Climate Action which took ING’s
Katowice Commitment initiative as its foundation.
The Terra
approach is complemented by the other ways we work to drive sustainable business. We
have committed to reducing our
thermal coal exposure
clients globally to transition to a low-carbon and self-reliant society. We
do this through various
financial instruments,
including green loans, sustainable improvement loans, bonds and advisory
services.
We were
well on track in 2019. Climate finance increased 13 percent to €18.7 billion, and lending to
industry ESG leaders grew slightly by 0.1 percent to €7.1 billion. Although social impact financing
decreased 3 percent to €750 million due to repayments, we remain
committed by lending to
projects that lead to, for example, basic infrastructure improvements,
community development or
essential services.
In addition to lending, we supported 62 mandates for clients through green, social and
sustainability bonds. ING increased its bonds business by 68 percent year-on-year to €5.6 billion,
outpacing the total euro denominated bond market growth.
ING is considered one of the pioneers in sustainable finance, having introduced the first
sustainability ESG-linked loan and a made-to-measure sustainability improvement loan. In 2019,
ING continued to shape this sector and open up new markets by developing sustainability
improvement concepts and financial products.
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In 2019, we introduced the first sustainability-linked Schuldschein, together
with machinery and
plant manufacturer Dürr.
ING jointly arranged and structured the transaction.
In the second quarter, we announced the world’s first
sustainability improvement derivative (SID)
provided to SBM Offshore, a global company that supplies floating production units to the offshore
energy industry. The SID is an interest rate
swap that hedges the interest rate risk of the
construction of one of SBM Offshore’s floating
production, storage and offloading facilities. It’s the
world’s first derivative with a price linked to the company’s sustainability performance, as well as
trading risk, capital require
ments and profit. The credit spread of the SID can increase or decrease
based on SBM Offshore’s ESG performance, as scored by Sustainalytics, an independent provider of
ESG research and ratings.
In October, we launched another product aimed at encouraging companies to get measured on
ESG goals. Our sustainability improvement capital call facility for Singapore-based Quadria Capital
Management is the first
in the world to link the interest rate of the private equity fund to the
sustainability performance of its portfolios. The USD 65 million three-year revolving capital call
facility is the first of
its kind in the global fund finance industry,
which is currently worth USD 400
billion.
We continued to deepen our market credentials with sustainable finance products that support our
corporate clients in achieving better sustainability performance.
We issued 61 sustainability improvement
loans and supported 62 green loans and social and
sustainability bonds in 2019. These include green finance
frameworks and green
loans for Italo,
Europe’s leading high-speed rail passenger operator,
and Itochu, a Japanese trading company, as
well as a sustainability-linked loan for Chinese-owned trading firm COFCO. ING also closed its first
sustainability improvement loan in the US, structured by ING’s sustainable finance Americas team.
Alongside the growing number of green loans and bonds, there were
a number of sustainability
firsts in 2019. ING issued
the largest green Schuldschein with Porsche for €1 billion, and the first
green bond framework in the telecom sector with UK telecoms company Vodafone.
The Porsche
transaction is also the first of its kind
by a car manufacturer, and the huge demand resulted in the
original order book volume having to be increased. ING acted as the green advisor on the project.
ING also issued its first-ever green covered bond. In October, ING Bank Hipoteczny in Poland
launched a PLN 400 million (USD 93 million) five-year
green covered
bond on the back of strong
investor interest.
ING was also the sole green structuring advisor for the Norwegian bank SR-Boligkreditt’s €500
million first green covered bond, helping to draft a green bond framework that stipulates
investments in green buildings, renewable
energy and clean transportation.
Almost half of our loan book consists of mortgages. Our ambition is to make our mortgage
portfolio
energy-positive by 2050. This means the homes in this portfolio will collectively produce more
energy than they consume.
To
this end, we are developing retail
products, tools and services to help homeowners make their
houses more sustainable. As houses generally account for about 20 percent
of CO
2
believe this could have a meaningful impact in the fight against climate change. At the same time
it will help our customers to lower their CO
2
footprint and energy bill. We have already
provided
green mortgages in Germany through development bank KfW.
Customers can use the new
products to finance solar panels,
for example, or insulate their homes. In the Netherlands and
Belgium, we also offer a consumer loan with a reduced interest rate to help customers pay for
green refurbishments.
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Besides these financial
solutions, we also help to raise awareness on the topic. Consumers in the
Netherlands, for example, can check the energy profile of their homes on our website, as well as
the options and financing
available to improve in this area. We
also provide Dutch homeowners
who want to invest in upgrading their energy label with a free
rating as we know how insights can
help people to take the first steps towards a more sustainable home.
ING offers sustainable investment (SI) services to its retail banking customers in the Netherlands,
Belgium, Luxembourg
and Germany. In 2019, our retail customers in these countries invested a
combined € 9.3 billion using ING’s SI services, up from € 6.3 billion in 2018. SI services represented
seven percent of ING’s total retail
banking customer investments in 2019. We have the ambition to
grow our SI services.
To
take sustainable finance further
in the business we have set up regional sustainable finance
teams in the Americas and Asia to support our clients in these regions.
Our efforts in this area are being recognised. In 2019, we were
ranked as ‘climate action leader’ by
the leading global environmental disclosure platform CDP for the fifth year.
Financial health
As a result of our financial empowerment activities, 25.9
million people (67 percent of our customer
base) felt financially empowered in 2019. In 2018, this was 25 million or 65 percent. Our ambition
for 2022 is for 32 million customers to feel financially
empowered by ING.
Information
We believe
that the right information at the right time can help people make better financial
decisions. For example:
◾
In the Netherlands the
’Kijk Vooruit’
planned and predicted transactions, allowing them to gain more control over
their finances.
◾
Also in the Netherlands, we launched the
'Digitaal vooruit'
available in pop-up stores at several
locations to answer any digital
questions people may have.
◾
In Austria and Romania, we offer customers access to
EmpowerCamp
– a five-week programme
to help customers understand their financial
profile and take steps to improve their finances.
◾
In Poland, our
YouTube
videos
views.
Innovation
Products and services are similar across banks. We
differentiate ourselves by going a step further
and innovating to create tools that help customers make better financial decisions. For example:
◾
In the Netherlands, we introduced our new
voice-activated ATMs
in branches of Albert Heijn and
at Schiphol Airport. The speech function
on the cash machines makes it easier for people who
have difficulty
reading or who are visually impaired to withdraw
money themselves.
◾
In Australia,
Everyday Roundup
makes saving money and paying off your home
loan easier and
more convenient for customers in Australia. ING customers saved AUD 81 million via 70 million
transactions by having ERU enabled on almost 300.000 accounts. The average saving was AUD
1.16 per transaction and
AUD
284.41 per account in 2019.
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◾
In Spain and France, our digital investment
advisors
My Money Coach
Coach Epargne
continued to offer customers precise and intelligent investment solutions.
◾
We also partnered with others to accelerate
innovation like
Minna
, which helps people keep track
of and manage their subscriptions.
Involvement
Our involvement in both the communities we operate in and in developing countries also
contributes to financial health.
For example:
◾
Globally, we continued our
Power for Youth
partnership with UNICEF
with financial, entrepreneurial, and civic leadership skills. Since 2015 the partnership
has directly
empowered more than 500,000 adolescents,
benefiting
more than 11 million indirectly.
◾
Also globally, hundreds of ING colleagues took part in
Global Money Week
, volunteering in
classrooms across the Netherlands, Spain, Czech Republic, Luxembourg,
Philippines, and Turkey
to teach young people about money management.
◾
In the Netherlands we support the
Youth Perspective Fund
, which helps young people aged 18 to
27 to manage their debts. The initiative supports around 150 youngsters a year.
◾
Also in the Netherlands we’re a founding partner in the debt-prevention programme
Nederlandse Schuldhulproute
, along with several other banks and the Dutch Banking
Association. This unique public-private collaboration aims to prevent and solve problematic
debt.
◾
Lastly in the Netherlands, we offered more
than 250,000 lessons on
digital skills for students
collaboration with organisations such as Bomberbot and DesignWeek@School.
◾
In Romania, we supported
Banometru
planning and counselling.
Competition
ING is a global financial
institution with a strong European base, offering retail and wholesale
banking services to customers around the globe. The purpose of ING is empowering people to stay
a step ahead in life and in business.
ING’s Retail business serves 38.8 million customers. In most of our Retail markets we offer a full
range of banking products and services, covering payments, savings, insurance, investments and
secured and unsecured lending. Our Wholesale Banking business offers clients advisory value
propositions such as specialised lending, tailored corporate finance and debt and equity-market
solutions. Our clients range from large companies to multinational corporations and financial
institutions.
There is substantial competition in the Netherlands and the other countries in which we do
business for the types of wholesale banking, retail banking, investment banking and other products
and services we provide.
Such competition is most pronounced in our more mature markets of the Netherlands, Belgium,
the rest of Western Europe
and Australia. In recent years, however,
competition in emerging
markets, such as Latin America, Asia and Central and Eastern
Europe, has also increased as large
financial services
companies from more developed countries have
sought to establish themselves
in markets which are perceived to offer higher growth potential, and as local institutions have
become more sophisticated and competitive and proceeded to form alliances, mergers
or strategic
relationships with our competitors. The Netherlands is our largest market. Our main competitors in
the banking sector in the Netherlands are ABN AMRO Bank and Rabobank.
Competition is coming from new market entrants (including non-bank and financial technology
competitors) with new operating models that are not burdened by potentially costly legacy
operations and that are subject to reduced regulation.
New entrants rely on new technologies,
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advanced data and analytic tools, lower cost to serve, reduced regulatory
burden and/or
faster
processes in order to challenge traditional banks.
The competitive landscape that banks face is increasingly being shaped by Big Tech
companies.
They offer customers a superior digital experience through an open platform approach that delivers
a range of their primary needs in a go-to digital ecosystem. This ability to provide for primary
needs, both with proprietary and third-party offerings that are easily accessed through mobile
devices, defines their success. Banking, by contrast, is a facilitator and not a primary need. The
choice for banks is to challenge their existing business models, to disrupt themselves, or risk being
disintermediated and relegated to a status of white label facilitators of others’ platforms.
The digital customer experience is now the key differentiator, and our main competitors are no
longer just other banks. They are also Big Tech
digital leaders like Apple, Google and Tencent who
are increasingly moving into financial services. The content, offerings and digital savvy of these
go-
to platforms cater to a wide range of customers’ primary needs with a personal, instant, relevant
and seamless experience.
To
compete in this new environment, banks have to think beyond banking and develop their own
platforms. Winners will be those with a superior digital experience, a strong trusted brand, and the
ability to leverage a large
customer base to attract partners to their platforms. The successful
platforms take the effort out of managing finances,
offering personalised, real-time advice and a
suite of products and services to cover all financial and other relevant needs.
Developments in technology have also accelerated the use of new business models. Examples are
new business models in retail payments, consumer and commercial lending (such as peer-to-peer
lending), foreign exchange and low-cost investment advisory services. A significant competitive
development is the emergence of disintermediation in the financial sector
resulting from new
banking, lending and payment solutions offered by rapidly evolving incumbents, challengers and
new entrants, especially with respect to payment services and products, and the introduction of
disruptive technology.
An important example of this is the newly enacted PSD2 European directive opening the payments
market to non-bank entrants. This is causing banks to face an unlevel playing field when competing
with new, mainly less regulated, market entrants in a lucrative
area that in the past was dominated
by banks and other financial
services providers.
Statements regarding ING’s competitive position reflect the assessment of ING’s management
about the general competitive landscape in which ING operates.
Regulation and Supervision
The banking and broker-dealer businesses of ING are subject to detailed and comprehensive
supervision in all of the jurisdictions in which ING conducts
business.
Regulatory agencies and supervisors have broad administrative power
and enforcement
capabilities 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 EU, the US 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 or persons subject to sanctions,
and bribery or other anti-corruption
measures.
As discussed under “Item 3. Key Information — Risk Factors”, as a large multinational financial
institution we are subject to reputational and other risks in connection with regulatory and
compliance matters
involving these countries.
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European
Regulatory framework
In November 2014 the European Central
Bank (ECB) assumed responsibility, conferred on it by the
Single Supervisory Mechanism (“SSM”),
for a significant part of the prudential
supervision of euro
area banking groups in the Eurozone,
including ING Group and ING Bank. Now that the ECB
assumed responsibility for the supervision of the banking groups in the Eurozone, it
has become
ING Group’s and ING Bank’s main supervisor.
The ECB is amongst others responsible for tasks such
as market access, compliance with capital and liquidity requirements and governance
arrangements. National regulators,
including the Dutch Central Bank for ING Group and ING Bank,
remain responsible for supervision of tasks that have not been transferred
to the ECB such as
financial crime and
payment supervision.
ING expects to benefit
from the harmonization of supervision resulting from the SSM but at the
same time does not expect such harmonization to be fully in place in the short to mid-term.
ING
expects that the Dutch Central bank will continue to play a significant role in the supervision of ING
Group and ING Bank.
Another significant
change in the regulatory environment is the setting up of the Single Resolution
Mechanism (“SRM”), which comprises the Single Resolution Board (“SRB”) and the national
resolution authorities and is fully responsible for the resolution of banks within the Eurozone
as of 1
January 2016. ING has been engaging already with the Dutch national resolution authorities and
the SRB for a few years with the aim to support in the draw up a resolution plan for ING and will
continue to collaborate with the resolution authorities. The rules underpinning the SRM could have
a significant impact
on business models and capital structure of financial
groups in order to
become resolvable but at this stage it is not fully
clear what the impact on ING will be.
As a third pillar to the Banking Union, the EU aims at further harmonizing regulations for Deposit
Guarantee Schemes (DGS).
Main elements are the creation of ex-ante funded DGS funds, financed
by risk-weighted contributions from banks.
As a next step, the EU is discussing a pan-European (or
pan-banking union) DGS (the European Deposit Insurance Scheme (EDIS)), (partly) replacing or
complementing national compensation schemes. The progress on the EDIS proposal is slower than
expected; this proposal as well as certain accompanying risk reduction measures are still being
discussed in the European Parliament and in the Council.
Dutch Regulatory
Framework
The Dutch regulatory system for financial supervision consists of prudential supervision
–
monitoring the soundness of financial
institutions and the financial
sector, and conduct-of-business
supervision – regulating institutions’ conduct in the markets. As far as prudential supervision has
not been transferred to the ECB, it is exercised
by the Dutch Central Bank (De Nederlandsche Bank
or “DNB”), while conduct-of-business supervision is performed by the Dutch
Authority for the
Financial Markets (Autoriteit Financiële Markten or “AFM”). DNB
is in the lead with regard to
macroprudential
supervision.
Global Regulatory Environment
There is a variety of proposals for laws and regulations
that could impact ING globally, in particular
those made by the Financial Stability Board and the Basel Committee on Banking Supervision at the
transnational level and an expanding series of supranational directives and national legislation in
the European Union (see “Item 3. Key
Information — Risk Factors — 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). The aggregated impact and possible interaction of all of these proposals are hard to
determine, and it may be difficult
to reconcile them where they are
not aligned. The financial
industry has also taken initiatives by means of guidelines and self-regulatory initiatives.
Dodd-Frank
Act and other US Regulations
ING Bank has a limited direct presence in the United States through the ING Bank Representative
Offices
in New York and Dallas, Texas.
Although the offices’
activities are strictly limited to
essentially that of a marketing agent of bank products and services and a facilitator (i.e. the offices
may not take deposits or execute any transactions), the offices
are subject to the regulation of the
State of New York Department of Financial Services and the Texas
Department of Banking, as well
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as the Federal Reserve.
ING Bank also has a subsidiary in the United States, ING Financial Holdings
Corporation, which through several
operating subsidiaries (one of which is registered with the U.S.
Commodity Futures
Trading
Commission as a swap dealer and another of which is registered with
the U.S. Securities and Exchange Commission as a securities broker-dealer) offers various financial
products, including lending, and financial
markets products. These entities do not accept deposits in
the United States on their own behalf or on behalf of ING Bank N.V.
The U.S. Dodd-Frank
Wall Street Reform
and Consumer Protection Act (“Dodd-Frank Act”), which
became law on 21 July 2010, represented a significant overhaul in the regulation of U.S. financial
institutions and markets. The primary impact on ING is through the establishment of a regulatory
regime for the off-exchange derivatives market, pursuant to Title VII of the Dodd-Frank Act.
Among other things, the Dodd-Frank Act and regulations enacted thereunder required
swap
dealers to register with the Commodity Futures
Trading
Commission (the “CFTC”, the primary swaps
regulator in the U.S.) as ‘swap dealers’ and be subject to CFTC regulation and oversight.
The ING
subsidiary, ING Capital Markets LLC, is registered
as a swap dealer.
As a registered entity, it is
subject to business conduct, record-keeping and reporting requirements, as well as margin
requirements
and, once regulations are finalized, capital requirements
. In addition to the
obligations imposed on registrants, such as swap dealers, reporting, clearing, and on-facility
trading requirements
have been imposed for much of the off-exchange derivatives market. It is
possible that registration, execution, clearing, margin and compliance requirements
will increase
the costs of and restrict participation in the derivative markets. These rules (as well as further
regulations, some of which are not yet final) could therefore restrict trading
activity, reducing
trading opportunities and market liquidity, potentially increasing the cost of hedging transactions
and the volatility of the relevant markets. This could adversely affect the business of ING in these
markets.
The Dodd-Frank Act also impacts U.S. banks and non-U.S. banks with branches or agencies in the
United States, primarily through the Volcker Rule
and the enhanced prudential standards of Section
165 of the Dodd-Frank Act.
Because ING Bank does not have a U.S. banking presence, these
provisions do not currently apply to ING.
The Dodd-Frank Act also created
a new agency, the Financial Stability Oversight Council (“FSOC”),
an inter-agency body that is responsible for monitoring the activities of the U.S. financial
system,
designating systemically significant
financial
services firms and
recommending a framework for
substantially increased regulation of such firms, including systemically important non-bank
financial companies
that could consist of securities firms, insurance companies and other providers
of financial services,
including non-U.S. companies. ING has not been designated a systemically
significant non-bank financial
company by FSOC and such a designation currently is unlikely.
Although U.S. legislative and regulatory bodies have taken initial steps over
the past year to tailor
the regulatory regime created
under Dodd-Frank, Dodd-Frank
continues to impose significant
requirements on us, some of which may have a material impact on our operations and results, as
discussed further under “Item 3. Key Information — Risk Factors—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”.
Basel III and European
Union Standards as currently
applied by ING
Bank
DNB, our home country supervisor until the ECB took over that position in November 2014, has
given ING permission to use the most sophisticated approaches for solvency reporting under the
Financial Supervision Act, the Dutch legislation reflecting
the Basel II and Basel III Frameworks. DNB
has shared information with host regulators of relevant
jurisdictions to come to a joint decision. In
all jurisdictions where the bank operates through a separate
legal entity that is a credit institution,
ING
must meet local implementation of Basel requirements as well. ING uses the Advanced IRB
Approach for credit risk, the Internal Model Approach for its trading
book exposures and the
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Advanced Measurement Approach for operational
risk. A small number of portfolios are reported
under the Standardized Approach.
In December 2010, the Basel Committee on Banking Supervision announced higher global
minimum capital standards for banks, and has introduced a new global liquidity standard and a
new leverage ratio.
The Basel Committee's package of reforms, collectively referred
to as the “Basel
III” rules, has, among other requirements, increased
the amount of common equity required to be
held by subject banking institutions, has prescribed
the amount of liquid assets and the long term
funding a subject banking institution must hold at any given moment, and
has limited leverage.
Banks are required
to hold a “capital conservation buffer” to withstand future periods of stress.
Basel III has also introduced a “countercyclica
l
buffer” as an extension of the capital conservation
buffer, which permits national regulators to require banks to hold more capital during periods of
high credit growth (to strengthen
capital reserves and moderate the
debt markets). Further, Basel
III has strengthened the definition of capital that will have the effect
of gradually disqualifying
many hybrid securities during the years 2013-2022, including the hybrids that
were issued by the
Group, from inclusion in regulatory
capital, as well as the higher capital requirements associated
with certain business conditions (for example, for credit value adjustments (“CVAs”)
and illiquid
collateral) as part of a number of reforms to the Basel II framework.
In addition, the Basel
Committee and Financial Stability Board (“FSB”) published measures
that have
had the effect of
requiring higher loss absorbency capacity, liquidity surcharges, exposure limits and special
resolution regimes for, and instituting more
intensive and effective supervision of, “systemically
important financial
institutions” (“SIFIs”), in addition to the Basel III requirements otherwise
applicable to most financial
institutions. One such measure, published by the FSB in November
2015, is the Final Total
-Loss Absorbing Capacity (‘TLAC’) standard
for G-SIFIs, which aims for G-SIFIs
to have sufficient loss-absorbing
and recapitalisation capacity available in resolution. ING Bank has
been designated by the Basel Committee and FSB as a so-called “Global Systemically Important
Bank” (“G-SIB”), since 2011, and by DNB and the Dutch Ministry of Finance as a “domestic SIB” (“D-
SIB”) since 2011.
The Basel III proposals and their potential impact are monitored via semi-annual monitoring
exercises in which ING Group participates. As a result of such monitoring exercises
and ongoing
discussions within the regulatory environment, revisions have
been made to the original Basel III
proposals as was the case with the revised Liquidity Coverage
Ratio in January 2013 and the
revised Net Stable Funding Ratio
and Leverage
Ratio in January 2014. In December 2017, revisions
to Basel III were formally announced by the Basel Committee. These revisions
to Basel III establish
new prudential rules for banks, including a revision to the standardised approach
to credit risk, the
introduction of a capital floor based on standardised approaches, the use of internal models,
limitation of options for modelling operating risks, and new rules for the establishment of risk-
weighted items and unused credit lines at the banks. Such revisions have a long implementation
phase and are yet to be fully transposed into EU regulation.
The revisions are commonly referred
to
as "Basel III Reform" or "Basel IV.
For European
banks the Basel III requirements have been implemented through the Capital
Requirement Regulation (CRR) and the Capital
Requirement Directive (“CRD IV”). The Dutch CRD IV
Implementation Act has led to significant
changes in the Dutch prudential law provisions, most
notably with regard to higher capital and liquidity requirements
for all banks. The CRD IV regime
entered into effect in August 2014 in the Netherlands, but not all requirements are to be
implemented all at once. Having started in 2014, the requirements have been gradually tightened,
mostly before 2019, until the Basel III migration process is completed. While the full impact of the
Basel III rules, and any additional requirements for G-SIBs if and as applicable to the Group, will
depend on how they are implemented by national regulators, including the extent to which such
regulators and supervisors can set more stringent limits and additional capital requirements or
surcharges, as well as on the economic and financial environment at the time of implementation
and beyond, we expect these rules to have a material impact on ING’s operations and financial
condition and may require the Group
to seek additional capital. DNB requires the largest Dutch
banks, including ING Group, to hold a 3% Systemic Risk Buffer during 2016-2019 in addition to the
capital conservation buffer and the countercyclical buffer described above, but this buffer then
includes both the G-SIB and D-SIB buffers mentioned above.
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CRD IV has not only resulted in new quantitative requirements
but has also led to the setting of
new standards and evolving regulatory
and supervisory expectations in the area of governance,
including with regard to topics like conduct and culture, strategy
and business models, outsourcing
and reporting accuracy.
The European Banking Association (EBA) in particular has published new
guidance such as the revised Guidelines on Internal Governance (2017), the Guidelines on the
assessment of the suitability of members of the management body and key function
holders
(2017) and the revised Guidelines on the governance framework
with regard to outsourcing
arrangements (2019). These guidelines enhance the roles and responsibilities of the management
body as well as those of the risk management function and put importance on
the establishment
of a sound risk culture and code of conduct, and managing conflicts
of interest. ING’s lead regulator
the ECB increasingly puts emphasis on these new standards in its day to day supervision and
incorporates the standards in the SREP methodology. Continuing initiatives by multiple regulators
and supervisors on corporate governance may significantly impact how ING Bank designs and
structures its governance.
Following the adoption of the CRR and CRD IV, regulators increasingly came to focus
on the
required capital calculations across
banks. Since the start of the financial
crisis there has been
much debate on the risk-weighted capitalisation of banks, and specifically
on whether internal
models are appropriate for such purposes. These developments have suggested that stricter rules
may be applied by a later framework. The Basel Committee released seve
ral consultative papers,
containing proposals to change the methodologies for the calculation of capital requirements and
is expected to issue further standards in this respect. In these proposals, the Basel Committee
suggests methods to calculate RWA using
more standardised or simpler methods in order to
achieve greater comparability,
transparency and consistency.
On 27 June 2019, a series of measures referred to as the Banking Reform
Package (including
certain amendments to CRR and CRDIV commonly referred
to as ‘CRR II’ and CRR V’) came into
force, subject to various transitional and staged timetables. The adoption of the Banking Reform
Package concluded a process that began in November 2016 and marks an important step toward
the completion of the European
post-crisis regulatory reforms, drawing
on a number of
international standards agreed by the Basel Committee, the Financial Stability Board
and the G20.
The Banking Reform Package updates the framework of harmonized rules established following the
financial crisis and
introduces changes to the CRR, CRDIV, the Bank Recovery and Resolution
Directive (BRRD) and the Single Resolution Mechanism
Regulation (SRMR). The Banking Reform
Package covers multiple areas, including the Pillar 2 framework,
the leverage ratio,
mandatory
restrictions on distributions, permission for reducing own funds and eligible liabilities,
macroprudential tools, a new category of ‘non-preferred’ senior debt, the minimum requirement
for own funds and eligible liabilities (MREL) and the integration of the TLAC standard into EU
legislation.
Whilst the Banking Reform Package was being developed, the ECB introduced the Targeted
Review
of Internal Models (TRIM) in June 2017 to assess reliability and comparability between banks’
models for calculating each bank’s risk-weighted assets (‘RWA’) used for determining certain of
such bank’s capital requirements. The operating consequences of the TRIM exercise
have been
significant. The TRIM is expected
to finalise
in 2020, and could impact ING through more stringent
regulation on internal models. There is also heightened supervisory attention for the credit quality
of loans to corporates and/or households. These exercises
could impact the RWA we recognise
for
certain assets.
Regulatory Developments
Basel IV
As of 1 January 2022, the first
stage of Basel IV (revised Internal Rating-Based Approach) will
probably come into effect conditional to the finalization
of the legislative process in the EU. Based
on the current estimates, without management actions this is expected to potentially increase
RWA by roughly
15-18% on a fully loaded basis. While any BIV impact will not come in before 2022,
other banking regulations and model reviews are
expected to bring forward a significant part of
this
impact before BIV implementation date.
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Requirement and guidance
for 2020 Pillar 2 requirements
One specific element
of Basel III is the possible restriction on distributable items. This limits the
ability of the bank to pay dividends, hybrid coupons and/or management remuneration if its capital
drops below the sum of its Pillar 1, Pillar 2 and combined buffer requirements, often referred to as
the Maximum Distributable Amount (MDA) trigger.
The Pillar 2 requirement in the supervisory
review and evaluation process
(SREP) 2019 decision is split into:
◾
Pillar 2 requirement (P2R), which is binding and therefore breaches
have direct legal
consequences.
◾
Pillar 2 guidance (P2G), which is not legally binding and therefore a breach does not
automatically trigger regulatory action.
By providing guidelines regarding
the SREP, the European Banking Authority (EBA) gives further
direction for the internal capital adequacy assessment process (ICAAP) and enhancement of the
capital management framework.
Bank recovery
and resolution directive
Since its adoption by the European Parliament in 2014, the Bank recovery
and resolution directive
(BRRD) has become effective in all EU countries after
transposition into national law, including in
the Netherlands. The BRRD aims to safeguard financial stability and
minimise the use of public
funds in case banks face financial distress or fail to comply with the BRRD. Banks across the EU
need to have recovery
plans in place and need to cooperate with resolution authorities to
determine, and make feasible, the preferred resolution strategy.
The banking reform which came
into force on 27 June 2019 includes changes to the minimum requirement for own funds and
eligible liabilities (MREL) to ensure an effective bail in process. It also includes new competences for
resolution authorities and requires G-SIBs to have more
loss-absorbing and recapitalisation
capacity.
ING has had a recovery plan in place since 2012. The plan includes information on crisis
governance, recovery
indicators, recovery options, and operational stability and communication
measures. The plan enhances the bank’s readiness and decisiveness in case of a financial crisis. The
plan is updated annually to make sure it stays fit for purpose. The completeness, quality and
credibility of the updated plan is assessed each year by ING’s regulators.
The Single Resolution Board (SRB) confirmed to ING in 2017 that a single-point-of-entry
(SPE)
strategy is ING’s preferred
resolution strategy, with ING Groep N.V.
as the resolution entity.
In 2018, ING Group received a formal notification from De Nederlandsche Bank (DNB) of its MREL.
The MREL requirement has been established to ensure that banks in the European
Union have
sufficient
own funds and eligible liabilities to absorb losses in the case of potential bank failure. The
MREL requirement is set for ING Group at a consolidated level,
as determined by the Single
Resolution Board (SRB). This MREL requirement has been set at 10.89% of total liabilities and own
funds.
ING has been replacing, and will continue to replace, maturing ING Bank N.V.
debt with ING Groep
N.V.
instruments. In order to build up our MREL capacity, ING Groep N.V.
issued multiple
transactions. These transactions will not only allow us to support business growth, but will also help
to meet future MREL and TLAC requirements
with ING Groep N.V.
instruments only.
CRR II implements the Financial Stability Board’s total loss absorbing (TLAC) requirement for Global
Systemically Important Institutions (G-SII), which is the EU equivalent of a G-SIB. The transitional
requirement—the higher of 16 percent of the
resolution group’s Risk weighted assets (RWA)
or six
percent of the leverage
ratio exposure measure—applies immediately. The higher requirement
—18
and 6.75 percent, respectively—comes into effect as of January 1, 2022. As a G-SII ING is expected
to meet the TLAC requirement alongside the other minimum regulatory requirements
set out in EU
regulation.
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Stress testing
Stress testing is an integral component of our risk and capital management framework.
It allows us
to (i) assess potential vulnerabilities in our businesses, business model, and/or portfolios; (ii)
understand the sensitivities of the core assumptions in our strategic and capital plans; and (iii)
improve decision making throug
h
balancing risk and return.
In addition to running internal stress test scenarios to reflect the outcomes of the annual risk
assessment, ING also participates in regulatory stress test exercises. ING participated in the 2018
EU-wide stress test conducted by the EBA in cooperation with the European Central
Bank (ECB), the
Dutch central bank (DNB), the European Commission
and the European Systemic Risk Board (ESRB).
The adverse stress test scenario was developed by the ECB and covers
a three-year time horizon
(2018-2020). The stress test was carried out applying a static balance sheet assumption as of
December 2017, and therefore does not take into account current
or future business strategies and
management actions. The results also reflect the impact
of IFRS 9 for determining loan loss
provisions in adverse circumstances.
The results of the EBA stress test reaffirmed the resilience of our business model and the strength
of ING’s capital base. Our commitment to maintain a robust, fully-loaded Group common equity
Tier 1 (CET1) ratio in excess of prevailing
requirements remain.
Under the hypothetical baseline
scenario and EBA’s methodological instructions, ING Group would have a fully loaded CET1 of
13.99% in 2020. Under the hypothetical adverse scenario and EBA’s methodological instructions,
ING Group would have a fully loaded CET1 ratio
of 10.70% in 2020 without management actions.
EBA will launch a new stress test exercise in January 2020 and is expected to publish the results by
July 2020.
Deposit Schemes
In the Netherlands and other jurisdictions, deposit guarantee schemes and similar funds
(‘Compensation Schemes’) have been implemented from which compensation may become
payable to customers of financial
services firms in the event the financial
service firm is unable
to
pay, or unlikely to pay, claims against it. In many jurisdictions
in which we operate, these
Compensation Schemes are funded, directly or indirectly, by financial services firms
which operate
and/or are
licensed in the relevant jurisdiction. ING Bank is a participant in the Dutch Deposit
Guarantee Scheme (‘DGS’), which guarantees an amount of EUR 100,000 per person per bank
(regardless of the number of accounts held). On the basis of the EU Directive on deposit guarantee
schemes, ING pays quarterly risk-weighted contributions into a DGS-fund.
The DGS-fund is to grow
to a target size of 0.8% of all deposits guaranteed under the DGS, which is expected to be reached
in July 2024. In case of failure of a Dutch bank, depositor compensation is paid from the DGS-fund.
If the available financial means
of the fund are insufficient,
Dutch banks, including ING, may be
required pay to extraordinary
ex-post contributions not exceeding 0.5% of their covered deposits
per calendar year.
In exceptional circumstances and with the consent of the competent authority,
higher contributions may be required. However,
extraordinary ex-post contributions may be
temporarily deferred if, and for so long as, they would
jeopardise the solvency or liquidity of a bank.
Since 2015, the EU has been discussing the introduction of a pan-European deposit guarantee
scheme (‘EDIS’), (partly) replacing or complementing national compensation schemes in two or
three phases. Proposals contain elements of (re)insurance,
mutual lending and mutualisation of
funds. The new model is intended to be ‘overall cost-neutral’. Discussions have continued in 2019,
but it remains uncertain when EDIS will be introduced.
Payment Services Directive
2 (PSD2)
PSD2 entered into force in January 2018 and responds
to technical change and a variety of
developments in the payments domain. It fosters innovation and competition by promoting non-
discriminatory access to payment systems and accounts, including the newly introduced account
information services and payment initiation services.
Customers benefit
from greater transparency
of costs and charges, PSD2's extended geographical reach and being applicable to transactions in
any currency, a reduction of the maximum liability for unauthorized transactions and a backstop
date for complaint resolution. Finally, to combat cybercrime and online fraud, PSD2 continues the
trend towards
enhancing the security around the making of payments, e.g. by the introduction of
strong customer authentication. It consists of two factor authentication, to be performed every
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time a payer accesses its payment account online or initiates electronic remote payment
transactions. The Regulatory Technical
Standards for strong customer authentication and common
and secure communication provide further requirements
to implement the strict security
requirements for payment service providers
in the EU.
Benchmark Regulation
The London Interbank Offered Rate (‘LIBOR’), the Euro
OverNight Index Average
(‘EONIA’), the Euro
Interbank Offered Rate (‘EURIBOR’) and other interest rates or other types of rates
and indices
which are deemed to be ‘benchmarks’ are the subject of ongoing national and international
regulatory reform. On 8 June 2016, the EU adopted a Regulation (the ‘Benchmarks Regulation’) on
indices (such as LIBOR and EURIBOR) used in the EU as benchmarks in financial
contracts. The
Benchmarks Regulation became effective as of 1 January 2018. It provides that administrators of
benchmarks used in the EU generally must be authorised by or registered with regulators no later
than 1 January 2020, and that they must comply with a code of conduct designed primarily
to
ensure reliability of input data, governing issues such as conflicts of interest, internal controls and
benchmark methodologies. Furthermore, on 27 July 2017 the FCA announced that it will no longer
persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021.
The announcement indicates that the continuation of the LIBOR on the current basis cannot and
will not be guaranteed after 2021. In addition, as of October 2019, the
new euro risk-free rate
euro
short-term rate (€STR) is being published and the EONIA benchmark was reformed, making it
dependant to the €STR benchmark. The reformed EONIA benchmark will cease to exist by 1
January 2022 and therefore the European
Money Markets Institute (EONIA’s administrator) has
indicated that EONIA cannot be used in any contracts that will be outstanding as of 1 January
2022. Public authorities have initiated industry working groups in various jurisdictions to search for
and recommend alternative risk-free rates
that could serve alternatives if current benchmarks like
LIBOR and EONIA cease to exist or materially change. The work of these working groups is still
ongoing, though certain of such organizations have advanced proposals for benchmark
replacements. For example, the
US Federal Reserve’s
Alternative Reference
Rates Committee
(commonly referred to as ‘ARRC’) has recommended
adoption of the Secured Overnight Financing
Rate (commonly referred
to as ‘SOFR’) as an alternative to US dollar LIBOR.
Financial Transaction
Taxes
In February 2013, the EC adopted a proposal setting out the details of a financial transaction tax
(‘FTT’) under the enhanced cooperation procedure, to be levied
on transactions in financial
instruments by financial
institutions if at least one of the parties to the transaction is established
in
the financial transaction tax zone (‘FTT-Zone’) or if the instrument which is the subject of the
transaction is issued within the territory of a Member State in the FFT-Zone. 10 Member States have
indicated they wish to participate in the FTT (Austria, Belgium, France, Germany, Greece, Italy,
Portugal, Slovakia, Slovenia and Spain). The initial proposal contemplated that the FTT would enter
into effect on 1 January 2014, which
would have then required
us to pay a tax on transactions in
financial instruments
with parties (including Group affiliates)
located in such FTT-zone.
However,
the FTT remains subject to negotiation between the participating Member States and currently it is
uncertain whether and in what form and by which Member States the FTT will be adopted. The
implementation date of any FTT will thus depend on the future approval by participating Member
States in the Council, consultation of other EU institutions, and the subsequent transposition into
local law.
For additional information regarding
regulatory developments, including with respect to the 5
th
AML Directive, FATCA,
CRS, DAC6 and MIFID II, see also this Form 20F 2019, under “Additional
Information – ING Group Risk Management-
Compliance Risk- Regulatory Developments”.
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Know your customer (KYC)
ING is committed to the preservation of its reputation and integrity through compliance with
applicable laws, regulations and ethical standards in each of the markets in which it operates. All
employees are expected to adhere to these laws, regulations and ethical standards, and
management is responsible for ensuring such compliance. Compliance is therefore
an essential
ingredient of good corporate governance.
As gatekeepers of the financial
system we have
obligations to safeguard trust in that system and prevent misuse. However,
money laundering is
not contained within a single country or jurisdiction, it is a global challenge that impacts
the entire
financial system. ING,
like all other participants in the financial
services industry, has an important
role to play in helping to combat financial economic crime. We contribute knowledge and capacity
to various public-private partnerships fighting
financial
crime. We believe
we can be even more
effective in safeguarding the financial
system if we join forces and work with other banks and with
national and European authorities and law enforcement to identify and manage the financial
economic crime risks better, taking all relevant laws and regulations into account. Improving
the
way we manage compliance risk, especially when it comes to preventing criminals from misusing
the financial system,
is a key priority for ING.
KYC policy framework
The know your customer (KYC) policy and related control standards
(‘KYC policy framework’) sets
the minimum requirements and control objectives for all ING entities to guard against involvement
in financial crime activity.
The KYC policy framework reflects relevant national and international
laws, regulations and industry standards related to financial economic crime (money laundering,
terrorist financing), export trade controls, proliferation financing, sanctions (economic, financial
and
trade), countries designated by ING as ultra high risk countries (UHRC), CTI, FATCA,
CRS, and (parts
of)
ESR. The KYC policy framework is mandatory and applies to all ING entities, majority-owned ING
business, businesses under management control, staff departments, product lines and
to all
customer engagements and transactions. The KYC Policy Framework
reflects relevant national and
international laws, regulations and industry standards related to business partners and overarching
requirements with regards
to record retention,
training and awareness. The management of ING
entities also includes local procedures aimed at enabling them to comply with local laws and
regulations and the KYC Policy
Framework.
Where local laws and regulations are
more stringent,
these more stringent local laws and regulations are
applied.
As a result of frequent evaluation
of the businesses from economic, strategic and risk perspective
ING continues to believe that for business reasons doing business involving certain specified
countries should be discontinued. In that respect, ING has a policy not to enter into new
relationships with clients from these countries and processes remain
in place to discontinue
existing relationships involving these countries. At present these countries are
Cuba, Iran, North
Korea, Sudan and Syria.
In addition to addressing financial economic crime-related requirements, the KYC policy framework
also reflects KYC-related requirements of the FATCA/CRS
policy, as well as certain elements of the
Environmental Social Risk policy.
KYC enhancement programme
In 2017, ING began implementation of its KYC enhancement programme across all customer
segments and in all ING business units. The KYC enhancement programme consists of, among
other things:
◾
Enhancing selected customer due diligence files
to improve customer documentation, customer
data and identity verification;
◾
Working on structural solutions to become sustainably better in the execution of our KYC policies,
tooling, monitoring, governance and knowledge and behaviour; and
◾
Assessing selected past transactions and follows the applicable reporting process should any
unusual transactions be identified.
In September 2018, ING announced that it had reached a settlement agreement with the Dutch
Public Prosecutor related to an investigation that found serious shortcomings in the execution of
customer due diligence and transaction monitoring requirements related to fighting financial
economic crime, and announced steps to further enhance its management of compliance risks and
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embed stronger awareness across
the whole organisation as part of the KYC enhancement
programme.
In 2019, we continued the implementation of the KYC enhancement programme, and had more
than 4,000 FTEs working on KYC-related activities globally. In March 2019, ING in Italy took steps to
improve its KYC
processes and compliance risks in line with the global KYC enhancement
programme after the Italian central bank identified shortcomings in anti-money laundering
processes. This was based on an inspection conducted from October 2018 to January 2019. In
consultation with the Banca d’Italia, ING agreed to refrain
from taking on new customers in Italy
while further discussions on the enhancement plans took place. ING continued to fully serve
existing clients in Italy while working to address the shortcomings and resolve the issues identified.
Please refer to Note 46 ‘Legal proceedings’
to the consolidated financial
statements for more
information.
In 2019, as part of our commitment to enhance the way we manage compliance risks and embed
stronger awareness across
the whole organisation, we also took the following steps across our five
KYC pillars:
◾
Policies and risk
: This pillar focuses on the development and roll out of a global KYC policy, a
global KYC risk appetite statements and KYC risk assessments on customers, capability structure
and maturity assessments.
-
In 2019, we updated the new KYC policy, which integrated all existing policies related to anti-
money laundering, financial
economic crime and customer due diligence. It came into effect in
July. (See section ‘KYC policy framework’ above).
-
The global KYC policy may be stricter than local requirements, in which case the global risk
appetite statement is used as the starting point to execute a uniform risk assessment and to
determine the local KYC-related risk appetite.
-
As part of our due diligence process we updated the environmental and social risk (ESR)
framework, which helps us make transparent choices about who and what we finance. All
customers undergo an initial ESR check as part of the onboarding process. (See ‘Environmental and
social risk framework’ in the credit risk chapter for more
information)
-
We implemented a systematic integrated risk approach
(SIRA) in all business lines globally.
Driven by data, the SIRA provides guidance on KYC integrity risks and helps determine which
customers to accept/continue and the type and frequency of monitoring. It takes into account
elements such as where the customer is located and the type of product and sector they are active
in. The KYC integrity risks are reviewed
each year.
◾
Tooling
: This pillar aims to improve processes
and tooling around customer due diligence,
screening and monitoring. This entails rolling out a bank-wide KYC digital service and fulfilling
client acceptance and maintenance life cycle on one global digital platform. In addition, all
required screening
components (name screening, pre-transaction screening, adverse media
screening) are incorporated
into the client acceptance due diligence process. Once a customer is
onboarded, ongoing screening and monitoring of transactions can then be activated. Steps taken
in 2019 included:
-
Developed new customer due diligence case management modules for Private Banking
clients in Luxembourg, and mid-corporates
in Poland, which is to be rolled out in other countries
with similar client segments.
-
The target adverse media screening tool was rolled
out in most locations
-
Innovating to automate and improve KYC
processes. In 2019, we developed a ‘smurfing’ tool,
which uses artificial
intelligence to detect instances of smurfing
when large fraudulent transactions
are broken up into smaller transactions that will not be flagged by conventional monitoring
systems. And we are developing a virtual alerts handler that uses artificial
intelligence to reduce
the number of false positives, freeing up KYC staff to concentrate on those alerts that do require
attention.
-
In September 2019, an anomaly detection tool went live to monitor the payment flow
of ING’s
correspondent banking clients. Developed by ING, the tool uses advanced analytics to detect
changes in behaviour that could indicate money laundering or other financial
economic crime. The
approach for innovations is per country and business line and based on success will be scaled up
and rolled out in other locations.
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◾
Monitoring and screening
: This pillar entails translating risk assessment outcomes into
scenarios
and alert definitions
that can be applied in transaction monitoring. This includes the design and
definitions
of the applicable financial
economic crime and client activity monitoring scenarios
tailored to the entity yet based on a global set, building alert definitions
(including data feeds)
and validating and testing the approach from risks to alerts.
-
In 2019, we introduced the new standard transaction monitoring tooling in the first countries.
This includes risk-based scenarios, with follow-up for handling alerts and reporting suspicious
activity.
-
In May 2019, the first
version of the global transaction monitoring (TM) control guidance
came into effect. It outlines the adoption
of a uniform TM methodology framework to mitigate
financial economic
crime risks.
-
In September 2019, ING partnered with four other Dutch banks to explore options to jointly
monitor payment transactions. Transaction Monitoring Netherlands (TMNL) is part of a broader
cooperation with the private sector, government agencies, regulators and law enforcement
to
harmonise efforts to fight
financial
crime and strengthen the resilience of the financial system as a
whole, both on a national and European level. We
also work with the Dutch central bank and are a
member of the public-private partnership council of the Dutch Financial Expertise Centre (FEC-RAAD
PPS).
-
The increased focus on KYC and our efforts to streamline our operations led to an increased
number of accounts being closed. This includes inactive accounts and accounts of customers who
do not respond adequately to our requests for information. We
are also re-evaluating
certain client
and business relationships.
◾
Governance
: Under this pillar we are setting up a global KYC governance to ensure
decision
making on standards, operations, customer acceptance and continuous improvements.
This
started with the appointment of a global head of KYC at the end of 2018 and a global Centre of
Expertise, as well as a Delivery Tribe, who together with the business lines and the second line of
defence (Risk and Compliance functions) are responsible for implementing KYC across
the
organisation.
-
In 2019, local KYC Committees were
established in the countries/regions and business lines to
manage and steer all KYC-related activities. These committees are overseen by the global KYC
Committee, which drives improve
ments and ensures alignment between KYC-related projects
and
activities. It also monitors all KYC-related costs, helps prioritise activities and steers decisions on
KYC-related issues and developments.
-
Client Integrity Risk Committees (CIRCs) were set up in the retail
business lines and Wholesale
Banking to steer decisions around client acceptance and exits, based on compliance criteria and
risk appetite. The committee members represent both the first and second lines of defence to
ensure proper decision-making is adhered to.
◾
Knowledge and behaviour
: This pillar focuses on increasing knowledge about KYC, providing
training and carrying out behavioural risk assessments to detect high-risk behaviours,
intervening where necessary.
-
Internal communication in 2019 reiterated the importance of non-financial risk and
compliance.
-
We set up a global KYC Academy to coordinate
a global learning curriculum and provide
expert training for specialist KYC staff and new joiners as well as awareness training for all ING
employees. A new KYC awareness module for
all staff is due to be rolled out in 1Q 2020.
-
The first behavioural risk assessments in KYC were carried out in the Netherlands, the
Philippines and the US by ING’s team of behavioural experts. The outcomes were discussed by
senior management at ING’s leadership days in March, as well as with the management teams of
the countries involved and in Wholesale Banking with the intention of changing behaviours to
enhance KYC, starting from the top.
Following on from that, workstreams
were set up with senior managers and a number of
interventions were initiated with the aim of changing high-risk behavioural patterns. Another
behavioural risk assessment was conducted at ING in Belgium in the fourth quarter of 2019.
We
will start a dialogue in
2020 to dive into the outcomes and root causes of the behavioural patterns
observed.
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Regulatory developments
KYC
Compliance with applicable laws and regulations is resource
-intensive. Banks continue to be faced
with new and increasingly onerous regulatory
requirements. Generally, we
expect the scope and
extent of regulations in the jurisdictions in which we operate to continue to increase.
Regulation is becoming more extensive and complex. An example is the implementation of DAC6
which like FATCA
and CRS requires financial institutions to report detailed client-related information
to the competent authorities. Customer due diligence (CDD), (sanctions) screening and transaction
monitoring impose requirements on financial institutions to maintain appropriate policies,
procedures and controls
to detect, prevent and report to the competent authorities on e.g. money
laundering and terrorist financing.
The increasing regulatory scrutiny drives the need to continuous change in the various processes,
procedures and IT systems. In some situations the applicable laws and regulations, at local and/or
at global level, seem to be conflicting with each
other, which imposes a significant
challenge on
banks as part of the implementation of requirements. In addition, the timeline for implementation
of those new/changed requirements
is sometimes very short, which is challenging in general, yet
especially in IT development. Obviously ING will continuously work on embedding the processes
and procedures
reflecting the applicable requirements in our IT systems and data sources, driving a
business environment which is compliant by desire and design, and will execute ongoing training
and awareness to develop its people to have the right knowledge and skills.
That also accounts for risks deriving from new technologies. As an innovative bank, ING
continuously monitors regulatory developments to make risk assessments and define the
banks
risk appetite.
Regulations on distributed ledger technology and business developments in this area
are as rapid and impactful as the accompanying risks.
5th AML Directive
In addition, the 5th AML Directive will be implemented in the Netherlands. The 5th AML Directive
was originally adopted by the EU Council in June 2018, with the aim of addressing means of
terrorist financing, increasing transparency to combat money laundering and helping to
strengthen the fight against tax avoidance. The most important aspects
of the 5th AML Directive
involve the (anti money-laundering) risks relating to the use of virtual currencies, the improvement
of information exchange between supervising authorities, and the introduction of beneficial
ownership registers for corporate
and other legal entities.
ING expects to revise the KYC policy framework to reflect the requirements
of the 5th AML Directive.
Prior to the adoption of the 5th AML Directive, European supervisory authorities (ESAs) had
previously issued their final guidelines on risk factors, which
came into force in June 2018. These
guidelines promote a common understanding of the risk-based approach to anti-money
laundering/combatting terrorist financing (AML/CFT) and set out how it should be applied in the
context of the 4th AML Directive. These guidelines are currently
in the process of being updated, in
order to support firms’ AML/CFT compliance efforts
and enhance the ability of the EU’s financial
sector to effectively deter and detect
money laundering/terrorist financing. The ESAs
published a
consultation version of the updated guidelines on 5 February 2020. The final updated guidelines
are
expected to come into force in the course of 2020. Furthermore, in
September 2017, the ESAs
issued their final guidelines
to prevent the abuse of funds transfers for
terrorist financing and
money laundering purposes. These guidelines came into force in June 2018.
Policy with respect to certain
countries
As a result of frequent evaluation
of all businesses from economic, strategic and risk perspective
ING continues to believe that for business reasons doing business involving certain specified
countries should be discontinued. In that respect, ING has a policy not to enter into new
relationships with clients from these countries and processes remain
in place to discontinue
existing relationships involving these countries. At present these countries are
Cuba, Iran, North
Korea, Sudan and Syria.
ING Bank maintains a limited legacy portfolio of guarantees, accounts, and loans that involve
various entities with a connection to Iran. These positions remain on the books but certain accounts
related thereto are
‘frozen’ where prescribed
by applicable laws and procedures and in all cases
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subject to increased scrutiny within ING Bank. Specifically,
ING Bank has controls in place to monitor
transactions related to these accounts. ING Bank may receive loan repayments,
duly authorised by
the relevant competent authorities where prescribed
by applicable laws. For the calendar year
2019, ING Group had revenues
of approximately USD 276.774. ING Group estimates that it had a
net profit
of approximately USD 16.599.
Sanctions developments
The Ukraine-/Russia-related sanctions imposed by both the US and the EU remained in force. In
2019 the US added sanctions regarding the Nordstream 2 pipeline.
The US also added sanctions
against Venezuela in 2019, aimed amongst others at assets from the
government of Venezuela.
With respect to Cuba, the US lifted in 2019 the suspension
of the private right of action under Title
III of the Helms-Burton Act. This allows former owners of properties expropriated by the Cuban
government to bring claims before the U.S. courts against foreign companies alleged to have
“trafficked” with those properties.
In 2020, the US imposed new sanctions on Iran. The EU blocking regulation remained in force.
The
EU revised this regulation in 2018 in response
to the U.S. withdrawal from
the Joint Comprehensive
Plan of Action. The regulation aims to shield EU companies from U.S. sanctions on Iran, in part by
prohibiting European companies from
complying with the sanctions the EU considers to be
“extraterritorial”
in nature.
With a view to these ongoing developments ING continuously evaluates its sanctions compliance
controls to respond to risks of new or expanding sanctions regimes.
C. Organizational
structure
General
ING Groep N.V.,
a publicly-listed company, is the parent of one main legal entity: ING Bank N.V.
(ING
Bank).
ING Bank is the parent company of various Dutch and foreign banks.
Principal Group Companies
Reference is made to Exhibit 8 “List of subsidiaries of ING Groep N.V.”
D.
Property,
plants
and equipment
ING predominantly leases the land and buildings used in the normal course of its business. In
addition, ING has invested in land and buildings. Management believes that ING’s facilities are
adequate for its present needs in all material respects.
For information on property, plants and equipment, reference
is made to Note 9 ‘Property and
equipment’, for information on lease liabilities reference is made to Note 17 ‘Other liabilities’ and
for information on investment properties reference
is made to Note 11 ‘ Other assets’ in the
consolidated financial statements.
Item
4A.
Unresolved
Staff
comments
Not applicable.
Item
5.
Operating
and financial
review
and prospects
The following operating and financial review and prospects should be read in conjunction with the
consolidated financial statements
and the related Notes thereto included elsewhere herein.
The
consolidated financial statements
have been prepared in accordance
with IFRS-IASB. Unless
otherwise indicated, financial
information for ING Group included herein is presented on a
consolidated basis under IFRS-IASB.
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A.
Operating
results
Factors affecting results
of operations
ING Group’s results of operations are
affected by demographics, regulations and by a variety of
market conditions, including economic cycles, banking industry cycles and fluctuations
in stock
markets, interest and foreign exchange rates,
political developments and client behavior changes.
For further information on regulations reference
is made to “Item 4. Information on the Company –
Regulation and Supervision”. For
further information on other factors that can impact ING Group’s
results of operations, ref
erence is made to “Item 3. Key information - Risk Factors” for more
factors
that can impact ING Group’s results of operations.
Financial environment
Global economic developments
Being a global financial
services company, ING’s revenues and earnings are affected by the
volatility and strength of the economic, business, liquidity, funding and capital markets
environments specific to the geographic regions in which we do business. This includes operations
in both advanced economies, as well as emerging economies.
Against a backdrop of continuing US-China trade tensions, prolonged uncertainty on Brexit and
reduced US fiscal stimulus, global economic growth weakened throughout 2019. The global
economic growth rate fell to its lowest
level in a decade.
In addition, the first
months of 2020 were marked by the spread of corona (COVID
-19) virus-linked
infections in and beyond China, negatively affecting
Chinese manufacturing and trade, and posing
the threat of significant disruption to global supply chains,
global manufacturing, travel and
tourism, investment and consumer spending.
Advanced economies
Global economic growth slowed in 2019, with a decline in trade and industrial output as well as a
weakening in the services sector.
In the US, economic momentum slowed as the positive effects of
2018’s fiscal stimulus ebbed away and confidence
slipped against the background of increased
trade tariffs. Economic growth in Netherlands, Belgium and Luxembourg
remained strong despite
the weak global trade environment and remains
above the eurozone average.
In Germany,
economic growth came to a near standstill during the year due to several factors combined with
weak external demand. In Italy, economic growth was minimal as an uncertain fiscal outlook took
its toll on domestic demand. Consistent with slowing economic growth, inflation slowed or
remained low in major advanced economies.
Deteriorating economic sentiment and expectations about monetary policy easing drove bond
yields down in most advanced economies. Yields on 10-year US government bonds fell to the
lowest level since July 2016, and the yield on 10-year German government bonds reached a record
low of -0.73 percent in August. As a result, sovereign
yield curves were partially inverted
in most
advanced economies.
Both the level of interest rates
and the difference between short and long-term rates (the ‘slope’ of
the yield curve) impact our net interest income. Given our geographical footprint, eurozone
rate
developments are more
important for us than US ones.
Prospects for weaker economic growth and lower inflation induced both
the US Federal Reserve
and the ECB to loosen monetary policy.
The historically low, and even negative, interest rates
in the eurozone make it challenging for banks
to maintain positive income in the form of a margin between traditional saving and lending
activities.
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Emerging economies
Central banks in some of the main emerging market economies eased policy to pre-empt a further
deterioration of economic circumstances. Brazil, India, Korea
and Mexico, among others, lowered
their policy rate.
Economic growth in Asia was negatively impacted by the imposition of import tariffs and related
uncertainty about global trade. In China, already in the midst of a structural slowdown, economic
growth slowed to its lowest rate
in 29 years. To
address this adverse external environment, both
fiscal and monetary stimuli were introduced.
Poland continued to be resilient to slowing growth
in the eurozone and the economic slowdown in
Turkey
found a floor. Falling
inflation and a return of investor confidence
in Turkey contributed to a
general decline in interest rates.
How exchange rates
responded
Exchange rate fluctuations have an influence
on the business of a globally operating bank like ING,
including in the areas of profitability and funding. Several factors in the course of the year
contributed to the exchange rate of the euro weakening against the dollar.
These included yields in
the euro area persistently being below those of the US, uncertainty around the possibility of a
broadening of the US trade dispute from China to Europe,
and the negative fall-out on economic
activity of a possible no-deal Brexit.
During the year, the British pound’s performance against the euro was erratic, mostly driven by
changing market expectations about the possibility
of the UK leaving the EU with or without a
withdrawal agreement.
Brexit factor
Brexit continued to dominate 2019, with the UK finally leaving the
EU on 31 January 2020.
Milestones in the year included British Prime Minister Theresa May making way for Boris Johnson,
several extensions to withdrawal
dates, and a snap general election, which the Conservatives won
by a landslide in December.
In 2019, the financial
sector, regulators and banks alike put tremendous effort into preparing for all
Brexit scenarios, with the aim of ensuring the resilience of the banking sector even in the face of a
no-deal scenario. For banks, the implementation of their contingency planning was a key priority.
On the legislative side, EU and UK regulators took the necessary steps ensuring operational
continuity.
ING took several steps to prepare
for Brexit, making various adaptations to ensure a smooth
transition. Following Brexit,
the European Central
Bank (ECB) was set to classify the UK as a non-EU
or third country. As a consequence, ING has made the decision to move a number of EU-related
trading operations to a location within the EU. Brussels was chosen due to its existing
infrastructure.
The proposed changes by no means dilute the importance of the UK as one of ING’s major
Wholesale Banking hubs. The UK centres of expertise, including Financial Markets, support ING’s
clients and its teams in other countries and regions across the globe. The UK team will continue to
be an important pillar for ING.
Fluctuations in equity markets
Our banking operations are exposed to fluctuations in equity markets. ING maintains an
internationally diversified and mainly
client-related trading portfolio. Accordingly,
market
downturns are likely to lead to declines in securities trading and brokerage
activities which we
execute for customers and therefore
to a decline in related commissions and trading results. In
addition to this, ING also maintains equity investments in its own non-trading books. Fluctuations in
equity markets may affect the value of these investments.
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Fluctuations in interest rates
Our banking operations are exposed to fluctuations in interest rates. Mismatches in the interest re-
pricing and maturity profile of assets and
liabilities in our balance sheet can affect the future
interest earnings and economic value of the bank's underlying banking operations. In addition,
changing interest rates may impact the (assumed) behavior of our customers, impacting the
interest rate exposure,
interest hedge positions and future interest earnings, solvency and
economic value of the bank’s underlying banking operations. In the current low (and in some cases
negative) interest rate environment
in the Eurozone, the stability of future
interest earnings and
margin also depends on the ability to actively manage pricing of customer assets and liabilities.
Especially, the pricing of customer savings portfolios in relation to re-pricing customer assets and
other investments in our balance sheet is a key factor in the management of the bank’s interest
earnings.
Fluctuations in exchange rates
ING Group is exposed to fluctuations in exchange rates. Our management of exchange rate
sensitivity affects the results of our operations through the trading activities and because we
prepare and publish our consolidated financial statements in euros. Because a substantial portion
of our income, expenses and foreign investments is denominated in currencies other than euros,
fluctuations
in the exchange rates used to translate foreign
currencies, particularly the U.S. Dollar,
Pound
Sterling, Turkish
Lira, Chinese Renminbi, Australian Dollar, Japanese Yen,
Polish Zloty, Korean
Won, the Indian Rupee, Brazilian Real, Singapore
Dollar, Thai Baht and Russian Ruble into euros can
impact our reported results of operations, cash flows and reserves from year to year.
Fluctuations
in exchange rates will also impact the value (denominated in euro) of our investments in our non-
euro reporting subsidiaries. The impact of these fluctuations
in exchange rates is mitigated to some
extent by the fact
that income and related expenses, as well as assets and liabilities, of each of our
non-euro reporting subsidiaries are generally denominated in the same currencies. FX translation
risk is managed by taking into account the effect of translation results on the Core Equity Tier 1
ratio (CET1).
Critical Accounting Policies
A number of new or amended standards became applicable for the current reporting period.
ING Group changed its accounting policies in 2019 as a result of adopting IFRS 16 ‘Leases’
The other changes in standards and amendments did not have a significant impact
on ING Group’s
accounting policies.
For detailed information regarding
ING’s accounting policies, including changes in accounting
policies, reference is made to Note 1 ‘Accounting Policies’
to the consolidated financial
statements.
Consolidated result
of operations
ING Group’s management evaluates the results of ING Group’s
banking segments using a non-IFRS
financial performance measure called underlying result. To give
an overview of the underlying
result measure, we also present
consolidated underlying result before tax and underlying net
result. Underlying figures are derived from figures determined in accordance with IFRS-IASB by
excluding the impact of special items, adjustment of the EU ‘IAS 39 carve-out’ and Insurance Other.
Special items consist of items of income or expense that are significant and
arise from events or
transactions that are clearly distinct from ordinary operating activities. The adjustment of the EU
‘IAS 39 carve-out’ refers to the fact that ING Group applies fair value hedge accounting for portfolio
hedges of interest rate risk (fair value macro
hedges) in accordance with the EU “carve-out” version
of IAS 39. No hedge accounting is applied to these derivatives
under IFRS-IASB. Insurance Other
reflects (former) insurance related activities that are not part of the discontinued operations.
While items excluded from underlying result are
significant components in understanding
and
assessing the Group’s consolidated financial performance, ING Group believes that the presentation
of underlying net result is relevant
and useful for investors because it allows investors to
understand the primary method used by management to evaluate the Group’s operating
performance and make decisions about allocating resources. In addition, ING Group believes
that
the presentation of underlying net result helps investors compare
its segment performance on a
meaningful basis by highlighting result before tax attributable to ongoing operations and the
underlying profitability of the segment businesses. For example, ING believes that trends in the
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underlying profitability of its segments can be more clearly identified
by disregarding the effects of
special items and the impact of the IAS39 carve-out adjustment. ING Group believes that the most
directly comparable GAAP financial measure to underlying net result is net result. However,
underlying net result should not be regarded
as a substitute for net result as determined in
accordance with IFRS-IASB. Because underlying net result is not determined in accordance
with
IFRS-IASB, underlying net result as presented by ING may not be comparable to other similarly
titled measures of performance of other companies. In addition, ING Group’s definition of
underlying net result may change over time.
The section Segment Reporting Banking Operations on the next pages presents the segment results
on the basis of the performance measure underlying result.
For further information on underlying result for the Banking activities, as well as the reconciliation
of our segment underlying result before tax to our net result,
see Note 34 ‘Segments’ in the
consolidated financial statements.
Group Overview
The following table sets forth the consolidated results of ING Group in accordance
with IFRS-IASB for
the years ended 31 December 2019, 2018 and 2017:
IFRS-IASB Consolidated Income
Statement
Amounts in millions of euros
2019
2018
2017
Continuing operations
Interest income
28,163
28,129
43,890
Interest expense
14,353
14,169
30,243
Net interest income
13,811
13,960
13,647
Net fee and commission income
2,868
2,798
2,710
Investment and Other income
446
1,566
2,233
Total
income
17,125
18,324
18,590
Operating expenses
10,353
10,682
9,829
Addition to loan loss provisions
1,120
656
676
Total
expenditure
11,472
11,338
10,505
Result before tax
5,653
6,986
8,085
Taxation
1,652
2,116
2,539
Net result from continuing operations
4,001
4,869
5,546
Non-controlling interests
from continuing operations
99
108
82
Net result IFRS-IASB
3,903
4,761
5,464
Reconciliation from IFRS-IASB to ING Group’s underlying results
Amounts in millions of euros
2019
2018
2017
Net result IFRS-IASB
3,903
4,761
5,464
-/- Special items
-775
0
-/- Adjustment of the EU 'IAS 39 carve-out'
-878
58
559
-/- Insurance Other
90
-52
Underlying net result
4,781
5,389
4,957
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1.
Special items: settlement agreement with the Dutch authorities on regulatory issues
as announced on 4
September 2018 (EUR -775 million, 2018); tax charge of EUR 121 million at ING Australia
Holdings Ltd related to
the years 2013-2017, for which a full reimbursement is expected to be received
from NN Group (impact on net
result EUR 0 million, 2017).
Year
ended 31 December 2019 compared to year ended 31 December 2018
In 2019, ING showed solid commercial performance despite the challenging rate environment,
geopolitical uncertainties and demanding regulatory environment. However, the net result
declined
18.0% to EUR 3,903 million in 2019 from EUR 4,761 million in 2018, which has been negatively
affected by the EUR 775 million settlement agreement with the Dutch authorities on
regulatory
issues that was recorded as a special item. The net result
in 2019 also included EUR 878 million
drop in fair value changes on derivatives related
to asset-liability-management activities (including
a negative impact under interest income of ending some hedge relationships), with the EU carve-
out version of IAS 39 applied. In 2019, there were no results
from Insurance Other as ING sold its
last warrants related to its previous
Insurance activities in November 2018. The net result in 2018
included EUR 90 million from Insurance Other, reflecting the net result on the warrants on Voya
Financial and NN Group shares.
Underlying net result for 2019 was EUR 4,781 million, a decrease of 11.3% from EUR 5,389 million in
2018. Underlying net result is derived from total net result
by excluding the impact from special
items and adjustment of the EU ‘IAS 39’ carve-out
and Insurance Other.
Year
ended 31 December 2018 compared
to year ended 31 December 2017
ING posted strong commercial results
in 2018, but they were negatively affected by the EUR 775
million settlement agreement with the Dutch authorities on regulatory issues. The net result
dropped to EUR 4,761 million from EUR 5,464 million in 2017, primarily due to the settlement
agreement which was recorded
as a special item. In 2017, there was a special item related to a EUR
121 million tax charge at ING Australia Holdings Ltd, for which a full reimbursement
will be received
from NN Group. Although the
bottom-line impact for ING Bank was nil, it affected
both the tax and
'other income' lines. The net result in 2018 also included EUR 58 million increase in fair value
changes on derivatives (including a negative impact under net interest income of ending some
hedge relationships) related to asset-liability-management activities for the mortgage and savings
portfolios in Benelux, Germany and Czech Republic, with the EU carve-out version of IAS 39 applied,
while these fair value changes were EUR 559 million in 2017. Insurance Other added EUR 90 million
to the net result, compared with a EUR 52 million loss in 2017. Insurance
Other mainly comprised
the net result on the warrants on Voya
Financial and NN Group shares. ING sold its remaining part
of warrants on the shares of Voya
Financial in March 2018, while the warrant agreement between
NN Group and ING was terminated in November 2018.
Underlying net result for 2018 was EUR 5,389 million, an increase of 8.7% from EUR 4,957 million in
2017. Underlying net result is derived from total net result
by excluding the impact of special items,
adjustment of the ‘EU IAS 39 carve-out’ and Insurance Other.
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Segment Reporting
ING Group evaluates the resul
ts of its banking segments using a non-IFRS financial
performance
measure called underlying result. Underlying result
is derived from result determined in
accordance with IFRS-IASB by excluding the impact of special items, adjustment of the ‘EU IAS 39
carve-out’ and Insurance Other.
Because underlying result is not determined in accordance with IFRS-IASB, underlying result as
presented by ING may not be comparable to other similarly titled measures of performance of
other companies. The underlying result of ING’s segments is reconciled to the Net result
as reported
in the IFRS-IASB Consolidated
profit or loss account.
The published 2019 Annual Accounts of ING Group includes financial
information in accordance
with International Financial Reporting Standards
as adopted by the European Union (IFRS-EU). The
segment reporting in the annual report on Form 20-F has been prepared in
accordance with
International Financial Reporting Standards as issued by the International Accounting Standards
Board (IFRS-IASB) for consistency with the other financial information contained in this report. The
difference between the accounting standards is reflected in the Wholesale segment, and in the
geographical segments the Netherlands, Belgium, Germany and Other Challengers. Reference is
made to Note 1 ‘Accounting Policies’ for a reconciliation between IFRS-EU and IFRS-IASB.
The information presented in this section is in line with the information presented to the Executive
Board and Management Board Banking.
For further information on underlying result for the Banking activities, as well as the reconciliation
of our segment underlying result before tax to our net result,
see Note 34 ‘Segments’ in the
consolidated financial statements.
ING Group’s segments are based on the internal reporting structures. The following table specifies
the segments by line of business and the main sources of income of each of the segments:
Retail Netherlands
(Market Leaders)
Income from retail and private banking activities in the Netherlands, including the SME and mid-
corporate segments and the Real Estate Finance
portfolio related to Dutch domestic mid-
corporates.
The main products offered are current and savings accounts, business lending,
mortgages and other consumer lending in the Netherlands.
Retail Belgium
(Market Leaders)
Income from retail and private banking activities in Belgium (including Luxembourg),
including the
SME and mid-corporate segments. The main products offered are similar to those in the
Netherlands.
Retail Germany
(Challengers and Growth Markets)
Income from retail and private banking activities in Germany (including Austria). The main products
offered are current and savings accounts, mortgages and other customer lending.
Retail Other
(Challengers and Growth Markets)
Income from retail banking activities in the rest of the world, including the SME and mid-corporate
segments in specific
countries. The main products offered are similar to those in the Netherlands.
Wholesale Banking
Income from wholesale banking activities. The main products are: lending, debt capital markets,
working capital solutions, export finance,
daily banking solutions, treasury and risk solutions, and
corporate finance.
The accounting policies of the segments are the same as those described in Note 1 ‘Accounting
policies’ in the consolidated financial
statements. Transfer
prices for inter-segment transactions are
set at arm’s length. Corporate expenses are allocated to business lines based on time spent by
head office
personnel, the relative number of staff, or on the basis of income, expenses and/or
assets of the segment.
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As of 1 January 2019, the Real Estate Finance portfolio related to Dutch domestic mid-corporates,
which was included under Wholesale Banking, has been transferred to Retail Netherlands in order
to define clearer roles and responsibilities. The presentation of previously reported underlying profit
and loss amounts has been adjusted to reflect this
change.
Corporate Line Banking
In addition to these segments, ING Group reconciles the total segment results to the total result
of
Banking using Corporate Line Banking. The Corporate
Line Banking is a reflection of capital
management activities and certain income and expense items that
are not allocated to the
banking businesses, including a higher VAT
refund in 2019 as well as a EUR 119 million gain from
the release of a currency translation reserve
following the sale of ING’s stake in Kotak Mahindra
Bank and the recognition of a EUR 79 million receivable related to the
insolvency of a financial
institution (both recorded under income). Furthermore,
the Corporate Line Banking includes the
isolated legacy costs (mainly negative interest results) caused by the replacement
of short-term
funding with long-term funding during 2013 and 2014. ING Group applies a system of capital
charging for its banking operations in order to create
a comparable basis for the results of business
units globally, irrespective of the business units’ book equity and the currency they operate in.
Banking Operations
The following table sets forth the contribution of ING’s banking business lines and the corporate line
banking to the underlying net result for each of the years 2019, 2018 and 2017.
1 January to 31 December 2019
Amounts in millions of euros
Retail
Banking
Netherlands
Retail
Banking
Belgium
Retail
Banking
Germany
Retail
Other
Wholesale
Banking
Corporate
Line
Banking
Total
Underlying income:
3,541
1,907
1,579
2,787
3,794
470
14,079
674
374
268
423
1,135
-6
2,868
290
161
138
298
369
103
1,360
Total underlying
income
4,505
2,442
1,985
3,509
5,298
568
18,306
Underlying expenditure:
2,210
1,609
1,080
2,210
2,937
307
10,353
91
186
-53
364
532
0
1,120
Total underlying
expenditure
2,301
1,794
1,027
2,574
3,469
307
11,472
Underlying result before taxation
2,204
647
957
935
1,830
261
6,834
Taxation
558
192
328
234
464
179
1,955
Non-controlling interests
0
0
3
82
14
0
99
Underlying net result
1,646
455
627
619
1,352
82
4,781
Special items
Adjustment of the EU 'IAS 39 carve-out'
-878
-878
Net result Banking
1,646
455
627
619
474
82
3,903
Net result Insurance
Other
Net result from continuing operations
3,903
Net result IFRS-IASB
3,903
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1 January to 31 December 2018
Amounts in millions of euros
Retail
Banking
Netherlands
1
Retail
Banking
Belgium
Retail
Banking
Germany
Retail
Other
Wholesale
Banking
1
Corporate
Line
Banking
Total
Underlying income:
3,749
1,830
1,671
2,690
3,686
290
13,916
664
371
225
395
1,152
–4
2,803
335
169
76
230
673
–113
1,369
Total underlying
income
4,747
2,369
1,972
3,315
5,510
173
18,088
Underlying expenditure:
2,220
1,610
1,027
2,033
2,771
247
9,907
–41
164
–27
350
210
–1
656
Total underlying
expenditure
2,179
1,774
1,000
2,383
2,981
246
10,563
Underlying result before taxation
2,568
595
972
932
2,529
–72
7,524
Taxation
626
199
324
200
633
47
2,028
Non-controlling interests
0
6
3
80
19
0
108
Underlying net result
1,942
390
646
652
1,877
–119
5,389
Special items
–775
–775
Adjustment of the EU 'IAS 39 carve-out'
58
58
Net result Banking
1,942
390
646
652
1,935
–894
4,672
Net result Insurance
Other
90
Net result from continuing operations
4,761
Net result IFRS-IASB
4,761
1
In 2019, the Dutch domestic midcorporates real
estate finance portfolio transferred from Wholesale Banking to
Retail Banking Netherlands. Comparative
figures have been adjusted.
1 January to 31 December 2017
Amounts in millions of euros
Retail
Banking
Netherlands
Retail
Banking
Belgium
Retail
Banking
Germany
Retail
Other
Wholesale
Banking
Corporate
Line
Banking
Total
Underlying income:
3,866
1,842
1,704
2,437
3,639
226
13,714
607
408
215
384
1,102
–3
2,714
256
224
–28
207
919
–301
1,277
Total underlying
income
4,730
2,473
1,891
3,028
5,660
–78
17,704
Underlying expenditure:
2,260
1,584
1,032
1,919
2,744
290
9,829
15
104
–10
284
282
1
676
Total underlying
expenditure
2,275
1,688
1,022
2,203
3,026
291
10,505
Underlying result before taxatio
n
2,455
785
869
825
2,634
–369
7,199
Taxation
615
296
241
188
832
–13
2,160
Non-controlling interests
0
–2
2
67
15
0
82
Underlying net result
1,839
491
625
569
1,788
–356
4,957
Special items
0
0
Adjustment of the EU 'IAS 39 carve-out'
559
559
Net result Banking
1,839
491
625
569
2,347
–356
5,516
Net result Insurance
Other
–52
Net result from continuing operations
5,464
Net result IFRS-IASB
5,464
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Year
ended 31 December 2019 compared to year ended 31 December 2018
In 2019, ING’s banking operations showed solid commercial performance despite the challenging
rate environment, geopolitical uncertainties and demanding regulatory environment.
The net
result Banking (including the impact of special items and adjustment of the EU ‘IAS 39 carve-out’)
declined 16.5% to EUR 3,903 million in 2019 from EUR 4,672 million in 2018, which has been
negatively affected by the EUR 775 million settlement
agreement with the Dutch authorities on
regulatory issues that was recorded
as a special item. The net result was affected by a EUR 936
million negative swing in net contribution of fair value changes on derivatives related to asset-
liability-management activities for the mortgage and savings
portfolios in the Benelux, Germany,
France
and Czech Republic. These fair value changes are mainly caused by changes in market
interest rates. No hedge accounting is applied to these derivatives under IFRS-IASB.
The underlying net result dropped 11.3% to EUR 4,781 million from EUR 5,389 million. This was in
part due to an increased underlying effective tax rate of 28.6% from 27.0% in 2018, mainly
reflecting higher non-deductible
costs, including the cancellation of tax deductibility of interest
expenses on additional Tier 1 instruments in the Netherlands
as from 2019. Underlying net result is
derived from total net result
by excluding the impact from special items and adjustment of the EU
‘IAS 39’ carve-out.
The underlying result before tax
declined 9.2% to EUR 6,834 million in 2019 from EUR 7,524 million
in 2018, primarily due to increased operating expenses and higher risk costs. Commercial
momentum remained solid, albeit at a slower pace than previous year.
ING grew net core lending
(adjusted for currency impacts, and excluding Treasury
and
the run-off portfolios) by EUR 17.2
billion, or 2.9%, and net customer deposits rose by EUR 23.4 billion in 2019. The global retail
customer base grew to 38.8 million at year-end, and the number of primary customers rose during
the year by 0.8 million to 13.3 million.
The underlying income increased 1.2% to EUR 18,306 million from EUR 18,088 million in 2018,
driven by Corporate Line (predominantly one-offs) and Retail Banking, while income in Wholesale
Banking (mainly in Financial Markets and Lending) declined. Net interest income rose 1.2% to EUR
14,079 million. The increase was driven by higher interest results
on customer lending mainly
supported by volume growth, partly offset by lower margins on savings and current accounts. The
total lending margin was slightly up compared with 2018, as the impact of improved interest
margins on mortgages was largely offset by lower margins on other customer lending. ING’s overall
net interest margin remained
at 1.54% in 2019.
Net fee and commission income rose 2.3% to EUR 2,868 million. The increase was driven by Retail
Banking with increases in most countries, partly offset by a small decline in Wholesale
Banking.
Investment and other income slightly decreased to EUR 1,360 million from EUR 1,369 million in
2018, with a decline in Wholesale Banking, mainly due to negative valuation adjustments in
Financial Markets, and some one-offs. The decline was largely offset
by increases in Retail Banking
and Corporate Line. The latter was supported by a EUR 119 million gain from the release
of a
currency translation reserve
following the sale of ING’s stake in Kotak Mahindra Bank and the
recognition of a EUR 79 million receivable related
to the insolvency of a financial institution.
Underlying operating expenses increased 4.5% to EUR 10,353 million from EUR 9,907 million in
2018. The increase was visible in all segments, except for Retail Netherlands and Retail Belgium.
Regulatory expenses rose to EUR 1,021 million from EUR 947 million in previous year.
Excluding
regulatory costs, expenses were
up 4.2%, mainly due to higher KYC-related costs, increased staff
costs and continued investments in business growth, partly offset by costs savings and one-offs
(including a higher VAT
refund, recorded
in Corporate Line). The cost/income ratio was 56.6%
versus 54.8% in 2018.
The net addition to the provision for loan losses rose to EUR 1,120 million from EUR 656 million in
2018. This increase was mainly caused by a number of large individual files in Wholesale Banking
and higher, but still relatively low risk costs in Retail Netherlands. Risk costs rose to 18 basis points
of average customer lending in 2019, remaining below ING Bank’s through-the-cycle average
of
approximately 25 basis points, compared with 11 basis points of average customer lending in 2018.
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Year
ended 31 December 2018 compared to year ended 31 December 2017
ING’s banking operations posted strong commercial results
in 2018, but they were negatively
affected by the EUR 775 million settlement agreement with the Dutch authorities on
regulatory
issues. The net result Banking (including the impact of special items and adjustment of the EU ‘IAS
39 carve-out’) dropped to EUR 4,672 million from EUR 5,516 million in 2017, primarily due to the
settlement agreement which was recorded
as a special item. In 2017, there was a special item
related to a EUR 121 million tax charge at ING Australia Holdings Ltd,
for which a full
reimbursement will be received from
NN Group. Although the bottom-line impact for ING was nil, it
affected both the tax and 'other income' lines. The
result was negatively affected by a EUR 501
million lower net contribution of fair value changes on derivatives related to asset-liability-
management activities for the mortgage and savings
portfolios in the Benelux, Germany and Czech
Republic. These fair value changes are mainly caused by changes in market interest rates.
No
hedge accounting is applied to these derivatives under IFRS-IASB.
The underlying net result rose 8.7% to EUR 5,389 million in 2018 from EUR 4,957 million in 2017;
this was partly caused by a lower underlying effective tax rate supported by the tax reforms in
Belgium and the US. Underlying net result is derived from total net result
by excluding the impact
from special items and adjustment of the EU ‘IAS 39 carve-out’.
The underlying result before tax rose
4.5% to EUR 7,524 million in 2018
from EUR 7,199 million in
2017, primarily driven by continued business growth at resilient interest margins,
higher net fee
and commission income, and slightly lower risk costs. Commercial performance was strong
in
2018. ING grew net core lending (adjusted for currency
impacts, and excluding Bank Treasury and
the run-off portfolios) by EUR 36.6 billion,
or 6.4%, and net customer deposits rose by EUR 19.3
billion in 2018. The global retail customer base grew by one million customers to reach 38.4 million
over the year, and the number of primary customers rose by 1.1 million to 12.5 million.
Total
underlying income increased 2.2% to EUR 18,088 million from EUR 17,704 million in 2017. Net
interest income rose 1.5% to EUR 13,916 million, due to an increase of the average
balance sheet
total, partly offset by a narrowing of the net interest margin to 1.53% from 1.54% in 2017. The
increase of the average balance sheet was mainly driven by the continued growth
in net core
lending and customer deposits. The interest result on customer lending activities increased driven
by higher volumes at stable margins. The interest result on customer deposits slightly declined, as
the impact of volume growth was more than offset by margin pressure
on current accounts (due to
lower reinvestment yields); the interest
margin on savings stabilized, mainly due to a further
lowering of client savings rates in several
countries. Net interest income was furthermore
negatively affected by a decline in the volatile interest results of Financial Markets. Net fee and
commission income rose 3.3% to EUR 2,803 million. The increase was mainly in Wholesale Banking
(supported by the inclusion of Payvision as from the second quarter of 2018) and most of the Retail
Banking countries, except for Belgium and Turkey. Investment
and other income rose to EUR 1,369
million from EUR 1,277 million in 2017, mainly caused by higher valuation results and net trading
income, including improved hedge ineffectiveness results, and one-off results. The increase was
primarily visible in Retail Banking (excluding Belgium) and the Corporate Line. In Wholesale Banking,
investment and other income declined, mainly due to a loss recorded on the intended sale of an
Italian lease run-off portfolio in 2018, while
2017 included a gain on the sale of an equity stake in
the real estate run-off portfolio.
Underlying operating expenses increased 0.8% to EUR 9,907 million from EUR 9,829 million in 2017.
In 2018, expenses included EUR 947 million of regulatory expenses up from EUR 901 million in the
previous year.
Excluding regulatory costs, expenses were up
0.4%, as higher costs for strategic
projects and to support business growth, were larg
ely offset by lower performance-related
expenses and strict cost management. The underlying cost/income
ratio improved
to 54.8% from
55.5% in 2017.
The net addition to the provision for loan losses declined 3.0% to EUR 656 million from EUR 676
million in 2017. Risk costs were 11 basis points of average customer lending compared with 12
basis points in 2017.
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RETAIL NETHERLANDS
Amounts in millions of euros
2019
2018
1
2017
Underlying income:
Net interest income
3,541
3,749
3,866
Net fee and commission income
674
664
607
Investment income and other income
290
335
256
Total
underlying income
4,505
4,747
4,730
Underlying expenditure:
Underlying operating expenses
2,210
2,220
2,260
Additions to the provision for loan losses
91
–41
15
Total
underlying expenditure
2,301
2,179
2,275
Underlying result before tax
2,204
2,568
2,455
Taxation
558
626
615
Non-controlling interests
0
0
0
Underlying net result
1,646
1,942
1,839
Net result
1,646
1,942
1,839
1
As from 2019, Retail Netherlands includes the real estate finance portfolio to Dutch domestic
mid-corporates. This portfolio
was transferred from Wholesale Banking to Retail Netherlands in order to define clearer roles and responsibilities. All
comparative figures have been adjusted.
Year
ended 31 December 2019 compared to year ended 31 December 2018
Both net result and underlying net result of Retail Netherlands decreased
by EUR 296 million, or
15.2%, to EUR 1,646 million in 2019 from EUR 1,942 million in 2018. There were no special items in
2019 and 2018.
The underlying result before tax
of Retail Netherlands decreased 14.2% to EUR 2,204 million from
EUR 2,568 million in 2018. This was mainly due to lower income, mainly reflecting lower margins on
customer deposits and lower revenues from
Treasury,
combined with higher risk costs. Operating
expenses declined slightly.
Underlying income fell 5.1% to EUR 4,505 million from EUR 4,747 million previous year.
The interest
result was 5.5% lower, reflecting margin pressure
on savings and current accounts due to lower re-
investment yields and lower revenues from
Treasury.
This was partly compensated by improved
margins on mortgages. Net core lending (excluding the WUB run-off portfolio and Treasury-related
products) grew by EUR 2.0 billion in 2019, equally divided over mortgages and other lending. Net
growth in customer deposits (excluding Treasury)
was EUR 8.4 billion in 2019. Net fee and
commission income rose by EUR 10 million, or 1.5%, primarily due to higher daily banking fees.
Investment and other income declined by EUR 45 million, mainly attributable to lower results from
financial markets-related products.
Underlying operating expenses declined 0.5% on 2018, this was mainly due to lower regulatory
costs, benefits from the ongoing cost-saving initiatives and some positive one-offs,
partly offset by
increased salaries as well as higher KYC and IT-related
expenses.
Risk costs in 2019 increased to a relatively low EUR 91 million, or 6 basis points of average customer
lending, partly caused by a change in the house price index that is used for Dutch mortgages.
This
compared
with a net release of EUR 41 million 2018, which included releases in both mortgages
and business lending.
Year
ended 31 December 2018 compared to year ended 31 December 2017
Both net result and underlying net result of Retail Netherlands increased
by EUR 103 million, or
5.6%, to EUR 1,942 million in 2018 from EUR 1,839 million in 2017. There were no special items in
2018 and 2017.
The underlying result before tax
of Retail Netherlands rose 4.6% to EUR 2,568 million from EUR
2,455 million in 2017. This was mainly due to lower risk costs and benefits
from the ongoing cost-
saving programmes.
Underlying income rose 0.4% to EUR 4,747 million. The interest result was 3.0% lower, mainly
caused by margin pressure
on savings and current accounts, and a decline in the average lending
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volumes, partly offset by higher margins on mortgages. Net core lending (excluding the WUB run-
off portfolio and Bank Treasury-related products)
grew by EUR 1.5 billion as from 1 January 2018,
of which EUR 0.8 billion in mortgages and EUR 0.7 billion in other lending. Net growth in customer
deposits (excluding Bank Treasury)
was EUR 3.5 billion in 2018. Net fee and commission income
rose by EUR 57 million, or 9.4%, primarily due to higher daily banking fees. Investment and other
income rose by EUR 79 million, mainly attributable to higher allocated Bank Treasury
revenues.
Underlying operating expenses declined 1.8% on 2017, mainly driven by the benefits
from the
ongoing cost-saving initiatives and lower expenses for legal claims.
Risk costs turned to a net release of EUR 41 million, or -3 basis points of average customer lending,
from a net addition of EUR 15 million in 2017, reflecting the continued positive macroeconomic
conditions in the Netherlands.
RETAIL BELGIUM
Amounts in millions of euros
2019
2018
2017
Underlying income:
Net interest income
1,907
1,830
1,842
Net fee and commission income
374
371
408
Investment income and other income
161
169
224
Total
underlying income
2,442
2,369
2,473
Underlying expenditure:
Underlying operating expenses
1,609
1,610
1,584
Additions to the provision for loan losses
186
164
104
Total
underlying expenditure
1,794
1,774
1,688
Underlying result before tax
647
595
785
Taxation
192
199
296
Non-controlling interests
0
6
–2
Underlying net result
455
390
491
Net result
455
390
491
Year
ended 31 December 2019 compared to year ended 31 December 2018
Both net result and underlying net result of Retail
Belgium (including ING in Luxembourg) increased
by EUR 65 million, or 16.7%, to EUR 455 million in 2019 from EUR 390 million in 2018. There were no
special items in 2019 and 2018.
The underlying result before tax
of Retail Belgium rose 8.7% to EUR 647 million in 2019, compared
with EUR 595 million in 2018. The increase reflects higher income and stable expenses, only
partly
offset by an increase in risk costs.
Underlying income increased to EUR 2,442 million from EUR 2,369 million in 2018. The interest
result was 4.2% up to EUR 1,907 million, mainly due to volume growth, increased margins
on
mortgages, and supported by higher net interest income from Treasury
-related products. This was
in part offset by lower net interest income from savings and current accounts, reflecting the low
interest rate environment,
and some margin pressure on non-mortgage lending. The net growth in
customer lending (excluding Treasury)
was EUR 3.3 billion, of which EUR 1.2 billion was in residential
mortgages and EUR 2.1 billion in other lending. The net inflow
in customer deposits (excluding
Treasury)
was EUR 4.1 billion in 2019. Net fee and commission income increased 0.8% to EUR 374
million. Investment and other income was EUR 8 million lower, mainly due to lower Trea
sury-
related revenues.
Operating expenses declined 0.1% to EUR 1,609 million, mainly due to lower staff-related expenses
stemming from the transformation programmes,
partly offset by higher regulatory costs and KYC-
related expenses.
Risk costs increased by EUR 22 million to EUR
186 million, or 21 basis points of average customer
lending, from EUR 164 million, or 19 basis points, in 2018. The increase was mainly caused by
additional provisioning on individual mid-corporates files and higher collective provisions for
consumer lending.
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Year
ended 31 December 2018 compared to year ended 31 December 2017
Both net result and underlying net result of Retail
Belgium (including ING in Luxembourg) declined
by EUR 101 million, or 20.6%, to EUR 390 million in 2018 from EUR 491 million in 2017. The
decrease was partly mitigated by a lower underlying effective tax rate, because 2017 included the
impact of a tax reform in Belgium, which resulted in a tax charge to record
a reduction in deferred
tax assets. There were no special items in 2018 and 2017.
The underlying result before tax
of Retail Belgium fell 24.2% to EUR 595 million in 2018, compared
with EUR 785 million in 2017. The decline reflects
lower income, higher expenses and an increase in
risk costs.
Underlying income decreased to EUR 2,369 million from EUR 2,473 million in 2017. The interest
result declined 0.7% to EUR 1,830 million, mainly due to margin pressure
on most products, in part
offset by volume growth in the lending portfolio as well as current accounts. The net production in
customer lending (excluding Bank Treasury
and the sale of a mortgage portfolio) was EUR 6.1
billion, of which EUR 2.2 billion was in mortgages and EUR 3.9 billion in other lending. The net inflow
in customer deposits was EUR 3.0 billion in 2018. Net fee and commission income decreased 9.1%,
mainly due to lower fee income on investment products. Investment and other income fell by EUR
55 million, mainly due to lower income from financial markets products.
Operating expenses rose by EUR 26 million, or 1.6%, to EUR 1,610 million, mainly due to higher
external staff expenses related to the transformation programmes and
the successful integration
of Record Bank into ING Belgium. Risk costs increased by EUR 60 million to EUR
164 million, or 19
basis points of average customer lending, from EUR 104 million, or 13 basis points of average
customer lending, in 2017. The increase was primarily in business lending.
RETAIL GERMANY
Amounts in millions of euros
2019
2018
2017
Underlying income:
Net interest income
1,579
1,671
1,704
Net fee and commission income
268
225
215
Investment income and other income
138
76
–28
Total
underlying income
1,985
1,972
1,891
Underlying expenditure:
Underlying operating expenses
1,080
1,027
1,032
Additions to the provision for loan losses
–53
–27
–10
Total
underlying expenditure
1,027
1,000
1,022
Underlying result before tax
957
972
869
Taxation
328
324
241
Non-controlling interests
3
3
2
Underlying net result
627
646
625
Net result
627
646
625
Year
ended 31 December 2019 compared to year ended 31 December 2018
Both net result and underlying net result of Retail
Germany (including ING in Austria) decreased by
EUR 19 million, or 2.9%, to EUR 627 million in 2019 from EUR 646 million in 2018. There were no
special items in 2019 and 2018.
The underlying result before tax
declined 1.5% to EUR 957 million, compared with EUR 972 million
in 2018, mainly due to higher expenses, partly offset
by slightly increased income and a higher net
release in risk costs.
Underlying income increased 0.7% to EUR 1,985 million in 2019 from EUR 1,972 million a year ago.
Net interest income declined 5.5%, mainly due to lower Treasury
-related interest results
(with a
partial offset in other income). Excluding Treasury, net interest
income rose marginally, mainly
reflecting volume growth in most products and improved margins
on mortgages, offset by lower
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interest results on savings and deposits due to margin pressure.
The net growth in core lending
(excluding Treasury)
was EUR 3.0 billion in 2019, of which EUR 2.4 billion in mortgages and EUR 0.6
billion in consumer lending. Net inflow
in customer deposits (excluding Treasury)
was EUR 0.8
billion. Net fee and commission income rose 19.1% to EUR 268 million, due to higher fees on
mortgages and daily banking. Investment and other income rose by EUR 62 million to EUR 138
million, largely due to the aforementioned accounting asymmetry in Treasury
revenues.
Operating expenses rose 5.2% to EUR 1,080 million from EUR 1,027 million in 2018. The increase
was mainly due to a restructuring provision related to the completion of ING’s Agile transformation
in Germany, higher KYC-related expenses, investments to accelerate
the acquisition of primary
customers, and the launch of Interhyp in Austria.
Risk costs were EUR -53 million, or -6 basis points of average customer lending, compared with EUR
-27 million in 2018. The net release in 2019 mainly related to model updates for mortgages, while
the net release in 2018 included a significant release in the consumer lending portfolio.
Year
ended 31 December 2018 compared to year ended 31 December 2017
Both net result and underlying net result of Retail
Germany (including ING in Austria) increased by
EUR 21 million, or 3.4%, to EUR 646 million in 2018 from EUR 625 million in 2017.
The underlying result before tax increased
11.9% to EUR 972 million, compared with EUR 869
million in 2017, mainly due to higher income and a net release in risk costs.
Underlying income increased 4.3% to EUR 1,972 million in 2018 from EUR 1,891 million a year ago.
Net interest income declined 1.9% reflecting margin compression on mortgages and current
accounts, and lower Bank Treasury
-related interest income.
This was only partly offset by higher
margins on savings and deposits and volume growth in most products. Net core lending growth,
which excludes Bank Treasury
products, was EUR 4.4 billion in 2018, of which EUR 3.6 billion was in
mortgages and EUR 0.8 billion in consumer lending. Net inflow
in customer deposits (excluding
Bank Treasury)
was EUR 5.0 billion, mainly driven by a promotional savings campaign in the fourth
quarter of 2018. Net fee and commission income rose 4.7%, due to higher fee income on
investment products and an improvement in fees on current
accounts. Investment and other
income rose to EUR 76 million, mainly due to improved
hedge ineffectiveness results from Bank
Treasury.
Operating expenses declined 0.5% to EUR 1,027 million from EUR 1,032 million in 2017. This
decrease
was mainly caused by lower regulatory costs and a decline in marketing expenses, partly
offset by higher costs to support business
growth and a restructuring provision
in 2018. Risk costs
were EUR -27 million in 2018, compared with EUR -10 million in 2017, reflecting a benign credit
environment in the German market and a review of the consumer lending portfolio.
RETAIL OTHER
Amounts in millions of euros
2019
2018
2017
Underlying income:
Net interest income
2,787
2,690
2,437
Net fee and commission income
423
395
384
Investment income and other income
298
230
207
Total
underlying income
3,509
3,315
3,028
Underlying expenditure:
Underlying operating expenses
2,210
2,033
1,919
Additions to the provision for loan losses
364
350
284
Total
underlying expenditure
2,574
2,383
2,203
Underlying result before tax
935
932
825
Taxation
234
200
188
Non-controlling interests
82
80
67
Underlying net result
619
652
569
Net result
619
652
569
Year
ended 31 December 2019 compared to year ended 31 December 2018
Retail Other consists of the Other Challengers & Growth Markets, including the bank stakes in Asia.
Both net result and underlying net result of Retail Other decreased
by EUR 33 million, or 5.1%, to
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EUR 619 million in 2019 from EUR 652 million in 2018. There were no special items in 2019 and
2018.
Retail Other’s underlying result before tax
increased 0.3% to EUR 935 million in 2019, from EUR 932
million in 2018. This was mainly due to higher income, partly offset
by increased expenses and
higher risk costs.
Total
underlying income rose by EUR 194 million, or 5.9%, to EUR 3,509 million. This increase was
driven by strong results across
most of the countries, whereas 2018 included a higher profit from
ING Bank’s stake in TMB due to one-offs. Net interest income rose 3.6% to EUR 2,787 million,
reflecting volume growth in lending and customer deposits, and a stable total interest margin. This
increase was offset by accounting asymmetry in Treasury with
an offset in other income. The net
production in customer lending (excluding currency effects and Treasury) was EUR 7.8 billion, with
increases mainly in Spain, Poland and Australia, while Turkey
and Italy declined. Net customer
deposits grew by EUR 6.9 billion in 2019, with the largest increases in Poland, Spain and Australia.
Net commission and fee income increased 7.1% to EUR 423 million driven by increases in most
countries, but declined in Spain and Turkey. Investment and other income rose
by EUR 68 million,
mainly due to the aforementioned accounting asymmetry in Treasury
and a higher dividend from
Bank of Beijing, partly offset
by a lower profit from TMB.
Operating expenses increased by EUR 177 million, or 8.7%, to EUR 2,210 million. This increase was
in addition to higher regulatory costs and legal provisions, mainly due to higher expenses to
support business growth and the implementation of bank-wide regulatory programmes, including
KYC.
Risk costs were EUR 364 million, or 38 basis points of average customer lending, compared with
EUR 350 million, or 40 basis points, in 2018. The increase was mainly attributable to higher risk
costs in Spain and Poland, while risk costs in Turkey and Italy declined.
Year
ended 31 December 2018 compared to year ended 31 December 2017
Retail Other consists of the Other Challengers & Growth Markets, including the stakes in Asia. Both
net result and underlying net result of Retail
Other increased by EUR 83 million, or 14.6%, to EUR
652 million in 2018 from EUR 569 million in 2017. There were no special items in 2018 and 2017.
Retail Other’s underlying result before tax
increased 13.0% to EUR 932 million in 2018, from EUR
825 million in 2017. This was mainly due to higher income, partly offset
by increased expenses and
higher risk costs.
Total
underlying income rose by EUR 287 million, or 9.5%, to EUR 3,315 million. This increase was
driven by continued strong commercial results
across most countries, reflecting customer growth
and higher volumes. Net interest income rose 10.4% to EUR 2,690 million, reflecting sustainable
growth in lending and customer deposits volumes and an improved total interest
margin. The net
production (excluding currency effects and Bank Treasury) in customer lending was EUR 9.6 billion,
of which EUR 6.4 billion was in mortgages and EUR 3.2 billion in other lending (mainly consumer
loans). Net customer deposits grew by EUR 8.6 billion in 2018. Net fee and commission income rose
2.9% driven by increases in most countries, partly offset by a decline in Turkey. Investment and
other income increased by EUR 23 million, mainly due to a higher dividend from Bank of Beijing and
a higher profit contribution from ING Bank’s 25% stake in TMB (which was mainly driven by one-
offs), while previous year included a gain on the sale of MasterCard
shares in Turkey.
Operating expenses increased by EUR 114 million, or 5.9%, to EUR 2,033 million. This increase was,
next to higher regulatory costs, mainly due to higher staff expenses in most counties to support
commercial growth and higher investment
s
in strategic projects. Risk costs were
EUR
350 million,
or 40 basis points of average customer lending, compared with EUR 284 million, or 34 basis points,
in 2017. The increase was mainly attributable to higher risk costs in Italy, Romania and Poland,
while risk costs in Turkey remained
on the same high level as in 2017.
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WHOLESALE BANKING
Amounts in millions of euros
2019
2018
1
2017
Underlying income:
Net interest income
3,794
3,686
3,639
Net fee and commission income
1,135
1,152
1,102
Investment income and other income
369
673
919
Total
underlying income
5,298
5,510
5,660
Underlying expenditure:
Underlying operating expenses
2,937
2,771
2,744
Additions to the provision for loan losses
532
210
282
Total
underlying expenditure
3,469
2,981
3,026
Underlying result before tax
1,830
2,529
2,634
Taxation
464
633
832
Non-controlling interests
14
19
15
Underlying net result
1,352
1,877
1,788
Adjustment of the EU 'IAS 39 carve-out'
–878
58
559
Net result
474
1,935
2,347
1
In 2019, the Dutch domestic midcorporates real estate finance portfolio transferred from Wholesale Banking to Retail
Banking Netherlands. Comparative figures have been adjusted.
Year
ended 31 December 2019 compared to year ended 31 December 2018
The net result of Wholesale Banking declined to EUR 474 million in 2019 compared with EUR 1,935
million in 2018. The adjustment of the EU ‘IAS 39 carve-out’, included in the net result, turned to a
loss of EUR 878 million in 2019, from EUR 58 million in 2018, due to fair value changes on
derivatives related to asset-liability-management activities for the mortgage and savings portfolios
in the Benelux, Germany, France and Czech Republic. These fair value changes are
mainly a result
of changes in market interest rates.
No hedge accounting is applied to these derivatives under IFRS-
IASB. The underlying net result, which excludes the adjustment of the EU ‘IAS 39 carve-out’,
declined to EUR 1,352 million from EUR 1,877 million in 2018. There were no special items in 2018
and 2017.
The full-year 2019 results for Wholesale Banking show that conditions were challenging in our
markets. The underlying result before tax dropped 27.6% to EUR 1,830 million, down from EUR
2,529 million in 2018. The decline reflects
elevated risk costs (compared with a relatively
low level a
year ago), lower revenues in mainly Financial Markets and Lending,
as well as higher expenses.
Lending posted an underlying result before
tax of EUR 1,597 million, down 20.4% compared with
2018. The decline reflects lower income combined with higher expenses (including increased
regulatory costs and KYC-related
expenses) and higher risk costs due to a number of large
individual files. Despite higher
average volumes, Lending
income declined, mainly due to some
pressure on margins and the EUR 66 million gain related
to an equity-linked bond in Belgium
recorded in 2018. The underlying result
before tax from Daily Banking & Trade
Finance declined
24.3% to EUR 476 million from EUR 629 million in 2018. A modest increase in income, reflecting
improved margins
at lower average volumes, could
not compensate for higher expenses and
elevated risk costs. The increased expenses reflect higher regulatory costs and KYC-related
expenses as well as investments in Payvision and regulatory changes (including PSD2). Risk costs in
2019 included a sizeable provision for a suspected external fraud case.
Financial Markets recorded an underlying result
before tax of EUR -121 million, compared with EUR
-36 million in 2018. The drop was predominantly due to lower income, which was impacted by EUR
228 million of negative valuation adjustments versus EUR -1 million in 2018, in part offset
by lower
expenses on the back of ongoing cost efficiency
measures. Excluding valuation adjustments, pre-
tax result rose by EUR 142 million compared
with 2018, driven by higher client income. The
underlying result before tax of Treasury
& Other was EUR -123 million compared with EUR -70
million in 2018. This decline was mainly due to lower results from Treas
ury-related activities and
Corporate Investments, whereas
the result of the run-off businesses improved after the EUR 123
million loss on the intended sale of an Italian Lease run-off portfolio recorded in 2018. Expenses
increased mainly due to investments in KYC enhancement and innovation, while 2018 included a
release from a legal provision.
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Total
underlying income of Wholesale Banking fell 3.8% to EUR 5,298 million compared with 2018,
mainly reflecting lower revenues in Financial Markets, Lending and Tr
easury-related revenues,
while 2018 included the aforementioned loss on the intended sale of an Italian lease run-off
portfolio. In 2019, the net core lending book (adjusted for currency impacts and excluding Treasury
and the Lease run-off portfolio) grew by EUR 1.1 billion. The inflow in net customer deposits
(excluding currency impacts and Treasury)
was EUR 3.1 billion. Net interest income increased 2.9%,
mainly driven by volume growth in Lending
at lower margins and higher interest results
in Daily
Banking & Trade
Finance, especially in Bank Mendes Gans and Payments & Cash Management. Net
fee and commission income declined 1.5%. Investment and other income fell by EUR 304 million,
mainly due to lower valuation results in Financial Markets, while previous year included a gain on a
bond transaction in Belgium and a loss on the intended sale of an Italian lease run-off
portfolio.
Underlying operating expenses rose 6.0% to EUR 2,937 million, in part due to higher regulatory
costs. Excluding regulatory costs, expenses rose
4.7%, mainly attributable to higher KYC, IT and
staff-related expenses, partly offset
by continued cost-efficiency
savings. The underlying
cost/income ratio increased to 55.4%, from 50.3% in 2017.
Risk costs increased to EUR 532 million, or 29 basis points of average customer lending, from a
relatively low EUR 210 million, or 12 basis points of average customer lending, in previous
year.
The
increase was mainly attributable to a number of large individual files, including a sizeable provision
for a suspected external fraud case.
Year
ended 31 December 2018 compared to year ended 31 December 2017
The net result of Wholesale Banking declined to EUR 1,935 million in 2018 compared with EUR
2,347 million in 2017. The adjustment of the EU ‘IAS 39 carve-out’, included in the net result,
decreased to EUR 58 million in 2018, from EUR 559 million in 2017, due to fair value changes on
derivatives related to asset-liability-management activities for the mortgage and savings portfolios
in the Benelux, Germany and Czech Republic. These fair value changes are mainly a result of
changes in market interest rates. No hedge accounting is applied to these derivatives under IFRS-
IASB. The underlying net result, which excludes the adjustment of the EU ‘IAS 39 carve-out’, rose to
EUR 1,877 million from EUR 1,788 million in 2017. This increase was primarily due to a lower
effective tax rate supported by the impact of the corporate tax reforms in Belgium and the US.
There were no special items in 2018 and 2017.
The underlying result before tax was EUR 2,529 million, down 4.0% from
2017, as higher results in
Daily Banking & Trade
Finance as well as Lending were
more than offset by lower results in
Financial Markets and Treasury
& Other.
Lending posted an underlying result before
tax of EUR 2,006 million, up 2.0% compared with 2017.
Higher income, mainly due to improved margi
ns and a EUR 66 million gain related to an equity-
linked bond in Belgium in 2018, was largely offset by increased expenses (in part due to higher
regulatory costs) and higher risk costs. The underlying result before
tax from Daily Banking & Trade
Finance rose to EUR 629 million from EUR 542 million in 2017. Higher income, supported by volume
growth and the inclusion of Payvision as from the second quarter of 2018, more than outpaced a
slight increase in expenses (due to payment innovation initiatives and higher regulatory costs,
largely
offset by strict cost control), whereas risk costs remained low.
Financial Markets recorded an underlying result
before tax of EUR -36 million compared with EUR
68 million in 2017. The drop in result was caused by lower
income, which was impacted by lower
client activity and challenging global market conditions, partly
offset by a modest decline in
expenses. The underlying result before tax of Treasury
& Other fell to a loss of EUR 70 million
compared with a gain of EUR 58 million in 2017. This was mainly due to lower results in the run-off
businesses (including a EUR 123 million loss recorded in the fourth quarter of 2018 on the intended
sale of an Italian lease run-off portfolio,
while 2017 included a EUR 97 million gain on the sale of an
equity stake in the real estate run-off portfolio), partly offset
by lower expenses for litigation issues.
Total
underlying income of Wholesale Banking fell 2.7% to EUR 5,510 million compared with 2017,
mainly reflecting lower revenues in Financial Markets and the loss on the intended sale of an Italian
lease run-off portfolio. Wholesale Banking’s net core lending book (adjusted for currency impacts,
and excluding Bank Treasury
and the Lease run-off portfolio) grew by EUR 14.9 billion in 2018. Net
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customer deposits (excluding currency impacts and Bank Treasury)
shrank by EUR 0.8 billion. The
interest result rose
1.3% on 2017, whereas net fee and commission income increased 4.5%
(supported by the inclusion of Payvision). Investment and other income fell by EUR 246 million; this
was almost fully attributable to the aforementioned one-off results in the lease and real estate
run-off businesses.
Underlying operating expenses increased 1.0% to EUR 2,771 million due to higher regulatory costs.
Expenses excluding regulatory costs were
0.4% lower, mainly reflecting lower performance-related
expenses and strict cost control, and despite the inclusion of Payvision. The underlying cost/income
ratio increased to 50.3% from
48.5% in 2017. Risk costs declined to EUR 210 million, or 12 basis
points of average customer lending, from EUR 282 million, or 18 basis points in 2017. The relatively
low risk costs in 2018 were supported by several
larger net releases for clients and only a few larger
new additions. On top of that, risk costs for the Italian lease run-off portfolio were significantly
lower than in the previous year.
B.
Liquidity
and capital
resource
s
Consolidated assets and liabilities
The following table sets forth ING Group’s condensed consolidated assets and liabilities as of 31
December 2019 and 31 December 2018. Reference is made to the consolidated statement of
financial position for the
complete overview of consolidated assets and liabilities of ING Group.
Amounts in billions of euros
2019
2018
Cash and balances with central banks
53.2
50.0
Loans and advances to banks
35.1
30.4
Financial assets as at fair value through profit or loss
96.2
120.5
Financial assets at fair value through other comprehensive
income
34.5
31.2
Securities at amortised cost
46.1
47.3
Loans and advances to customers
608.0
589.7
Other assets
15.4
14.3
Assets held for sale
1.3
Total
assets
888.5
884.6
Deposits from banks
34.8
37.3
Customer deposits
574.4
555.7
Financial liabilities at fair value through profit or loss
77.9
92.7
Other liabilities
14.4
15.5
Debt securities in issue/subordinated
loans
135.1
133.5
Total
liabilities
836.6
834.8
Shareholders’ equity
51.0
49.0
Non-controlling interests
0.9
0.8
Total
equity
51.9
49.9
Total
liabilities and equity
888.5
884.6
Shareholders’ equity per Ordinary Share
(in EUR)
13.09
12.61
Year
ended 31 December 2019 compared to year ended 31 December 2018
ING Group increased its total assets by EUR 4 billion, or 0.4%, to EUR 889 billion at year-end 2019
from EUR 885 billion on 31 December 2018. Made comparable for EUR 3 billion of positive currency
impacts, (increasing the 31 December 2018 amount due to a relative rise of other currencies versus
the euro) total assets were EUR 1 billion higher.
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The balance sheet growth was mainly due to EUR 18 billion higher loans and advances to
customers. Also loans and advances to banks (EUR 5 billion), financial
assets through other
comprehensive income (OCI) and cash and balances with central banks (EUR 3 billion each) were
up. These increases were
largely offset by EUR 24 billion lower financial assets
at fair value through
profit or loss (predominantly financial
assets mandatorily at fair value through profit or loss due to
a reduction in demand for repo loans structures). Assets held for sale declined by EUR 1 billion to
nil, reflecting
the sale of an Italian lease run-off portfolio,
which was completed on 1 July 2019.
The higher loans and advances to customers was due to EUR 17 billion of growth in net core
customer lending and an increase in non-core customer lending of EUR 1 billion. The increase in
non-core customer lending included EUR 2 billion of positive FX impacts, a limited increase in
Treasury
lending and a EUR 1 billion decline of the WUB and Lease run-off portfolios.
ING Group increased its subordinated
loans by EUR 3 billion. Debt securities in issue were down by
EUR 1 billion as certificates
of deposit and commercial paper were EUR 4 billion lower (related
to
liquidity management and the facilitation of short-term commercial activities), while other debt
securities, mainly long-term debt, increased by EUR 3 billion. Customer deposits increased by EUR
19 billion. Excluding currency impacts and a EUR 5 billion decline in Treasury,
net customer deposits
growth was EUR 23 billion. Financial liabilities at fair value through profit or loss were
EUR 15 billion
lower, due to EUR 11 billion lower financial liabilities designated at FV PL and
EUR 3 billion less
trading liabilities.
Shareholders’ equity increased by EUR 1.9 billion to EUR 51.0 billion at the end of 2019, from EUR
49.0 billion on 31 December 2018. The increase was mainly due to the net result for the year 2019
of EUR 3.9 billion, which was partly offset by EUR
2.6 billion of dividend paid in 2019.
Capital Management
Risk and capital management remain central to the entrepreneurship
of the bank. Maintaining our
risk profile within our risk appetite and strengthening our capital base is how we grow a sustainable
business and achieve our strategic objectives.
Our overall approach
to capital management is to ensure we have enough capital to cover our
(economic) risks at all levels and comply with local and global regulations, while delivering a return
for our shareholders and investing in innovation.
We believe
that our working capital is sufficient
for our present requirements.
In 2019, our capital position remained strong, despite higher capital requirements
and additional
risk-weighted asset growth from model impacts. ING’s CET1 ratio was 14.6% at the end of 2019,
which was well above our CET1 ratio ambition of around
13.5%. The CET1 ratio at the end of the
year improved as risk-weighted assets increased due to volume
growth and model impacts, effects
that were offset by profit retention and positive risk migration.
In 2019, we issued €2.4 billion and redeemed €0.9 billion additional Tier 1 instruments.
Furthermore, a total of €1.0 billion of Tier 2 bonds were issued whereas
no Tier 2 instruments were
redeemed in 2019. In addition to these instruments, to build up our MREL capacity, we issued
multiple transactions in 2019 for a total amount of €6.3 billion.
ING’s profit generating capacity remained strong and after dividend reserves we included €2.1
billion of capital to our capital base.
ING’s dividend policy aims to pay a progressive dividend that will reflect considerations including
expected future capital requirements, growth
opportunities available, net earnings, and regulatory
developments. The Executive Board proposes
to pay a total cash dividend of €2,689 million, or
€0.69 per ordinary share, over the financial year 2019. This is subject to the approval of
shareholders at the Annual General Meeting in April 2020.
For further information regarding capital management, reference
is made to Note 52 “ Capital
Management” to the consolidated financial
statements. In addition to the restrictions in respect of
minimum capital and capital base requirements that are imposed by banking and other regulators
in the countries in which ING Groep N.V.’s
subsidiaries operate, other limitations exist in certain
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countries. For further information, reference
is made to Item 3. Key Information - Risk Factors” and
“Item 4. Information on the Company – Regulation and Supervision.”
Funding and liquidity
The main objective of ING’s funding and liquidity risk management is to maintain
sufficient
liquidity
to fund the commercial activities of ING both in normal and stressed market circumstances across
various geographies, currencies and tenors. This requires
a diversified funding structure considering
relevant opportunities and constraints.
ING has a Funding & Liquidity (F&L) Framework
which aims to maintain sufficient
liquidity under
normal, adverse and stressed market circumstances. In general, ING considers the adequacy of its
F&L position through three main lenses: (i) Stress; (ii) Sustainability and (iii) Regulatory. For
each
lens, ING has a set of risk appetite statements that underscore the bank’s risk appetite profile
commensurate with the principles for liquidity adequacy. These risk appetite statements are
subsequently translated into a number of metrics with appropriate boundaries and instruments to
measure and manage ING’s F&L adequacy.
ING’s funding consists mainly of retail and corporate deposits contributing 51% and 21% of the
total funding respectively. These funding sources provide a relatively
stable funding base. The
remainder of the required
funding is attracted primarily through a combination of long-term and
short-term professional funding. Group Treasury
manages
the professional funding in line with the
F&L risk appetite to ensure a sufficiently
diversified and stable funding base.
The Loan-to-deposit ratio remained
stable at the level of 1.06.
ING’s long-term professional funding is well diversified across maturities and currencies. The main
part of it is EUR and USD denominated which is in line with the currency composition of customer
lending.
For further information regarding funding and liquidity, see “Additional
information – ING Group
Risk Management”.
At 31 December 2019, 2018 and 2017, ING Groep N.V.
had EUR nil, EUR nil and EUR nil of cash,
respectively. Dividends paid to the Company by its subsidiaries amounted to EUR 2,848 million in
2019, EUR 2,517 million in 2018 and EUR 3,182 million in 2017, respectively, in each case
representing dividends paid with respect to the reporting calendar year and the prior calendar year.
The amounts paid to ING Groep N.V.
were received
from ING Bank, EUR 2,848 million in 2019, EUR
2,517 million in 2018 and EUR 3,176 million in 2017, from ING Support Holding, EUR nil in 2019, EUR
Nil million in 2018 and 6 million in 2017.
As a holding company, ING Groep N.V.’s
total debt and capital securities outstanding to third
parties at 31 December 2019 was EUR 37,403 million, 31 December 2018 was EUR 27,901 million
and at 31 December 2017 was EUR 14,187 million. The EUR 27,901 million of debt and capital
securities outstanding at 31 December 2019 consisted of subordinated loans of EUR 13,113 million
and debenture loans of EUR 24,290 million, both specified
below:
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Subordinated loans
Amounts in millions of euros
Statement of
financial
position value
Interest rate
Year of issue
Due date
2019
1.00%
2019
13 November 2030
996
5.75%
2019
Perpetual
1,336
6.75%
2019
Perpetual
1,121
4.70%
2018
22 March 2028
1,124
2.00%
2018
22 March 2030
759
1.63%
2017
26 September 2029
997
4.00%
2017
14 September 2032
90
4.25%
2017
23 June 2032
146
1.15%
2017
14 June 2029
98
1.10%
2017
31 May 2027
82
3.00%
2017
11 April 2028
1,058
2.50%
2017
15 February 2029
764
6.88%
2016
Perpetual
900
6.50%
2015
Perpetual
1,123
6.00%
2015
Perpetual
901
9.00%
2008
Perpetual
10
6.13%
2005
Perpetual
631
Variable
2004
Perpetual
556
Variable
2003
Perpetual
421
13,113
At 31 December 2019 and 2018, ING Groep N.V.
also owed EUR 145 million and EUR 136 million,
respectively, to ING Group companies pursuant to intercompany lending arrangements. At 31
December 2019 ING Group Companies owed ING Group N.V.
EUR 44,478 million (2018: EUR 34,902),
as a result of normal intercompany transactions.
On the maturity profile of borrowings and a further description of the borrowings reference is made
to Notes 18 ‘Debt securities in issue’ and 19 ‘Subordinated Loans’ in the consolidated financial
statements. The use of financial
instruments for hedging purposes is described in Note 39
‘Derivatives and hedge accounting’ in the consolidated financial statements.
Debenture loans
Amounts in millions of euros
Interest
rate
Year of
Issue
Due date
2019
2.755%
2019
3 September 2031
102
0.100%
2019
3 September 2025
998
4.050%
2019
9 April 2029
896
3.550%
2019
9 April 2031
894
1.625%
2019
21 March 2029
139
1.998%
2019
19 March 2029
46
1.074%
2019
21 February 2029
173
0.810%
2019
21 February 2024
729
3.000%
2019
18 February 2026
1197
5.000%
2019
31 January 2031
85
3.920%
2019
23 January 2029
79
2.125%
2019
10 January 2026
1018
3.399%
2018
28 December 2030
71
1.169%
2018
13 December 2028
157
0.848%
2018
13 December 2023
880
3.790%
2018
13 December 2030
152
5.000%
2018
5 June 2029
110
variable
2018
5 December 2022
250
2.500%
2018
15 November 2030
1,503
4.625%
2018
6 January 2026
1,134
4.100%
2018
2 October 2023
1,347
4.550%
2018
2 October 2028
1,120
variable
2018
2 October 2023
448
2.000%
2018
20 September 2028
1,502
variable
2018
20 September 2023
999
1.000%
2018
20 September 2023
998
1.125%
2018
14 February 2025
1,006
3.950%
2017
29 March 2027
1,344
3.150%
2017
29 March 2022
1,343
variable
2017
29 March 2022
889
0.750%
2017
9 March 2022
1,506
1.375%
2017
11 January 2028
1,011
4.699%
2007
1 June 2035
164
24,290
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ING Group Consolidated
Cash Flows
Year
ended 31 December 2019 compared to year ended 31 December 2018
Net cash flow from operating activities amounts to EUR 13,055 million for the year-end 2019,
compared to EUR 6,915 million at 31 December 2018. The increase in cash flow from operating
activities of EUR 6,140 million is explained by lower cash outflows
from Loans and advances
to
customer (increase of EUR 14,669 million to EUR - 16,687 million in 2019), an increase in other
(increase of EUR 7,685 million to EUR + 11,752 million in 2019) mainly relating to assets
mandatorily at fair value through profit or loss and other financial
liabilities at fair value through
profit and loss. The increases are
offset by a cash outflow
of trading assets and liabilities (decrease
of EUR 12,478 million to EUR – 2,568 million) and a cash outflow
in loans and advances to banks
(decrease of EUR 3,700 million to EUR – 3,911 million).
Net cash flow from investing activities amounts EUR – 2,495 million compared to EUR + 5,451
million in 2018 the net cash flow from investing activities decreased by EUR 7,946 million. The
movement is explained by a decrease in financial assets at fair value
through other comprehensive
income in investments and advances of EUR 5,753 million to EUR – 16,270 million and securities at
amortised costs (decreased by EUR 5,708 million to EUR + 13,001 million). Moreover, financial
assets at fair value through other comprehensive income decreased by
EUR 2,267 million to EUR +
13,390 in disposals and redemptions. These movements are offset by an increase in securities at
amortised costs of investments and advances (increase of EUR 5,717 million to EUR – 12,268
million).
Net cash flow from financing
activities amounts EUR – 4,154 million in 2019, compared to EUR
15,983 million in 2018. The decrease of EUR 20,137 million is explained by a decrease of EUR -
61,750 million to EUR + 90,793 million in proceeds from debt securities and offset by an increase of
EUR 36,673 million to EUR – 94,497 million in repayments of debt securities.
The operating, investing and financing activities described
above result in an increase
of EUR 6,406
million in cash and cash equivalents to EUR 54,031 at year end 2019.
Specification of cash position:
Amounts in millions of euros
2019
2018
Treasury
bills and other eligible bills
43
159
Amounts due from/to banks
786
–2,617
Cash and balances with central banks
53,202
49,987
Cash and cash equivalents at end of year
54,031
47,529
Year
ended 31 December 2018 compared to year ended 31 December 2017
Net cash flow from operating activities amounted to EUR 6,915 million for the year ended 31
December 2018, compared to EUR -5,253 million at year-end 2017. The increase in cash flow from
operating activities of EUR 12,168 million was due to higher cash inflows
from net trading balances,
EUR 21,097 million (2018; EUR 9,910 million, 2017 EUR –11,187 million), higher cash inflows
from
Customer deposits EUR 1,418 million (2018 EUR 19,709 million, 2017 EUR
18,291 million) and a
higher cash inflow from Other EUR 6,521 million (2018 EUR 4,067 million, 2017
EUR -1,751). These
higher cash inflows were partly offset by an increase in cash outflows
from loans and advances of
EUR 9,966 (2018 EUR -31,356 million, 2017 EUR -21,390).
Net cash flow from operating activities was largely affected by the cash inflow
from a decrease of
the trading assets. The cash inflow was due to lower trading balances consisting of equity
securities, debt securities, trading derivatives and loans and receivables. In 2017 the cash outflow
to trading assets was due to higher trading balances consisting of loans and receivables and equity
shares. The cash inflows related to increased customer deposits and were mainly due to increased
savings individuals and credit balances on customer accounts, this net cash inflow was in line with
2017. Newly issued mortgage loans, corporate lending and personal lending led to a cash outflow
which was partly offset by a decrease in loans to public authorities.
Net cash flow from investing activities amounted to EUR 5,451 million, from EUR 11,754 million in
2017. Investments and advances in financial assets at fair value through other comprehensive
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income and securities at amortised cost amounted to EUR -10,517 million and
EUR -17,985 million
respectively as in 2017 the investments in available-for-sale securities and Held-to-maturity
investments amounted to EUR -21,601 and EUR -3,609 million respectively.
Disposals and
redemptions of financial assets at fair value through other comprehensive income and securities at
amortised cost amounted to EUR 15,657 million and EUR 18,709 million respectively as in 2017
the
Disposals and redemptions of in available-for-sale securities Held-to-maturity investments
amounted to EUR 32,788 million and EUR 2,675 million respectively.
Net cash flow from financing
activities amounted to EUR 15,983 million in 2018, compared to EUR -
3,948 million
in 2017. The increase of EUR 19,931 million in net cash flow was mainly due higher
proceeds of debt securities.
The operating, investing and financing activities described
above resulted in an increase
of EUR
28,552 million in cash and cash equivalents from EUR 18,977 million at year-end 2017 to EUR
47,529 million at year end 2018.
Specification of cash position:
Amounts in millions of euros
2018
2017
Treasury
bills and other eligible bills
159
391
Amounts due from/to banks
–2,617
–3,403
Cash and balances with central banks
49,987
21,989
Cash and cash equivalents at end of year
47,529
18,977
Sovereign Debt
Exposures
For information regarding
certain sovereign debt exposures, see Note 5 “Financial assets at fair
value through other comprehensive income”
in the financial
statements and “Additional
information ING Group Risk Management”.
C.
Research
and development,
patents
and licenses,
etc.
Not applicable.
D.
Trend
information
For information regarding
trend information, see Item 5.A of this Form 20-F.
E.
Off-balance
sheet
arrangements
For information regarding
off-balance sheet arrangements, see Note 45 ‘Contingent liabilities and
commitments’ in the financial
statements and see “Risk Management” to the “Additional
information- ING Group Risk Management”.
F.
Tabular
disclo
sure
of cont
ractual
obligations
to Note 37 ‘Pension and other post-employment benefits’
in the consolidated financial
statements.
For information about coupon interest due on financial liabilities by maturity bucket reference is
made to Note 41 ‘Liabilities by maturity’ in the consolidated financial
statements.
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Contractual obligations
Payment due by period
Amounts in millions of euros
Total
Less than
one year
1-5 years
More than
5 years
2019
Lease liabilities²
1,528
217
668
643
Subordinated loans
16,177
0
1,780
14,396
1
Debt securities in issue
115,297
51,810
36,895
26,592
Total
133,001
52,026
39,342
41,632
2018
Operating lease obligations
1,376
259
719
398
Subordinated loans
13,549
1,713
11,836
1
Debt securities in issue
117,790
55,309
41,068
21,413
Total
132,715
55,568
43,500
33,647
¹ The maturity bucket ‘ more than 5 years’
includes subordinated loans of EUR 6,941 million (2018: EUR 5,339) with
no maturity date (perpetual).
² The lease liabilities for the period ended December 2019 has been prepared
in accordance with IFRS 16.
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Item 6. Directors, Senior Management and Employees
A.
Directors
and senior
management
Supervisory Board
Appointment, suspension and dismissal
Members of the Supervisory Board are appointed, suspended and dismissed by the General
Meeting. For the appointment of Supervisory Board members, the Supervisory Board may draw up
a binding list, which may be rendered non-binding by the General Meeting.
A resolution of the General Meeting to render this list non-binding, or to suspend or dismiss
Supervisory Board members without this being proposed by the Supervisory Board, requires an
absolute majority of the votes cast. Additionally, this majority must represent more than half of the
issued share capital. The Articles of Association exclude the waiver of the latter requirement in a
second General Meeting. This ensures that significant proposals of shareholders cannot be adopted
in a General Meeting with a low attendance rate and can only be adopted with substantial support
of ING Group’s shareholders.
Candidates for appointment to the Supervisory Board are subject to a suitability and reliability
assessment by DNB and ECB and must continue to meet these while in function.
Function of the Supervisory Board
The function of the Supervisory Board is to supervise the policy of the Executive Board and the
general course of affairs of ING Group and its business, as well as to provide advice to the Executive
Board.
In line with Dutch company law, the Articles of Association, the Dutch Corporate Governance Code
as well as the Charter of the Supervisory Board, all members of the Supervisory Board are required
to:
◾
act in accordance with the interests of ING Group and the business connected with it, taking into
account the relevant interests
of all stakeholders of ING Group;
◾
perform their duties without mandate and independent of any interest in the business of ING
Group; and
◾
refrain from
supporting one interest without regard to the other interests involved.
According to the Banker’s Oath that was taken by the members of the Supervisory Board, they
must carefully consider the interests of all stakeholders of ING. In that consideration they must put
the customer’s interests at the centre of all their activities. Certain resolutions of the Executive
Board, specified in the Articles of Association,
in the Charter of the Management Board and in
Charter of the Supervisory Board, are subject to approval of the Supervisory Board.
Pursuant to the Articles of Association ING Group indemnifies
the members of the Supervisory
Board as far as legally permitted against direct financial losses in connection
with claims from third
parties lodged or threatened to be lodged against them by virtue of their service as a member of
the Supervisory Board.
Profile of members of the Supervisory Board
The Supervisory Board has drawn up a profile to be used as a basis for its composition. It is available
on the website of ING Group
(www.ing.com).
In view of their experience and the valuable contribution that former members of the Executive
Board can make to the Supervisory Board, it has been decided, taking into account the size of the
Supervisory Board and ING’s wide range of activities that such individuals may become members of
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the Supervisory Board of ING Group. Former
Executive Board members must wait at least one year
before becoming eligible
for appointment to the Supervisory Board.
Former members of the Executive Board
are not eligible for appointment to the position of
chairman or vice-chairman of the Supervisory Board.
After a former member of the Executive Board has been appointed to the Supervisory Board, this
member may also be appointed to one of the Supervisory Board’s committees. However,
appointment to the Audit Committee is only possible if the individual in question resigned from the
Executive Board at least three
years prior to such appointment.
The Supervisory Board of ING shall consist of a mix of persons with executive experience, preferably
gained in the banking sector, experience in corporate governance of large stock-listed companies
and experience in the political and social environment in which such companies operate. In the
selection of Supervisory Board members, ING is striving for a balance in nationality, gender, age,
and educational and work background. In addition, there should be a balance in the experience and
affinity
with the nature and culture of the business of ING and its subsidiaries. More specifically ING
strives to have at least 30 percent of the seats held by women, and at least 30 percent of the seats
by men. These guidelines that relate to the composition of the Supervisory Board, are laid down in
the Supervisory Board Profile. Based on this profile, the Supervisory Board is responsible for
selecting and nominating candidates for appointment or reappointment to the Supervisory Board.
With respect to gender diversity, three female members currently serve on the Supervisory Board:
Mariana Gheorghe, Margarete Haase and Herna verhagen, the latter appointed on 23 April 2019,
with her membership becoming effective per 1 October
2019. With the appointment of Herna
Verhagen in 2019 the Supervisory Board has met its 30 percent
gender diversity target.
We believe
that the Supervisory Board, diversity wise, is well balanced in terms of other relevant
diversity aspects. Overall, the preferred
emphasis on members with a financial
or banking
background has been maintained. In terms of nationality, the ratio between Dutch and non-Dutch
nationalities in 2019 was 44 percent - 56 percent.
Term
of appointment of members of the Supervisory Board
As a general rule, Supervisory Board members step down from
the Supervisory Board in the fourth,
eighth, 10
th
th
fourth year after their initial appointment and,
with explanation, also in the eighth and 10th year.
Under special circumstances the Supervisory Board may, with explanation, deviate from this
general rule, for instance to maintain a balanced composition of the Supervisory Board and/or
to
preserve valuable expertise and experience.
The retirement schedule is available on the website of
ING Group (www.ing.com).
Ancillary positions/conflicting interests
Members of the Supervisory Board may hold other positions, including directorships, either paid or
unpaid.
CRD IV restricts the total number of supervisory board positions or non-executive directorships with
commercial organisations that may be held by a Supervisory Board member to four, or to two, if
the Supervisory Board member also has an executive board position. The European
Central Bank
may, under special circumstances, permit a Supervisory Board member to fulfil an additional
supervisory board position or non-executive directorship. Positions with, inter alia, subsidiaries or
qualified holdings
are not taken into account in the application of these restrictions. Such positions
may not conflict
with the interests of ING Group.
It is the responsibility of the individual member of
the Supervisory Board and the Supervisory Board collectively to ensure that the directorship duties
are performed properly and are
not affected by any other positions
that the individual may hold
outside ING Group.
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Members of the Supervisory Board are to disclose material conflicts of interest (including potential
conflicts of interest) and to provide all relevant information relating
to them. The Supervisory Board
– without the member
concerned taking part – then decides whether a conflict
of interest exists.
In case of a conflict of interest, the relevant member of the Supervisory Board abstains from
discussions and decision-making on the topic or the transaction in relation to which he or she has a
conflict of interest with ING Group.
Transactions
involving actual or potential
conflicts of interest
In accordance with the Dutch Corporate
Governance Code, transactions involving members of the
Supervisory Board in which there are material conflicting interests are disclosed in the Annual
Report.
Any relation that a member of the Supervisory Board may have with ING Group subsidiaries as an
ordinary, private individual is not considered a significant conflict
of interest. Such relationships are
not reported, with the exception of any loans that may have been granted.
Independence
The members of the Supervisory Board are requested to assess annually whether the criteria of
dependence set out in the Dutch Corporate Governance Code
do not apply to them 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 2019.
Eric Boyer de la Giroday is not considered independent because of his former position as Chairman
of the Board of Directors of ING Belgium SA/NV and his former positions as member of the Executive
Board of ING Group 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 independent.
Permanent committees
of the Supervisory Board
On 31 December 2019, the Supervisory Board had four permanent committees: the Risk
Committee, the Audit Committee, the Nomination and Corporate Governance
Committee and the
Remuneration Committee.
An organisational chart of the four permanent committees of the
Supervisory Board can be found above.
The organisation, powers and conduct of the Supervisory Board are detailed in the Supervisory
Board Charter that can be found on
www.ing.com.
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
of the four permanent committees follows below.
The Risk Committee assists and advises the Supervisory Board in monitoring the risk profile of ING
as a whole as well as on the structure and operation of the internal risk management and control
systems. On 31 December 2019, the members of the Risk Committee were: Robert Reibestein
(chairman), Jan Peter Balkenende, Eric Boyer de la Giroday, Mariana Gheorghe, Hermann-Josef
Lamberti and Mike Rees.
The Audit Committee assists and advises the Supervisory Board in monitoring the integrity of the
financial statements
of ING Group and ING Bank N.V.,
in monitoring compliance with legal and
regulatory requirements
and in monitoring the independence and performance of ING Group’s
internal and external auditors. On 31 December 2019, the members of the Audit Committee were:
Hermann-Josef Lamberti (chairman), Eric Boyer de la Giroday, Margarete Haase, Robert Reibestein
and Hans Wijers.
The appointment of Margarete Haase as supervisory board member became effective as per 1 May
2018 (as decided by the Supervisory Board in January 2018) and per that date Margarete Haase is
considered a financial expert as defined
by the SEC in its final rules implementing Section
407 of the
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Sarbanes-Oxley Act of 2002. Eric Boyer de la Giroday is a financial
expert as defined
in the Dutch
Corporate Governance
Code considering his academic background as well as his knowledge and
experience in his previous role as board
member and vice-chairman of ING Groep N.V.
and ING Bank
N.V
.
The Nomination and Corporate Governance Committee’s
tasks include advising the Supervisory
Board on the composition of the Executive Board
and Supervisory Board and assisting the
Supervisory Board in monitoring and evaluating the corporate governance
of ING as a whole and
the reporting thereon in the Annual Report and to the General Meeting, and advising the
Supervisory Board on improvements. On 31 December 2019, the members of the Nomination and
Corporate Governance
Committee were: Hans Wijers (chairman), Mariana Gheorghe and Herna
Verhagen.
The Remuneration Committee’s tasks include advising the Supervisory Board on the terms and
conditions of employment (including remuneration) of the members of the Executive Board and on
the policies and general principles on which the terms and conditions of employment of the
members of the Executive Board and of senior managers of ING Group and its subsidiaries are
based. On 31 December 2019 the members of the Remuneration Committee were: Mariana
Gheorghe (chairman until 1 October 2019), Herna Verhagen (chairman from 1 October 2019),
Robert Reibestein and Hans Wijers.
The composition of the Supervisory Board Committees can be found on ING Group’s website
www.ing.com.
Remuneration
and share ownership
Remuneration of the members of the Supervisory Board is determined by the General Meeting and
is not dependent on the results of ING Group. Details of remuneration
are provided
in the
Remuneration report. Members of the Supervisory Board are
permitted to hold shares in the share
capital of ING Group for long-term investment purposes. Transactions
by members of the
Supervisory Board in these shares are subject to the ING regulations for
insiders.
ING regulations regarding
insiders are available on
www.ing.com
.
Information on members of the Supervisory Board
G.J. (Hans) Wijers (Chairman)
(Born 1951, Dutch nationality, male; appointed in 2017, term expires in 2021)
Former position: chief executive officer and member of the Executive Board of AkzoNobel N.V.
Relevant positions
pursuant to CRD IV
Chairman of the Supervisory Board of ING Groep N.V./ING
Bank N.V.
and member of the Supervisory
Board of Hal Holding N.V.
Other relevant
ancillary positions
Chairman of the Supervisory Board of Het Concertgebouw N.V.
and member of the Temasek
European Advisory Panel of Temasek
Holdings Private Limited.
H.J.M. (Hermann-Josef) Lamberti (Vice-Chairman)
(Born 1956, German nationality, male; appointed in 2013, term expires in 2021)
Former position: chief operating officer of Deutsche Bank AG.
Relevant positions
pursuant to CRD IV
Vice-chairman of the Supervisory Board of ING Groep N.V./ING
Bank N.V.,
non-executive member of
the Board of Directors of Airbus Group N.V.,
chairman of the Supervisory Board of Addiko Bank
(including senior business adviser of Advent International GmBH) and director of Frankfurt
Technology
Management GmbH. The ECB has authorised Hermann-Josef Lamberti to hold a third
non-executive position i.e. in deviation of the maximum of two provided
for in section 91 of CRD IV.
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J.P.
(Jan Peter) Balkenende
(Born 1956, Dutch nationality, male; appointed in 2017, term expires in 2021)
Former
position: partner EY (on corporate responsibility).
Relevant positions
pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
Bank N.V.
Other relevant
ancillary positions
Professor of governance, institutions and internationalisation at Erasmus University Rotterdam
(the
Netherlands), external senior adviser to EY, member of the Supervisory Board of Goldschmeding
Foundation, chairman of the Board of Maatschappelijke Alliantie (the Netherlands) and chairman of
the Board of Noaber Foundation.
E.F.C.B.
(Eric) Boyer de la Giroday
(Born 1952, Belgian nationality, male: appointed in 2014, term expires in 2022)
Former position: member of the Executive Board of ING Groep
N.V.
and 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 non-executive chairman of
the Board of Directors of ING Belgium SA/NV.
Other relevant
ancillary position
Non-executive director of the Board of Directors of the Instituts Internationaux de Physique et de
Chimie fondés par Ernest Solvay, asbl.
M. (Mariana) Gheorghe
(Born 1956, Romanian nationality, female, appointed in 2015, term expires in 2023)
Former position: CEO of OMV Petrom
SA.
Relevant positions
pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
Bank N.V.
and non-executive director of
ContourGlobal Plc.
Other relevant
ancillary position
Member of the Advisory Council of the Bucharest Academy of Economic Studies, Romania.
M. (Margarete)
Haase
(Born 1953, Austrian nationality, female; appointed in 2017, term expires in 2021)
Former position: CFO of Deutz AG.
Relevant positions
pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
Bank N.V.
(effective per 1 May 2018),
member of the Supervisory Board and chairwoman of the Audit Committee of Fraport AG,
member
of the Supervisory Board and chairwoman of the Audit Committee of Osram Licht AG and member
of the Supervisory Board and chairwoman of the Audit Committee of Marquard & Bahls AG.
Other relevant
ancillary positions
Chairwoman of the Employers Association of Kölnmetall and member of the German Corporate
Governance Commission.
A.M.G. (Mike) Rees
(Born 1956, British nationality, male; appointed in 2019, term expires in 2023)
Former position: Deputy CEO of Standard Chartered Bank PLC.
Relevant positions
pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
Bank N.V.,
f
ounder and consultant of
Strategic Vitality Ltd and non-executive
chairman of Athla Capital Management Ltd.
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Other relevant
ancillary position
Non-executive director Mauritius Africa FinTech
Hub.
R.W.P.
(Robert) Reibestein
(Born 1956, Dutch nationality, male; appointed in 2012 as an observer, full member as of 2013,
stepped down per 1 January 2020)
Former position: senior partner of McKinsey & Company.
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.
Other relevant
ancillary positions
Member of the Supervisory Board of Stichting World Wildlife Fund
(the Netherlands) and member of
the advisory committee of Forward.one.
H.W.P.M.A.
(Herna) Verhagen
(Born 1966, Dutch nationality, female; appointed in 2019, term expires in 2023)
Former position:
Relevant positions
pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
Bank N.V.
(per 1 October 2019), CEO of
PostNL N.V.
and non-executive Board member and chairwoman of the Nomination Committee of
Rexel SA.
Other relevant
ancillary positions
Member of the Supervisory Board, nomination committee and sponsering committee of Het
Concertgebouw N.V.,
member of the advisory council of Goldschmeding Foundation and member
of the Board of VNO-NCW (inherent to her position at Post NL N.V.).
Other relevant
ancillary positions
Member of the Supervisory Board, nomination committee and sponsering committee of Het
Concertgebouw N.V.,
member of the advisory council of Goldschmeding Foundation and member
of the Board of VNO-NCW (inherent to her position at Post NL N.V.).
Company secretary
The Supervisory Board and Executive Board are
assisted by the company secretary Cindy van
Eldert-Klep.
Changes in the composition
Mike Rees and Herna Verhagen were
appointed during the Annual General Meeting of 23 April
2019. Henk Breukink retired
from the Supervisory Board as per the end of the Annual General
Meeting of 2019. Robert Reibestein stepped down from the Supervisory Board as per 1 January
2020.
Appointment, suspension and dismissal
Members of the Executive Board are
appointed, suspended and dismissed by the General Meeting.
For the appointment of Executive Board
members, the Supervisory Board may draw up a binding
list, which may be rendered non-binding by the General Meeting. A resolution of the General
Meeting to render this list non-binding, or to suspend or dismiss Executive Board members without
this being proposed by the Supervisory Board, requires
an absolute majority of the votes cast.
Additionally, this majority must represent more than half of the issued share capital.
The Articles of
Association exclude the waiver of the latter requirement in a second General
Meeting. This ensures
that significant proposals of shareholders cannot be adopted in a General Meeting with a low
attendance rate and can only be adopted with substantial support of ING Group’s shareholders.
Candidates for appointment to the Executive Board are
subject to a suitability and reliability
assessment by DNB and ECB and must continue to meet these while in function.
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Function of the Executive
Board
The Executive Board is charged
with the management of ING Group. This includes responsibility for
setting and achieving ING Group’s strategy, objectives and policies, as well as the ensuing delivery
of results. It also includes the day-to-day management of ING Group. The Executive Board
is
accountable for the performance of these duties to the Supervisory Board and the General Meeting.
The responsibility for the management of ING Group is vested in the Executive
Board collectively.
The organisation, powers and modus operandi of the Executive
Board are detailed in the Charter of
the Management Board.
The Charter of the Management Board is available at www.ing.com.
According to the Banker’s Oath that is taken by the members of the Executive Board, they must
carefully consider the interests of all stakeholders of ING. In that consideration they must put the
customer’s interests at the centre of all their activities.
ING Group indemnifies the members of the Executive Board against direct financial
losses in
connection with claims from third parties, as far as permitted by law, on the conditions laid down in
the Articles of Association and their commission contract. ING Group has taken out liability
insurance for the members of the Executive Board.
Profile of members of the Executive
Board
ING Group aims to have an adequate and balanced composition of its Executive Board. The
Supervisory Board annually assesses the composition of the Executive Board on a continuous basis.
The Supervisory Board has drawn up a profile to be used as a basis for selecting members of the
Executive Board
. It is available on the website of ING Group (www.ing.com).
ING aims for the Executive Board of ING to consist of a diverse selection of persons with executive
experience, preferably gained in the banking sector, experience in corporate governance of large
stock-listed companies and experience in the political and social environment in which such
companies operate. In addition, there should be a good balance in the experience and affinity with
the desired nature and culture
of the business of ING. ING strives to have at least 30 percent of the
seats held by women, and at least 30 percent of the seats by men.
In 2018, ING introduced a new principle in a bid to bolster diversity within our organisation. The 70
percent principle gives managers a basis for building mixed teams around appropriate
dimensions
of diversity (with a focus on gender, nationality and age group) and strives for a 30 percent
difference in team make-up. It is our ambition to adhere to this principle across the organisation
within both local and global teams. This principle is incorporated into succession planning for the
Executive Board.
Diversity and succession planning
The 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.
Finding suitable candidates remains challenging, as there are numerous
requirements to take into
account, including gender to enhance the composition of the Executive Board and specific criteria
for each function, including regulatory requirements.
As an example to demonstrate the aforementioned: with the unexpected departure of the previous
CFO Koos Timmermans, in early 2018, the Supervisory Board was faced with the challenge of
appointing a successor as soon as possible. For the succession of the CFO position we reviewed
a
number of suitable candidates from diverse backgrounds. When searching new Executive
Board
members, the Supervisory Board looks broadly at diversity – considering all aspects as well as
primarily looking to ensure ING has the best candidate for the job.
Succession planning
Currently, there are
no female members of the Executive Board, although our ambition of gender
diversity remains unchanged. The succession planning for Executive Board
-positions is continually
worked on, balancing the career advancement of (female) senior managers, considering female
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candidates fit for the role and bringing in talents from outside the bank. In view of the appointment
terms of the current Executive Board
members (every four years) ING considers it likely that the
preferred gender balance will not be achieved
in the short term as replacements are not currently
envisaged. We are
therefore unable to set a clear deadline to reach
this gender balance.
We are
also looking long term and taking steps to improve the appointment of women in senior
positions throughout the bank in line with our recently adopted diversity and inclusion principle.
Remuneration
and share ownership
Members of the Executive Board are
permitted to hold shares in the share capital of ING Group for
long-term investment purposes. Transactions by members of the Executive
Board in these shares
are subject to the ING regulations for insiders. These regulations are
available on the website of ING
Group (
www.ing.com
).
Details of the remuneration of members of the Executive Board,
including shares granted to them,
together with additional information, are provided in the ‘Remuneration
report’ chapter.
Ancillary positions/conflicting interests
No member of the Executive Board has corporate
directorships at listed companies outside ING.
Transactions
involving actual or potential
conflicts of interest
In accordance with the Dutch Corporate
Governance Code, transactions with members of the
Executive Board in which there
are significant conflicts
of interest will be disclosed in the Annual
Report.
Significant conflicting
interests are considered
to be absent and are not reported if a member of
the Executive
Board obtains financial products and services, other than loans,
which are provided
by ING Group subsidiaries in the ordinary course of their business on terms that apply to all
employees. In connection with the aforementioned, the term loans does not include financial
products in which the granting of credit is of a subordinated nature,
e.g. credit cards
and overdrafts
in current account, because of a lack of materiality.
For an overview
of loans granted to members of the Executive Board, see the ‘Remuneration
report’
chapter.
Information on members of the Executive
Board
R.A.J.G. (Ralph) Hamers, chief executive
officer (‘CEO’)
(Born 1966, Dutch nationality, male; appointed in 2013, will step down as of 30 June 2020)
Ralph Hamers has been a member of the Executive Board of ING Group since 13 May 2013 and was
appointed CEO and chairman of the Executive Board and the Managing Board Banking on 1 October
2013. He is responsible for the proper functioning of the Executive Board,
the Management Board
Banking and its committees, formulating and implementing ING’s strategy and acting as main
contact for the Supervisory Board. He is also responsible for the following departments: Innovation,
Legal, Corporate
Strategy, Corporate HR,
CoE Comms & Brand Experience
and Corporate Audit
Services. He joined ING in 1991 and has held various positions including global head Wholesale
Banking Network from 2007 to 2010, head of Network Management for Retail Banking Direct &
International from 2010 to 2011, and CEO of ING Belgium and Luxembourg
from 2011 to 2013. Due
to the resignation of the head of Market Leaders in July 2019, he has taken up this role on an
interim basis until a replacement is found. In this interim role he is also responsible for
ING Bank’s
operations in the Benelux. He holds a Master of Science degree in Business
Econometrics/Operations Research
from Tilburg University, the Netherlands.
As announced on 20 February 2020, Ralph Hamers will step down from his position and leave ING
as of 30 June 2020. He will join UBS on 1 September 2020 and will become group chief executive
officer
per 1 November 2020. He will remain in his role as chief executive
officer
of ING Groep N.V.
and ING Bank N.V.
until 30 June 2020 continuing to run the daily business and working with the
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Executive Board and the Management Board Banking to ensure
a smooth transition of leadership.
Further announcements on the succession process will be made if and when appropriate.
Relevant positions
pursuant to CRD IV
1
Chairman and CEO of the Executive Board of ING Groep
N.V.
and of the Management Board Banking
of ING Bank N.V.
Other relevant
ancillary positions
Member of the Management Board of the Nederlandse Vereniging
van Banken (NVB), member of
the Board of Directors of the Institute of International Finance, Inc., non-executive member of the
board Concertgebouw orkest
member of UNICEF’s Global Board of the Young People’s
Agenda.
T.
(Tanate)
Phutrakul, chief financial officer (‘CFO’)
(Born 1965, Thai nationality, male; appointed in 2019, term expires in 2023)
Tanate
Phutrakul was appointed as chief financial officer
of ING Groep N.V.
and ING Bank N.V.
and
member of the Management Board Banking of ING Bank on 7 February 2019. Subsequently, he was
appointed as a member of the Executive Board of ING Groep N.V.
at the Annual General Meeting on
23 April 2019.
Tanate
Phutrakul is responsible for ING’s financial departments, Group Treasury
(including capital
management activities), Investor Relations, Group Research and Regulatory & International Affairs.
Before his appointment to the Executive Board,
he was ING Group controller in Amsterdam
and
between 2015-2018 he was the CFO of ING in Belgium.
He holds a master’s degree in Engineering from Imperial College, University of London, and an MBA
from Harvard Business School.
Relevant positions
pursuant to CRD IV
Member and CFO of the Executive Board of ING Groep
N.V.,
member and CFO of the Management
Board Banking of ING Bank N.V.,
and Non-executive member of the board of ING Belgium N.V./S.A.
S.J.A. (Steven) van Rijswijk, chief risk officer (‘CRO’)
(Born 1970, Dutch nationality, male; appointed in 2017, term expires in 2021)
Steven van Rijswijk has been a member of the Executive Board since
8 May 2017. He was appointed
CRO on 1 August 2017. He is also a member and CRO of the Management Board Banking. Before
becoming a member of the Executive Board, he was global head of Client Coverage
within ING
Wholesale Banking. Steven van Rijswijk joined ING in 1995 in the Corporate Finance team holding
various positions in the areas of Mergers & Acquisitions and Equity Markets. He holds a master’s
degree in business economics from Erasmus University Rotterdam
(the Netherlands).
Relevant positio
ns pursuant to CRD IV
Member and CRO of the Executive Board of ING Groep N.V.
and member and CRO of the
Management Board
Banking of ING Bank N.V.
Changes in the composition
Tanate
Phutrakul was appointed as a member of the Executive Board
of ING Groep N.V.
at the
Annual General Meeting on 23 April 2019. As announced on 20 February 2020, Ralph Hamers will
step down as chief executive officer of
ING Groep N.V.
and ING Bank N.V.
as of 30 June 2020. He will
join UBS on 1 September 2020 and will become group chief executive officer
per 1 November 2020.
Further announcements on the succession process will be made if and when appropriate.
1
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B.
Compensation
Remuneration
report
Our view
on remuneration
FOR INFORMATION
ONLY
ING’s
remuneration
approach
is
designed
to
attract,
motivate
and
retain
leaders
and
qualified
staff
who
have
the
skills,
abilities,
values
and
behaviours
needed
to
achieve
our
strategy.
It
aims
to
ensure
we
offer
well
-balanced
remuneration
within
our
risk
appetite,
promoting
effective
risk
management.
At
the
same
time,
we
take
into
account
our
responsibility
to
our
customers,
society
and
other
stakeholders,
whose
trust
– quite
simply
– is
our
licence
to
operate.
ING’s remuneration principles are important to achieve the bank’s strategy,
its purpose – to
empower people to stay a step ahead in life and in business – and its risk profile. These principles
apply to all employees, including members of the Executive Board (hereafter ‘EB’). They aim to
maintain a balance between short-term and long-term value creation for all stakeholders while
being responsible and fair.
Ultimately, it’s about making sure we are able to effectively reward
success and avoid rewarding
for failure.
In this report we look back on the year 2019. We report on ING’s performance and how 2019 events
have impacted remuneration. We
outline the current Executive Board and Supervisory Board
remuneration policies and share details of remuneration awarded
in 2019 to the Executive Board,
including variable remuneration, and to the Supervisory Board.
Thereafter, we set out the remuneration approach that applies to all employees and explain more
about how total direct compensation and variable remuneration work within ING. We
also explain
the performance management process and its link to remuneration, and we provide
more
information on the measures we have in place to mitigate risk.
Overall, the Supervisory Board has concluded that the Executive
Board members did well to deliver
our results in 2019. Although the underlying result before
tax and underlying return on equity
decreased compared to 2018, good progress
was made in the execution of the Think Forward
strategy. This is shown by the continued growth of primary customers, ongoing execution of the
KYC enhancement programme
with strong governance from top management and further
progress in sustainability.
Looking ahead, there is an additional section in this year's report outlining the Supervisory Board's
proposal for remuneration
policies for the Executive Board and the Supervisory Board for the
coming years.
This 2019 remuneration report is our first under the requirements of the Dutch Act implementing
the Shareholder Rights Directive II (SRD II). This report is also drafted in the spirit of the European
Commission’s non-binding draft guidelines for disclosure. We
intend to update our 2020
remuneration report to reflect the final guidelines, which
we expect will have been published by
then, also taking into account the advisory vote of shareholders regarding
this 2019 remuneration
report.
Our starting
point
The Supervisory Board acknowledges that in the past it has not always got its stance on
remuneration right. This was especially apparent in 2018, when a proposal to amend the
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remuneration policy of the Executive
Board elicited much criticism. It was subsequently withdrawn
and the Supervisory Board promised to carry out an extensive review
of the remuneration policy.
We did this review
in 2019, in consultation with advisory bodies and a broad range of stakeholders,
holding meaningful discussions to make sure our remuneration approach and subsequent proposal
achieves the right balance among the various viewpoints and interests.
Stakeholder
engagement
A long list of stakeholders participated in these discussions,
including our Dutch Central Works
Council, representatives
of Dutch trade unions, the Advisory Council of ING Netherlands, trade
bodies and regulatory and governmental authorities such as the Dutch central bank and the
European Central
Bank. A number of institutional shareholders together holding approximately
24% of ING’s share capital were also consulted, as well
as proxy advisory firms and Dutch
shareholder advocacy groups. A specialised market research
firm elicited qualitative feedback from
customers, and we asked current members of the Executive Board for
their views, in line with the
Dutch Corporate Governance
Code.
In these dialogues
the most contentious point was the level of total direct compensation. Some
investors were concerned about ING’s ability to attract the relevant
talent. Other stakeholders were
more critical about the general remuneration
level. There was also criticism that the EURO STOXX
50 peer group, which ING uses as a benchmark for remuneration, includes too many companies
that are not sufficiently
comparable.
On the subject of variable remuneration, stakeholders understood and supported the continuation
of this within the limits of Dutch legislation (i.e. a maximum of 20% of base salary). There was a
clear ask for more transparency
about the metrics used to determine variable remuneration and
how these are applied for the performance year.
The insights gained from the stakeholder engagement process have significantly contributed to the
quality of the remuneration policy that we intend to propose to shareholders at
the next Annual
General Meeting (hereafter ‘AGM’) in April 2020. Both myself and my colleagues on the Supervisory
Board highly appreciate the participation of stakeholders and the meaningful insights they
provided.
Proposed
way forward
Based on the various viewpoints, interests, remarks and concerns, going forward
we are proposing
a moderate annual base salary increase linked to an external indexation reference
point such as a
consumer price index and ING’s CLA increases.
To
increase the relevancy
of our peer group, the Supervisory Board is proposing to use a smaller
one based on geography, relevant talent market, size and governance
framework. We
intend to
include a balancing factor to ensure we also consider relevant peer companies that may not fulfil
the other criteria. The proposed benchmark consists of eight comparable Dutch companies and
eight relevant European
financial
services providers.
Among other things it aims to provide more clarity on the performance metrics to be used for
awarding variable remuneration,
how targets are set and how achievements are
measured, as well
as reflecting ING’s risk culture and compliance initiatives.
Subject to approval by shareholders at the next AGM, the new remuneration
policies for Executive
Board and Supervisory Board members will become effective retroactively from
1 January 2020.
As the discussions with stakeholders last year showed, remuneration is an important topic for
many stakeholder groups, who raised varying viewpoints on the topic. Myself and my colleagues
on the Supervisory Board are fully committed to making sure we
get our approach to remuneration
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right – for now and in the future. It’s about achieving a balance that is right for ING, for customers,
shareholders, other stakeholders and society at large.
Herna Verhagen
Chairman of the Supervisory Board Remuneration Committee
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Remuneration
Report Executive
Board and Supervisory Board
FOR ADVISORY VOTE AT
2020 AGM
This part of the Remuneration Report explains how the 2019 EB Remuneration Policy and the
current SB Remuneration was implemented during 2019. This part is the Remuneration Report as
referred
to in the Dutch Act implementing Shareholder Rights Directive II (SRD II). This
Remuneration Report will be presented to the 2020 AGM for an advisory vote.
In the Remuneration
Report 2020 an explanation will be included on how the result thereof has been taken into account.
Also the requirements for the report prepared
by the Supervisory Board as stated in the Dutch
Corporate Governance
Code are taken into account.
This 2019 Remuneration Report is our first under the requirements of the Dutch Act implementing
Shareholder Rights Directive II (SRD II). This report is also drafted in the spirit of the draft (non-
binding) guidelines for disclosure from the European
Commission. As such, 2019 should be
considered a transitional year.
In 2020, we aim to disclose fully in line with these final
guidelines.
Business
events
2019
In February 2019, Tanate
Phutrakul was appointed as ING’s chief financial officer
and a member of
the Management Board Banking. He was subsequently appointed to the Executive Board at the
AGM on 23 April 2019. Tanate
Phutrakul succeeded Koos Timmermans who, in consultation with
the Supervisory Board, stepped down from his position as chief financial officer
and member of the
Executive Board of ING Gro
up on 7 February 2019.
At the 2019 AGM shareholders approved
the reappointment of Mariana Gheorghe and the
appointment of Mike Rees and Herna Verhagen to the Supervisory Board.
Supervisory Board member Robert Reibestein, announced his early resignation effective 1 January
2020 because of persistent personal health issues.
After the very challenging year 2018, a majority of shareholders at the AGM in April 2019 voted
against discharge of the Executive Board and Supervisory Board
members from their potential
liability against the company for their duties performed in 2018. The Supervisory Board and
Executive Board fully understand and share
the underlying disappointment, especially regarding
the shortcomings in the prevention of financial and economic crime, which was also expressed by
shareholders in the many direct contacts during the year.
Both boards have taken the vote as a
clear signal and firm
encouragement to continue with the enhancement programme announced in
September 2018 and ensure we make structural improvements to bring our gatekeeping function
in the area of customer due diligence and anti-money laundering to the appropriate level.
Executive
Board
remuneration
policy
The current Executive Board
remuneration policy (hereafter called the 2019 EB Remuneration
Policy) complies with applicable laws and regulations and is in line with the remuneration principles
that apply to all employees.
The current remuneration
policy for the Executive Board was adopted by shareholders
at the AGM
on 27 April 2010. Subsequent amendments to this policy were adopted at AGMs on:
◾
9 May 2011 in response to new regulatory requirements
◾
12 May 2014 with respect to pensions for the Executive Board
◾
11 May 2015 to lower the maximum variable remuneration in line with legal requirements
and
specify that variable remuneration for the Executive
Board be paid fully in shares
◾
8 May 2017 to extend the deferral period of the variable remunerat
ion from three to five years.
For 2019, the remuneration
policy for the Executive Board remained
unchanged. Shareholders will
be asked to vote on a revised Executive
Board remuneration
policy at the 2020 AGM, which is a
binding vote. For further information on the revised
policy, we refer to the Chairman’s letter.
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Total
direct
compensation
Total
direct compensation for the Executive Board is determined and reviewed
periodically by the
Supervisory Board. In line with the 2019 Executive Board Remuneration
Policy,
the Executive
Board’s total direct compensation for 2019 was compared to a peer group
EURO STOXX 50
companies. The total direct compensation under the 2019 Executive Board Remuneration
Policy is
below the median of the EURO STOXX 50. This approach is in line with the requirements
laid down
in the Dutch Banking Code.
Variable
remuneration
Variable remuneration
for Executive Board members is limited to a maximum of 20% of base
salary. At least 50% of this is based on non-financial
performance criteria. The 2019 EB
Remuneration Policy provides
for an at-target variable remuneration
of 16% of base salary. If
performance criteria are exceeded, the Supervisory Board can increase
the variable component to
the maximum. If performance is below target, the variable component will be decreased,
potentially to zero.
The Supervisory Board pre-determines the performance criteria for the Executive
Board each year
to ensure alignment between ING's strategy and performance objectives.
Variable remuneration
is paid fully in shares. Forty percent
of the variable remuneration is paid
upfront and 60% is deferred. For
all shares awarded to Executive
Board members (in their capacity
as board members) there is a minimum retention period of five years from the date of conditional
grant and one year from the vesting date.
Vesting of any deferred
variable remuneration is not
subject to performance and can only be adjusted in case of an ex-post risk measure as described in
the Risk adjustments paragraph or if an Executive Board
member leaves ING. This award approach
aligns remuneration with creating long-term value for
ING.
Pension
Since 1 January 2015, all members of the Executive Board have participated
in the Collective
Defined Contribution (CDC) pension plan
with respect to their annual salary-up to €107,593 for
2019. This is similar to all employees working in the Netherlands without a supplementary
pension
scheme. Above this amount, members of the Executive Board
are compensated for the lack of
pension accrual by means of a savings allowance (see Benefits),
to be annually determined, on the
same terms that apply to other participants in the Dutch pension scheme.
Benefits
Executive Board members are
eligible for additional benefits
(all within benchmarks),
such as:
-
costs associated with the use of a company car;
-
contributions to company savings plans;
-
expatriate allowances (if applicable);
-
banking and insurance benefits from ING (on the same terms as for other employees of ING in
the Netherlands);
-
tax and financial planning
services to ensure compliance with the relevant
legislative
requirements.
Tenure
Members of the Executive Board are
appointed by shareholders at the AGM for a maximum period
of four years. They may be reappointed by the AGM in line with applicable rules and regulations.
Executive Board members have a commission contract for
an indefinite
period. ING has the option
to terminate if they are not reappointed by shareholders at the AGM or if their membership of the
board is terminated. There is a three
-month notice period for individual board members and a six-
month period for ING. During this time the board member continues to work and remains eligible
for all agreed remuneration
components.
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In the event of an involuntary exit, Executive Board
members are eligible for an exit arrangement. If
termination of the contract is based on mutual agreement, the Executive Board member is also
eligible for a severance payment. These arrangements are
subject to specific
requirements (e.g.
limited to a maximum of one year of fixed
base salary, under the condition that there should be no
reward
for failure).
Periodic
review
of the
remuneration
policy
and the
remuneration
paid
In accordance with the 2019 EB Remuneration Policy
,
the Supervisory Board annually determines
the actual remuneration for members of the Executive Board,
based on the advice given by the
Remuneration Committee of the Supervisory Board.
The Remuneration Committee’s responsibilities include prepar
ing the Supervisory Board for
decisions regarding the remuneration
of individual members of the Executive Board. Remuneration
proposals for individual Executive Board members are
drawn up in accordance with the 2019 EB
Remuneration Policy and cover
the following aspects: remuneration structure, the amount of the
fixed and variable remuneration components, the performance criteria used, scenario analyses
that are carried out and, if and when considered appropriate,
the pay ratios within the company
and its affiliated
enterprises. The Remuneration Committee takes note of the views of individual
Executive Board members with regard
to the amount and structure of their own remuneration,
including the aspects mentioned above.
Special
employment
conditions
Special employment conditions, for example to secure the recruitment of new executives, may be
used in exceptional circumstances subject to approval by the Supervisory Board.
In 2019, there
were none.
2019 Remuneration
Executive
Board
This section includes remuneration details for current and former Executive
Board members
relating to the period that they served on the Executive Board during 2019.
1
In line with the Dutch Corporate Governance Code,
ING determines the internal ratio of
remuneration for Executive
Board members and a representative
reference group.
Deemed most
relevant for this ratio
is the total direct compensation of the CEO compared to the average total
direct compensation of all ING employees. On this basis, the internal ratio in 2019 was 1:31. For the
sake of transparency we also calculated the ratio
of the total direct compensation of the other
Executive Board members compared
to the average total direct compensation of all ING
employees. On that basis the internal ratio in 2019 was 1:21.
2
is due to fact that no variable remuneration was granted over
performance year 2018.
3
As disclosed in the Annual Report 2018, in consultation with the Supervisory Board, chief financial
officer
Koos Timmermans stepped down from his position as chief financial officer
and as a
member of the Executive Board on 7 February
2019. To facilitate
an orderly transition and fulfil
ING’s contractual notice period of six months, he continued to advise the company until 31 August
2019. In line with applicable regulations a severance
payment was granted. Although entitled to a
maximum severance payment of one year’s fixed annual pay, the Supervisory Board at its
discretion set the severance
pay at a level of 50% of fixed annual pay (€601,800).
1
Koos Timmermans was an EB member until 6 February 2019; Steven van Rijswijk was appointed to the EB on 8 May 2017;
Tanate Phutrakul
was appointed to the EB immediately following the 23 April 2019 AGM. As Ralph Hamers has been an EB
member for the full years 2017-2019, the full remuneration is presented and no pro-rata method has been applied.
2
Total direct
compensation comprises fixed base
salary and variable remuneration, excluding benefits such as pension
arrangements, and allowances.
3
The internal ratio in 2018 for the CEO was 1:29, for the other Executive Board members this amounted to 1:20. In 2017,
the internal ratio for the CEO was 1:33 and for the other Executive Board members this amounted to 1:23.
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Remuneration
versus
company
performance
and average
employee
remuneration
The table below shows the link between directors’ remuneration,
company performance and the
average remuneration
of an ING employee. This is done by presenting the relative development of
the remuneration for the Executive
Board and Supervisory Board members over the last five years.
With respect to the remuneration of the Supervisory Board, note that there is no link to company
performance to emphasise their independent role.
Furthermore, the relative
performance of the company is presented on three different metrics over
the last five years. The metrics
consist of:
◾
Retail primary customers
◾
Profit before tax ING Group
◾
Underlying Return on Equity
Finally, we present the development of the remuneration
on average (per employee). For this
number the same data has been used as to determine the internal ratio. Since the internal ratio
was disclosed by ING as of 2017, we only have three years of data available.
Due to the strict regulations on variable remuneration in the Netherlands (e.g. 20% bonus cap) and
due to the fact that Executive Board members did not receive any variable
remuneration over
performance year 2018, the link between remuneration and company performance is relative.
Furthermore variable remuneration
must be based on at least 50% non-financial
targets.
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2019 ING Group Annual Report on Form 20-F
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FY 2019
FY 2019 vs FY 2018
FY 2018 vs FY 2017
4
FY 2017 vs FY 2016
FY 2016 vs FY 2015
FY 2015 vs FY 2014
Directors remuneration (Executive
Board)
1, 2, 3, 5
Ralph Hamers
2,016
15.2%
-12.8%
1.4%
2.9%
51.4%
Tanate
Phutrakul
973
-
-
-
-
-
Koos Timmermans
818
-11.8%
Steven van Rijswijk
1,399
16.2%
-11.8%
-
-
-
Directors remuneration (Supervisory Board)
6
Hans Wijers
202
9.2%
340.5%
-
-
-
Hermann-Josef Lamberti
141
1.4%
-1.4%
-5.4%
34.2%
37%
Jan-Peter Balkenende
99
0%
200%
-
-
-
Henk Breukink
40
-68.3%
-0.8%
-8.6%
39%
8.7%
Mariana Gheorghe
118
12.4%
11.7%
-4.1%
145%
-
Eric Boyer de la Giroday
108
0%
1.9%
-7%
23.9%
73.6%
Margarate Haase
98
55.6%
-
-
-
-
Mike Rees
73
-
-
-
-
-
Robert Reibestein
136
-1.4%
1.5%
-1.4%
50%
-2.1%
Herna Verhagen
30
-
-
-
-
-
Company’s performance
5, 6
-
Retail primary relationships (in mln)
13.3
7%
10%
9%
14%
9%
Profit before Tax
ING Group (continuing operations) (in mln)
6,834
0%
-6%
23%
-4%
66%
Underlying Return on Equity
9.4%
-2%
1%
0%
2%
1%
Average employee remuneration
Average
fixed and annual variable remuneration
65
7%
-1.1%
-
-
-
1
The remuneration of the Executive Board consist of base salary and variable remuneration (total direct compensation).
2
Variable remuneration
of the Executive Board is included in the year in which the performance has been delivered. Thus prior to the year in which it has been paid out.
3
The fixed remuneration for the Executive Board has not changed over 2019. Hence, the relative total compensation increase from 2018 to 2019 is fully attributed to the fact that no variable remuneration was awarded over performance year 2018. In addition,
since Tanate Phutrakul
has not been an Executive Board member for the full year and since Koos Timmermans left ING during the year, the comparison
between 2018 and 2019 could not be made.
4
The decrease in 2018 versus 2017 comparison for the CFO and CRO is fully attributed to the fact that for performance year 2018 no variable remuneration has been awarded while over performance year 2017 variable remuneration was awarded. For the CEO
the impact is less due to the fact that his fixed
remuneration was increased by 2.2% in 2018 compared to 2017. The fixed remuneration
for the CFO and CRO remained the same.
5
Fixed remuneration for Executive
Board members within ING is not linked to company performance but is based on a benchmark exercise and total direct compensation of Executive Board members should stay below the median of the benchmark
based on the
Dutch Banking Code. This has a mitigating effect on the correlation with the company performance.
6
Supervisory Board members do not receive any variable remuneration. Their remuneration is based on fixed fees related to their role and amount of meetings. The high fluctuations are caused by joining and leaving
the Supervisory Board during the year,
change of roles during the year and the difference in the amount of meetings. Hence there is no correlation between the SB remuneration and the company performance.
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2019
Executive
Board
base
salary
As announced in our 2018 Annual Report, the base salary of all Executive Board members
remained the same in 2019 as it was in 2018.
2019
performance
indicators
Executive
Board
As indicated in the remuneration policy, the performance of the Executive
Board is assessed on
non-financial and
financial indicators. The performance indicators
assessed for 2019 included the
following (overview of combined performance indicators of the Executive
Board members):
Financial performance indicators
◾
Underlying result before tax
◾
Net core lending
◾
Underlying return on equity (IFRS-EU)
à
◾
Underlying cost/income ratio
◾
Common Equity Tier 1 ratio (SREP)
à
Non-financial performance indicators
◾
Customer: ensuring growth of retail primary customers.
◾
Operational control: ensuring ING is a safe and compliant bank now and in the future, in line with
regulations.
◾
Think Forward
Strategy: ensuring intended outcomes of key strategic initiatives are executed
and result in improved
customer experience and commercial growth.
◾
People: driving initiatives to continue to be a healthy organisation and great place to work.
◾
Sustainability: increasing ING’s social and environmental impact through our sustainability
activities
2019
Executive
Board
performance
evaluation
The table below highlights key achievements, collectively accomplished by the Executive Board in
2019 in the areas mentioned. It reflects both ING’s overall ambitions and the specific
performance
priorities agreed with the Supervisory Board at the beginning of 2019.
Financial
performance
Achieved underlying
result before tax
reflecting a well-diversified
loan book with resilient margins, despite margin
pressure on customer deposits. The net profit is €4,781 million, up 1.7% from
2018.
Grew net core
lending by €17.2 billion (+2.9%); increased customer deposits by
€23.4 billion (+4.2%).
Realised underlying
return on equity
from 11.2% in 2018.
The underlying cost/income ratio decreased to 56.6% from 54.5% in 2018
driven by higher KYC, staff and regulatory costs (51% excluding regulatory
costs).
Customer
Increased the number of
primary customers
million in 2019 (+6.7%).
The total retail customer base reaches 38.8 million.
Ranked number one in Net Promotor Score rela
tive to competitors in six of the
14 retail markets.
A growing share of Retail
customers only interacts with ING on their mobile
device, up from 26% in 2018 to 37% in 2019. Increase in conversion of
customer interactions into sale, with seven times higher mobile sales in 2019
than in 2016.
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Operational
Control
In 2019 countering financial
and economic crime remained a priority:
◾
The number of FTEs working globally on know your customer (KYC) related
activities has increased to ~4,000.
◾
The increased focus on KYC and efforts to streamline operations are leading
to an increased number of accounts being closed, including inactive
accounts or accounts of which the customers were insufficiently
responsive
to information requests.
◾
Further progress
was made in strengthening the global KYC organisation
and governance structure throughout ING.
◾
Further progress
was made in the global roll-out of KYC tools to enable the
onboarding of customers and monitor their transactions across ING’s global
network in a more effective and consistent way.
◾
The implementation of a systematic integrity risk analysis in all business
lines and regions was completed, contributing to consistent KYC risk
assessments across the bank.
ING keeps investing in regulatory compliance, developing promising
tools to
increase accuracy and efficiency in KYC operations:
◾
A virtual alert handler using artificial
intelligence (AI) to sort “false positives”
from the alerts that need more investigation, so far reducing
“false
positives” by half.
◾
A tool to detect instances of fraudulent transactions related to “smurfing”;
the practice of breaking up transactions into smaller amounts to evade
conventional rule-based monitoring systems.
◾
An advanced AI-based anomaly detection model to automatically analyse
and detect new potentially suspicious behaviour in foreign currency clearing
and settlement that ING executes on behalf of others.
◾
Development of SparQ, a global platform that uses AI to automate the
process of turning regulation into policy. It gives insight into applicable
regulations, identifies changes, helps analyse documents
and can link
regulation directly to our policies.
ING is committed to periodically providing the Dutch central bank (DNB) with
regular updates on the progress
made.
Execution Think
Forward
Strategy
Important steps taken in the
major digital transformation programmes
:
◾
Unite be+nl:
digital channels across Belgium and Netherlands (OneApp and OneWeb)
that have been piloted with customers. Introduction of one platform for all
customer-facing collegues to allow supporting customers faster and in a
more uniform way.
◾
Maggie (former Model Bank):
active customers and the platform is ready to onboard customers from
Italy, Spain and France
in the coming years.
◾
Welcome:
ING in Germany completed the programme early 2019 after
introducing a new mobile app (One App) and a Go2Place platform including
e-signature, multi-banking account overview, forecasting,
third-party
services and end-to-end digital process for account opening, consumer
loans and mortgages.
◾
Wholesale TOM:
customers through the implementation of target solutions in Financial
Markets, Lending and Tra
nsaction Services, setting up a pan-European Daily
banking Desk and by expanding our client platform InsideBusiness, which is
used by more than 18,000 international clients.
New initiatives developed and aligned with partners to improve the customer
experience being:
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◾
ING’s partnership with
AXA
with its global platform, which will provide home, mobility and health
insurance services in six markets via the mobile app. The first product
launched on the platform is home insurance, delivered by the ING mobile
app in Italy. This is in addition to the six products launched outside the
platform in 2019.
◾
Yolt
, ING’s personal finance
aggregator, reached over one million users and
was chosen as the best personal finance
app at the International Payments
Awards 2019.
◾
The launch of
instant payments
money to be available in five seconds to the beneficiary
every moment of
the day all year round.
◾
Introduction of
ApplePay
users.
◾
In order to improve
the credit decision process for Wholesale Banking
clients, ING has invested in
Flowcast
. This is a start-up that uses machine
learning algorithms to create predictive models that reduce risk and unlock
credit to businesses.
Major milestone achieved in the
blockchain area
:
◾
ING joined a consortium with MineHub to develop a blockchain-based
platform that would help ING clients in the metals and mining sector to
lower costs, increase transparency
and contribute to sustainable production
and trading.
◾
First client transaction completed on Komgo, a platform that digitalises and
streamlines trade and commodity finance.
People
The Organisation Health Index (OHI) survey carried out 2019 showed room for
improvement. The overall
health score is a performance indicator measuring
organisational health relative to a global benchmark of 1,900 companies.
Although ING continues to outperform our peers in most areas, there was a
decline in the 2019 results.
Sustainability
In September ING published the first
progress report
on
Terra
, ING’s approach
to steer its €600 billion lending book in line with the goals of the Paris
Agreement to keep global warming to well-below two degrees.
The disclosure addresses developments and climate alignment for the sectors:
power generation, fossil fuels, automotive, shipping, aviation, steel, cement,
residential mortgages and commercial real estate.
These are the sectors in
ING’s portfolio that are most responsible for greenhouse gas emissions. In a
Climate Alignment Dashboard (CAD) the report presents which sectors are on
track for climate alignment and where work is still in progress.
This climate
change disclosure is a first for banks.
ING is recognised as an
A-list company for leadership on climate action
fifth
year in a row by CDP, the leading global environmental disclosure
platform.
In 2019 ING reinforced
the commitment to help customers reach their
sustainability goals by closing more than twice the amount of sustainable
finance deals compared to 2018.
Variable
remuneration outcome
Based on these achievements, the Supervisory Board has concluded that the Executive Board
members did well overall to deliver these results.
This was despite a challenging rate environment
and increase in costs related to the KYC enhancement programme.
Although the underlying result
before tax and underlying return on equity decreased compared
to 2018, good progress was made
in the execution of the Think Forward Strategy.
This is shown by the continued growth of the
primary customer base and the increase in mobile interactions by retail customers. Risk costs
remained below the through-the-cycle average.
ING also continued executing the KYC
enhancement programme, with strong governanc
e
from top management, more FTEs working in
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KYC and the roll out of global KYC tools. In sustainability ING remains a leading company, making
further progress with the Terra
approach by partnering with 30 other banks to steer the lending
portfolio towards the climate goals of the Paris Agreement. Overall
this has resulted in a variable
remuneration for the Executive
Board members of between 15 and 16%.
2019
Executive
Board
remuneration
The tables below (i.e. total direct compensation, pension costs and other emoluments) show the
remuneration awarded
to individual Executive Board members with respect to the performance
years 2019, 2018 and 2017. The 2019 figures reflect
a partial year as Executive Board members for
Tanate
Phutrakul and Koos Timmermans. The 2018 figures reflect an entire year for all three active
members of the Executive Board. The 2017 figures reflect a partial year as Executive Board
members for Koos Timmermans and Steven van Rijswijk.
All remuneration of the Executive
Board is paid directly by ING, in other words no payments have
been made by any of our subsidiaries.
2019
2018
2017
Amounts in euros (rounded figures)
Amount
Number of
shares
Amount
Number of
shares
Amount
Number of
shares
Ralph Hamers (CEO)
Base salary
1,750,000
1,750,000
1,713,000
Variable remuneration
(fully in shares)¹
266,000
25,726
293,000
18,547
Tanate
Phutrakul (CFO)
2
Base salary
831,100
Variable remuneration
(fully in shares)¹
141,400
13,675
Koos Timmermans (CFO)
3
Base salary
802,400
1,203,600
781,000
Variable remuneration
(fully in shares)¹
16,000
1,553
104,000
6,612
Steven van Rijswijk (CRO)
Base salary
1,203,600
1,203,600
781,000
Variable remuneration
(fully in shares)¹
195,000
18,858
104,000
6,584
Total
aggregated base salary
4,587,100
4,157,200
3,275,000
Total
aggregated variable remuneration
618,400
501,000
Total
aggregated number of shares
59,812
31,743
1
The number of shares is based on the average ING share price (€10,34) on the day on which the year-end results were
published.
2
Tanate Phutrakul
was appointed to the Executive Board immediately following the 23 April 2018 AGM. This amount of
variable remuneration reflects his period as an Executive Board member.
Thus, for the period from 23 April 2019 – 31
December 2019.
3
Koos Timmermans left ING per 7 February 2019 as an Executive Board member.
Until 31 August 2019 he received an
advisor fee for the period in which he transferred his activities to his successor. Thus the base salary reflects the payments
from 1 January 2019 – 31 August 2019. The amount of variable remuneration however, only reflects his period as an
Executive Board member.
Thus, for the period from 1 January 2019 – 7 February 2019.
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Additional Information
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Financial Statements
Pension costs for individual Executive Board members
Other emoluments
2019 ING Group Annual Report on Form 20-F
112
Pension
costs
Members of the Executive Board participate in the Collective
Defined Contribution
(CDC) pension
plan. In 2019, pension accrual only applied to salary up to an amount of €107,593. The table
below
shows the pension costs of the individual members of the
Executive Board in 2019, 2018 and 2017.
Amounts in euros (rounded figures)
1
2019
2018
2017
Ralph Hamers
23,000
26,000
30,000
Tanate
Phutrakul
2
16,000
–
–
Koos Timmermans
3
15,000
26,000
19,000
Steven van Rijswijk
23,000
26,000
19,000
1
Pension accrual only applies to salary up to an annually set amount (i.e. €103,317 for 2017, €105,075 for 2018 and
€107,593 for 2019).
2
Tanate Phutrakul
was appointed to the Executive Board immediately following the 23 April 2018 AGM. Thus, the figures
reflect a partial year as an
Executive Board member.
3
Koos Timmermans left ING per 7 February 2019 as an Executive Board member. Until 31 August 2019 he received an
advisor fee for the period in which he transferred his activities to this successor. Thus the pension costs reflect the period
from 1 January 2019 – 31 August 2019.
Benefits
The individual members of the Executive Board receive other emoluments, including savings
allowances to compensate for
the loss of pension benefits
on salary above €107,593 for 2019,
employer contributions to savings schemes,
reimbursement of costs related to home/work
commute, costs associated
with a company car and
for expats, the costs associated with housing
and schooling.
The other emoluments amounted in 2019, 2018 and 2017 to the
following costs.
Amounts in euros (rounded figures)
2019
1
2018
2017
2
Ralph Hamers
521,000
561,000
624,000
Tanate
Phutrakul
235,000
–
–
Koos Timmermans
3
231,000
408,000
290,000
Steven van Rijswijk
367,000
369,000
274,000
1
The 2019 emoluments reflect the partial
year as an Executive Board member for Tanate
Phutrakul.
2
The 2017 emoluments for Koos Timmermans and Steven van Rijswijk reflect the partial
year as an Executive Board
member.
3
Koos Timmermans left ING per 7 February 2019 as an Executive Board member. Until 31 August 2019 he received an
advisor fee for the period in which he transferred his activities to his successor. Thus the emoluments reflect the period from
1 January 2019 – 31 August 2019.
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Financial Statements
Other emoluments in more detail 2019
Total remuneration
2019 ING Group Annual Report on Form 20-F
113
Amounts in euros (rounded figures)
Ralph
Hamers
Tanate
Phutrakul
2
Koos
Timmermans
3
Steven van
Rijswijk
Contribution individual savings
61,000
29,000
28,000
42,000
Individual savings allowance
391,000
179,000
175,000
261,000
Travel
and accident insurance
18,000
13,000
2,000
18,000
Other amounts
1
50,000
15,000
26,000
46,000
1
Other amounts contains the following elements: personnel facility (mortgage),
tax and financial planning,
one-off
compensation for Steven van Rijswijk for retroactive tax impact of use of company car and temporary housing for Tanate
Phutrakul.
2
The 2019 emoluments reflect the partial
year as an Executive Board member for Tanate
Phutrakul.
3
Koos Timmermans left ING per 7 February 2019 as an Executive Board member. Until 31 August 2019 he received an
advisor fee for the period in which he transferred his activities to his successor. Thus the emoluments reflect the period from
1 January 2019 – 31 August 2019.
Total
remuneration
The table below contains the total remuneration of the Executive
Board members over 2019.
Amounts in euros
(rounded figures)
Base salary
Variable
remuneration
Total
direct
compensation
Pension
Emoluments
Total
remuneration
Ralph Hamers
1,750,000
266,000
2,016,000
23,000
521,000
2,560,000
Tanate
Phutrakul
831,100
141,400
972,500
16,000
235,000
1,223,500
Koos Timmermans
802,400
16,000
818,400
15,000
231,000
1,064,400
Steven van Rijswijk
1,203,600
195,000
1,398,600
23,000
367,000
1,788,600
As recognised in the profit or loss statement of 2019, the expenses for each member of the
Executive Board (active on 31 December 2019), while serving on the Executive Board,
amount to
€2.4 million for the CEO, €1.1 million for the CFO and €1.7 million for the CRO.
Long-term
incentives
awarded
in previous
years
Long-term incentives to the Executive
Board members in previous years are disclosed in the table
ING shares held by Executive Board
members.
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Additional Information
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Financial Statements
Options held by Executive Board members
2019 ING Group Annual Report on Form 20-F
114
Employee
stock
options
The table below contains information on the outstanding employee stock options and the movements during the financial
year of employee stock options held by the members of the Executive Board on 31
December 2019 including those awarded prior to their appointment to the Executive Board.
Number of options
Outstanding on
31 December
2019
Exercised in 2019
Waived or
expired in 2019
Outstanding on
31 December
2019
Grant price in
euros
Grant date
Vesting date
Expiry date
Ralph Hamers
19,985
19,985
2.90
19 March 2009
19 March 2012
19 March 2019
22,124
22,124
7.35
17 March 2010
17 March 2013
17 March 2020
Tanate
Phutrakul
4,163
4,163
2.90
19 March 2009
19 March 2012
19 March 2019
11,062
11,062
7.35
17 March 2010
17 March 2013
17 March 2020
Steven van Rijswijk
1,688
1,688
2.90
19 March 2009
19 March 2012
18 March 2019
11,658
11,658
2.90
19 March 2009
19 March 2012
18 March 2019
2,318
2,318
7.35
17 March 2010
17 March 2013
16 March 2020
10,694
10,694
7.35
17 March 2010
17 March 2013
17 March 2020
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Additional Information
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Financial Statements
Shares vested for Executive Board members during 2019
2019 ING Group Annual Report on Form 20-F
115
Shares
Deferred shares are shares
conditionally granted subject to a tiered vesting over a period of five years (for awards in 2019 and before), with the ultimate value
of each deferred share based on ING’s share
price on the vesting date. This is all conditional on there being no holdback.
Number of shares
Shares
2
Grant date
Vesting date
End date of
retention period
No. of shares
granted
5
No. of shares
vested
Vesting price in
euros
No. of unvested
shares remaining
6
Ralph Hamers
LSPP
11 May 2016
11 May 2019
11 May 2021
28,404
5,682
10.44
0
LSPP
11 May 2017
11 May 2019
11 May 2022
23,092
4,618
10.44
4,619
LSPP
10 May 2018
11 May 2019
10 May 2023
18,547
2,225
10.44
8,903
Tanate
Phutrakul
1
LSPP Units
3
27 March 2015
27 March 2019
N/A
6,915
922
10.55
0
LSPP Units
3
25 March 2016
27 March 2019
N/A
7,987
1,065
10.55
1,065
LSPP Units
3
27 March 2017
27 March 2019
N/A
6,032
482
10.55
1,931
LSPP Units
3
27 March 2018
27 March 2019
N/A
4,972
2,983
10.55
1,989
LSPP
27 March 2019
27 March 2019
27 March 2020
2,837
1,702
10.55
1,135
Koos Timmermans
LSPP
4
11 May 2016
11 May 2019
11 May 2021
18,278
0
-
0
LSPP
4
11 May 2017
11 May 2019
11 May 2022
15,838
1,465
10.44
3,169
LSPP
10 May 2018
11 May 2019
10 May 2023
10,139
1,216
10.44
4,867
Steven van Rijswijk
1
LSPP
25 March 2016
27 March 2019
27 March 2020
19,362
3,227
10.55
0
LSPP
27 March 2017
27 March 2019
27 March 2020
13,890
2,315
10.55
2,315
LSPP
27 March 2018
27 March 2019
27 March 2020
3,460
346
10.55
1,384
LSPP
10 May 2018
11 May 2019
10 May 2023
6,584
790
10.44
3,160
1
Shares granted to Tanate
Phutrakul (March 2015 to March 2019) and Steven van Rijswijk (March 2016 to March 2018) were
awarded for their performance in positions prior to their Executive Board appointment.
2
All current Executive Board members participate in ING Group Long
Term Sustainable Performance Plan (LSPP) under which plan rules they receive their shares.
3
Deferred share units of Tanate
Phutrakul are cash settled instruments. The value of these are based on ING Group’s share price at the vesting date. No retention period applies.
4
The (partial) holdback (3,657 and 1,702) of the outstanding deferred variable remuneration, is effectuated on these grants.
5
Number of shares granted includes both deferred and upfront part awarded at the granting date.
6
The balance of unvested shares post holdback, where applicable.
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Additional Information
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Financial Statements
Total value of vested and unvested shares of Executive
Board members - 2019
Loans and advances to individual Executive Board members
- 2019
Loans and advances to individual Executive Board members -
2018
Loans and advances to individual Executive Board members
- 2017
ING shares held by Executive Board members
2019 ING Group Annual Report on Form 20-F
116
Amounts in euros (rounded figures)
Vested shares
Unvested
shares
Share price in
euros
1
Total
value
Ralph Hamers
12,525
13,522
10.68
278,000
Tanate
Phutrakul
7,154
6,120
10.68
142,000
Steven van Rijswijk
6,678
6,859
10.68
145,000
1
The opening stock price on 31 December 2019.
Loans
and advances
to Executive
Board
members
The table below presents the loans and advances provided to Executive
Board members that were
outstanding on 31 December 2019, 2018 and 2017. These loans were provided on market
conditions with due observance of the applicable policies within ING.
Amount in thousands of euros
Amount
outstanding
31 December
Average
interest rate
Repayments
Ralph Hamers
2,402
1.4%
97
Tanate
Phutrakul
-
-
-
Steven van Rijswijk
-
-
-
Amount in thousands of euros
Amount
outstanding
31 December
Average
interest rate
Repayments
Ralph Hamers
2,499
1.4%
-
Koos Timmermans
182
6.2%
-
Steven van Rijswijk
-
-
-
Amount in thousands of euros
Amount
outstanding
31 December
Average
interest rate
Repayments
Ralph Hamers
2,499
1.4%
-
Koos Timmermans
182
6.2%
-
Steven van Rijswijk
-
-
-
ING shares
held
by Executive Board members
Executive Board members are encouraged to hold ING shares
as a long-term investment to
maintain alignment with ING. The table below shows an overview of the shares held by members of
the Executive Board on 31 December 2019, 2018 and 2017.
Numbers of shares
2019
2018
2017
Ralph Hamers
93,833
67,392
58,094
Tanate
Phutrakul
9,200
-
-
Steven van Rijswijk
69,490
66,153
59,914
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Financial Statements
Supervisory Board remuneration structure
2019 ING Group Annual Report on Form 20-F
117
2020
Executive
Board
remuneration
The Supervisory Board decided to increase the base salary of the Executive Board
members by
1.5% as of 1 January 2020. This decision was based on reliable indexation reference
points,
including the Consumer Prices Index 2020 (forecast) in line with the proposed Executive
Board
Remuneration Policy 2020. This increase is below
the CLA increase in the Netherlands.
4
For 2020 the following target
areas will be taken into account.
Financial
◾
Profit before tax
◾
Return on equity
Non-financial
◾
Customer – Retail primary customers
◾
People – Organisational Health Index
◾
Strategy – executing Think Forward
Strategy
◾
Sustainability – Terra
◾
Regulatory – deliver commitments to regulators (CRO)
◾
Manage financial
and non-financial
risk within Board approved risk appetite (CRO)
Remuneration
Supervisory
Board
Supervisory Board remuneration
policy
The current remuneration
policy for the Supervisory Board, as approved at the AGM on 25 April
2016, aims to:
◾
Provide a simple and transparent
structure
◾
Bring remuneration levels
in line with peers and with levels adequate to attract qualified
(international) Supervisory Board members
◾
Align remuneration with increased responsibilities
and time spent.
The Supervisory Board remuneration levels for 2019, similar to 2018, are shown below:
Annual fees in euros
2019
Chairman Supervisory Board
125,000
Vice chairman Supervisory Board
95,000
Supervisory Board member
70,000
Committee fees (annual amounts)
Chairman committee
20,000
Member committee
10,000
Attendance fees (per event)
Attendance fee outside country of residence
2,000
Attendance fee outside continent of residence
7,500
The remuneration of Supervisory Board members is not paid out in equity (i.e. solely cash).
Furthermore, Supervisory Board members are
not eligible for any variable remuneration. In
addition, members of the Supervisory Board are reimbursed for their travel
and ING-related
business expenses.
4
The collective salary increase based on the Collective Labour Agreement in the Netherlands (agreed for the period from 1
January 2019 – 31 December 2020), per 1 September 2019 was 3% for all
employees in the Netherlands. In addition, per 1
September 2020 another collective salary increase of 3% will take place.
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Financial Statements
2019 Remuneration Supervisory Board
ING shares held by Supervisory Board members
Employee stock options on ING Groep N.V. shares held by
members of the Supervisory Board on
31 December 2019
2019 ING Group Annual Report on Form 20-F
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2019 Remuneration
Supervisory Board
The table below shows the remuneration, including attendance fees per Supervisory Board
member.
All fees for the Supervisory Board are paid directly by ING, in other words
no payments have been
made by any of our subsidiaries.
2019
2018
2017
Amount in euros (rounded figures)
Remuneration
VAT
Remuneration
VAT
Remuneration
VAT
Hans Wijers (chairman)
167,000
35,000
153,000
32,000
35,000
7,000
Hermann-Josef Lamberti (vice-
chairman)
141,000
139,000
141,000
Jan Peter Balkenende
82,000
17,000
82,000
17,000
27,000
6,000
Henk Breukink¹
33,000
7,000
104,000
22,000
105,000
22,000
Mariana Gheorghe
119,000
105,000
94,000
Eric Boyer de la Giroday
108,000
108,000
106,000
Margarete Haase
98,000
63,000
Mike Rees²
73,000
Robert Reibestein
112,000
24,000
114,000
24,000
112,000
24,000
Herna Verhagen³
25,000
5,000
1
Henk Breukink stepped down as of 23 April 2019. The remuneration figures for 2019 reflect a partial
year as a member of
the Supervisory Board.
2
Mike Rees was appointed to the Supervisory Board by the 23 April 2019 AGM. His appointment became effective
as of the
end of the AGM. The remuneration figures for 2019 reflect a partial year
as a member of the Supervisory Board.
3
Herna Verhagen was appointed to the Supervisory Board by the 23 April 2019 AGM. Her appointment became effective as
of 1 October 2019. The remuneration figures for 2019 reflect
a partial year as a member of the Supervisory
Board.
Compensation of former members of the Supervisory
Board who are not included in the table above
amounted to nil in 2019, €69,000 in 2018 and €344,000 in
2017.
Loans and advances to Supervisory Board members
Supervisory Board members may obtain banking and
insurance services from ING Group and
its
subsidiaries in the ordinary
course of their business and on terms that are customary
in the sector.
The Supervisory Board members do not receive privileged financial services.
On 31 December 2019,
there were no loans and advances outstanding
to Supervisory Board members.
ING shares and employee stock options held by
Supervisory Board members
Supervisory Board members are permitted to hold ING shares as a long-term
investment. The table
below shows
the holdings by members of the Supervisory Board on 31 December
2019, 2018 and
2017.
Numbers of shares
2019
2018
2017
Hermann-Josef Lamberti
5,700
5,700
5,700
Eric Boyer de la Giroday
47,565
47,565
47,565
Margarete Haase
800
800
The following table contains information on employee stock options outstanding and awards
vested for Supervisory Board members.
Number of stock options
Outstanding
on 31
December
2019
Expired in
2019
Outstanding
on 31
December
2018
Expired in
2018
Outstanding
on 31
December
2017
Expired in
2017
Eric Boyer de la Giroday
-
-
–
113,479
113,479
113,479
2020 Remuneration
Supervisory Board
The Supervisory Board decided not to change the metrics for 2020.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
119
General information
for all staff
FOR INFORMATION
ONLY
The primary objective of ING’s remuneration principles is to enable ING to attract, motivate and
retain qualified and expert leaders as well as senior staff
(including Executive Board members) and
other highly qualified
employees. Our remuneration principles apply to all employees, including
Executive Board members. The approach did not change in 2019.
The principles are an integral part of ING’s corporate strategy
and risk profile. They maintain a
sustainable balance between short and long-term value creation and build on ING’s long-term
responsibility towards customers, society and other stakeholders.
ING’s remuneration principles apply to all staff and are embedded in ING’s Remuneration
Regulations Framework
(IRRF). The IRRF complies with relevant international and local legislation
and regulations.
Our remuneration
principles
Our remuneration principles apply to all employees and comprise the following:
Aligned with business strategy
ING’s remuneration principles are aligned with the business strategy and company goals.
Creates long-term value
ING’s remuneration principles contribute to long-term value creation and support a focus on the
long-term interests of its stakeholders, including employees, customers and shareholders.
Responsible and fair
In line with our Orange Code values and behaviours, ING acts responsibly and treats staff fairly
across the globe.
Mitigates risk and optimises controls
Risk management is an enabler of long-term value creation. ING ensures its remuneration
principles are properly correlated
with its risk profile and stakeholder interests.
Performance driven
ING operates a robust performance management process linked to remuneration
to steer and
motivate all employees to deliver on its strategic goals, aiming to reward
success and prevent
rewarding
for failure.
Sustainable
ING supports the sustainable recruitment, engagement and retention of all employees.
Performance management
We aim to reward
for success and avoid rewarding
for failure. That is why ING’s remuneration
approach is strongly linked to a comprehensive performance
management process. Outcomes of
performance evaluations
provide direct input for remuneration.
This does not necessarily mean
that performance is directly linked to variable remuneration since within ING not all employees are
eligible for variable remuneration. In the Netherlands, for example the vast majority of the
employees do not receive any variable remuneration.
Step Up Performance Management is our global performance management approach applicable to
the majority of employees.
It aims to improve people’s individual performance and thereby their
team performance and ultimately ING's performance.
Step Up Performance Management is one of
our people practices that help to increase focus, alignment and transparency. We
do this through
continuous conversations between managers, employees and teams. To
support these
conversations, there are three
formal moments to discuss performance during the year: target
setting, mid-year review and year-end evaluation.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
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The Step Up Performance Management approach consists of three dimensions:
◾
Job: the impact employees have in their daily work on an individual and team level, based on
factors such as qualitative job description, dynamic planning and specific
selected quantitative
priorities.
◾
Orange Code behaviours: how employees do their work and how effective their behaviour is as a
professional and colleague. We
expect all employees to act in line
with ING’s Orange Code.
◾
Stretch Ambitions: at ING, we believe high performance requires
stretch and investment (to
achieve the stretch). Therefore
we ask people to set ambitions
beyond their day-to-day role and
connect their personal passion, expertise or interest with the long-term success of ING.
All targets are
agreed between the employee and their manager, as well as within management
teams, to ensure consistency across the bank. ING uses
three labels to evaluate performance:
excellent, well done and improvement required.
Step Up Performance
Management
does not
prescribe the
targets employees
should set.
However,
the following
regulatory requirements
apply to
specific
groups:
◾
For employees eligible for variable remuneration,
a minimum of 50% non-financial
priorities.
◾
For all employees in control functions (Legal,
Risk, Finance, Compliance, Audit and HR), no
individual financial
KPIs are allowed, unless required
by local law.
◾
For identified risk takers, risk mitigation measures may lead to a downwards adjustment of the
performance outcome and negatively affect variable remuneration (a risk modifier can be
applied).
Total
direct compensation
Total
direct compensation is the total of fixed and variable remuneration, excluding benefits such
as pension and allowances.
ING aims to provide total direct compensation levels for expected business and individual
performance which, on average, are at the median of the markets in which we operate,
benchmarked against relevant peer groups. In line with the Dutch Banking Code, for the Executive
Board and the Management Board Banking we aim for a level below
the median. To ensure
we
adhere to this policy, we regularly monitor and benchmark salary levels across ING.
Fixed remuneration represents
a sufficiently
high proportion, in line with the level of expertise and
skills, and allows a fully flexible variable remuneration award. In case no variable remuneration
is
awarded, the compensation level is still sufficient for a decent standard of living. Variable
remuneration is performance driven, subject to regulatory caps
and prevents excessive
risk taking,
where applicable.
The comprehensive
process
around
variable
remuneration
The awarding of variable remuneration, where applicable, is based on individual, business line and
bank-wide performance
criteria unless local
legislation prescribes
otherwise. In all ING countries, we
adhere to the applicable variable remuneration
caps. In the Netherlands, for example, we apply a
variable remuneration cap of 20% with limited exceptions in line with the Dutch Remuneration
Policy for Financial Enterprises Act (Wet Beloningsbeleid Financiële Ondernemingen, hereafter
‘WBFO’).
For Identified
Staff (i.e. staff considered to have a material impact on ING’s risk profile),
at least 40%
of variable remuneration is deferred
over a period of three to five years with a tiered vesting
schedule. Furthermore, at least 50% of variable
remuneration is awarded
in equity (linked
instruments).
Performance and
risk assessment
ING applies measures to mitigate risk relating to variable remuneration.
Our global remuneration
policy takes into consideration risk, capital, liquidity and the likelihood and timing of earnings.
Measures include pre-award
and post-award risk assessments of variable remuneration.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
121
In 2019, the Management Board Banking and the Supervisory Board approved the Variable
Remuneration Accrual Model (VRAM) set-up and approach for determining the 2019 variable
remuneration pool based on the new VRAM formally approved
in 2018.
The VRAM takes a holistic view of the overall performance of ING across three
key dimensions:
(i)
financial,
(ii)
non-financial,
and
(iii)
risk.
Within each of these three elements specific criteria are used to measure performance (e.g.
customer, people, strategy, operational excellence, financial and non-financial
risk).
The proposal for the variable remuneration
pool is prepared by Human Resources,
Risk and Finance,
and in line with the VRAM principles. The Management Board Banking then proposes the amount of
the overall variable remuneration
pool to the Supervisory Board, taking into account the advice of
the Risk and the Remuneration committees.
The variable remuneration pool (for both individual and collective variable remuneration),
encompasses all employees eligible for variable remuneration globally, including Identified Staff.
ING takes a multi-step approach to determine whether to award variable remuneration
in a given
performance year and the maximum amount of the pool. Within this process, a range of risk
elements is assessed at various levels and, where appropriate, risk adjustments are
made to the
variable
remuneration pools at both a group and business line level.
Risk and performance hurdles
To
unlock the variable remuneration pools, regulatory
and performance hurdles must be met.
These are:
◾
The Common Equity Tier 1 (CET1) ratio must be at or above the threshold
established by
applicable regulations;
◾
The Return on Equity (RoE – IFRS-EU) is equal to or higher than the percentage determined at the
beginning of each performance year by the Management Board Banking and the Supervisory
Board;
◾
If both the CET1 ratio and RoE are met, the maximum variable remuneration
pool is unlocked, as
accrued in line with the VRAM; and
◾
If only one (or none) of the two tests is met, in principle, no bank-wide variable remuneration
pool is released.
A variable remuneration pool is also separately
accrued for staff in control functions and support
functions and for those employees subject to a collective
variable remuneration plan. The amount
is defined by the Management
Board Banking and approved by the Supervisory Board.
Risk adjustments
In determining the overall size of the variable remuneration
pool, a multi-layered, consistent and
bank-wide approach to risk tests and adjustments is applied to the process, based on an
assessment by the chief risk officer.
To
establish appropriate ex ante risk adjustments, there are measures
to assess the bank’s current
and future risks and whether performance sufficiently
aligns with risk appetite levels. The risk
adjustment assessment includes measurements on ‘forward looking’ capital, liquidity and non-
financial risk, where adjustments are made on deviation from risk appetite.
In addition, ex post risk adjustments are a key element in the process of determining both final
variable remuneration pools and individual awards.
Here, the chief risk officer
may provide
additional input at a more granular level to risk adjust (downwards)
ING’s overall or business line
and/or country variable remuneration
pools in circumstances where a business line or a specific
unit is not performing in line with desired risk parameters or based on events that have a material
impact on ING’s
financial
results or reputation.
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The ex ante and/or ex post risk adjustments require
Supervisory Board approval, taking into
account the input of the Risk and Finance functions and the advice of the Risk and Remuneration
Committees.
The final risk adjustment
measure lies in the individual performance assessment itself. An
employee’s performance is extensively assessed before variable remuneration
is proposed and
awarded. Every
manager carefully assesses the performance delivered by their individual team
members on the basis of pre-agreed performance priorities and in line with the Step Up
Performance Management framework. In addition, managers have the discretionary power to
lower the proposed variable remuneration
if risk taking is perceived as inappropriate.
In this way,
variable remuneration is aligned with any additional risks identified during the performance year
on an individual basis.
Additional risk requirements apply to Identified Staff who are considered risk takers in accordance
with CRD IV.
These risk requirements set the minimum standards to be met during the performance
year.
Deviation from these standards may lead to downward
adjustment of the variable
remuneration, a so-called risk modifier. This process
is run independently by the Risk function for
which the chief risk officer
is ultimately responsible. The Supervisory Board, advised by its Risk
Committee, is responsible for Risk Takers
within the Management Board Banking.
Finally, a post-award risk assessment can be applied. This assessment analyses whether any
events or findings occurred that should lead to a downward adjustment of variable remuneration
of previous years by applying a holdback (i.e., forfeiture
of up to 100% of the awarded, but
unvested, variable remuneration)
or clawback (surrender of up to 100% of the paid or vested
variable remuneration).
Shareholders
’
mandate
to exceed
100%
variable
remuneration
cap
ING’s remuneration policies comply with international and local legislation and regulations. Under
the WBFO (which sets various requirements on remuneration),
financial institutions
are permitted
to set a variable remuneration cap higher than 100% of fixed remuneration for employees outside
of the European Economic
Area (EEA), provided that the higher cap is approved
by shareholders
and does not conflict
with ING’s capital adequacy requirements.
At the 2017 AGM, shareholders approved
to apply an increased maximum percentage of up to
200% for employees outside the EEA for a period of five
performance years, from 2017 up to and
including 2021. ING uses this facility very rarely. In 2019, it was applied to no employees worldwide.
2019
specifics
The total amount of variable remuneration awarded
to all eligible employees (worldwide) for 2019
was €378 million, compared to total employee costs of €5,755 million.
For 2018, the total amount
was €303 million and €403 million for 2017. In comparison,
the total employee costs in 2018 were
€5,420 million and €5,202 million in 2017.
Variable remunerati
on includes both individual and
collective variable remuneration such as profit sharing arrangements.
In 2019, eight employees in the Corporate staff, Wholesale Banking and Retail Banking business
lines - excluding members of the Management Board Banking - were awarded total annual
remuneration (including employer pension contributions and severance payments made) of €1
million or more. In comparison, in 2018 seven employees were
awarded total annual remuneration
of €1 million or more and 14 employees in 2017.
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Summary and further explanation of the proposed
new
remuneration
policy for the Executive
Board and Supervisory
Board from
2020
FOR INFORMATION
ONLY
Executive
Board:
proposed
remuneration
policy
2020
ING's 2019 EB Remuneration Policy has been in place since 2010, with legal amendments adopted
in 2011, 2014, 2015 and 2017, as described above. In line with the Dutch Act on Implementation of
SRD II, the Supervisory Board will propose a new Executive Board
remuneration policy to
shareholders at the 2020 AGM, where it will be subject to a binding approval vote.
The full proposal
will be provided to our shareholders.
Once adopted by the AGM, the new Executive Board
remuneration policy will be effective
retroactively from 1 January 2020 until the 2024 AGM at the latest. The rem
uneration policy is
available in full on ING's corporate website https://www.ing.com/remuneration
.
In case of any
differences between this summary and the published Executive Board remuneration
policy, the
latter is leading. In the event of proposed changes to the new Executive Board remuneration
policy,
it will be subject to AGM approval.
The objective of ING's new Executive Board remuneration
policy is to enable ING to attract,
motivate and retain leaders with the ability, experience, skills, values and behaviours to meet ING's
strategic priorities and its stakeholder interests. In designing the new Executive Board
remuneration
policy, many factors were taken into account, such as the amount of fixed and variable
remuneration, the performance measures
used and, ING’s risk appetite and scenario analyses
(taking into account internal pay ratios and stakeholder support).
ING recognises that remuneration
is an area of particular interest to stakeholders including
shareholders, employees and customers. The Supervisory Board actively engages with stakeholders
and takes into account their views as well as ING’s need to attract, motivate and retain leaders with
the ability, experience, skills, values and behaviours to meet its strategic priorities and its
stakeholder interests.
In line with various regulations, in the course of formulating this policy, the Supervisory Board
consulted various stakeholders in meetings, conference calls and through online surveys. Such
stakeholders included Retail and Wholesale
Banking customers, investors, analysts, rating
agencies, shareholder advisory firms, trade unions, employee representatives, regulators,
politicians and the current members of the Executive Board.
The Supervisory Board notes that stakeholder views, especially on remuneration, can vary.
However, the Supervisory Board values the insight and engagement that these interactions provide,
including the expression of different views. This engagement is meaningful and helpful to the
Supervisory Board and contributes directly to the advice made by its Remuneration Committee.
The feedback received from
stakeholders was taken into account when drafting this proposed
remuneration policy.
Governance
The Supervisory Board and the Remuneration Committee are
responsible for reviewing the
Executive Board remuneration
policy at least annually, taking into account regulatory
requirements, stakeholder views, ING's benchmark position, internal pay ratios and whether policy
incentives take into consideration risk, capital, liquidity and the likelihood and timing of earnings.
Following the periodic reviews,
the Supervisory Board can propose amendments to the Executive
Board remuneration policy.
The amended Executive Board remuneration
policy will be submitted to
shareholders at the AGM for binding approval.
In case of no amendments the policy will be
submitted to the AGM for approval
every four years.
The Risk Committee will, at least, annually review the remuneration
policy and may recommend
actions to be taken by the Supervisory Board regarding the establishment of a sound Executive
Board remuneration policy without prejudice
to the tasks of the Remuneration Committee.
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Remuneration components
The individual base salaries are set according to the role, responsibilities
and experience of each
Executive Board member with reference
to market practice. The below factors are given
consideration in determining base salaries:
◾
the individual’s level of skill and performance;
◾
ING’s business performance, and market conditions;
◾
internal pay ratios
and salary increases for other ING employees within the wider ING group;
◾
remuneration level within the external peer group;
◾
public indexation reference
points (e.g. consumer price index);
◾
stakeholder views.
The Remuneration Committee
reviews the individual base salaries of the Executive Board
members
each year and advises the Supervisory Board on this. Potential future salary increases take into
account the factors highlighted above. The Supervisory Board will pro
-actively report the base
salary development in the Annual Report. If any significant changes to
Executive Board base
salaries are to be proposed, a stakeholder consultation will be carried out.
In line with the Dutch Banking Code, ING aims for the total direct remuneration of members of the
Executive Board to be below the median when benchmarked against comparable positions inside
and outside the financial
industry, taking into account the relevant international context. In recent
years stakeholders have expressed discontent with the use of the EURO STOXX 50 index, which ING
has used as a peer group since 2010. This type of benchmark is also unusual compared to the
approach taken by peers. As a result, the Supervisory Board has chosen to change the benchmark
for ING's proposed
new Executive Board remuneration
policy to a smaller peer group based on five
guiding principles: (i) geography, (ii) relevant talent market, (iii) size, (iv) governance framework
and
(v) a balancing factor.
The new benchmark is more fitting to ING, incorporating relevant companies rather than an index
proxy. Rules and regulations
prescribe a mix of comparable relevant
Dutch and relevant European
financial and non-financial
institutions. Given the very different pay structures in the UK and
Switzerland we have excluded those institutions from our benchmark. Smaller companies and
financial institutions
active only in one or two countries were also excluded as they are
not
comparable in terms of scope and complexity.
With regards to the relevant
market for talent, ING increasingly competes with players across
sectors and industries. Therefore not only traditional banking competitors are included in the
benchmark, but also companies from other industries. This also aligns with the stipulation in the
Banking Code.
Size is a significant factor in the
dynamics and complexity of a company. Therefore it is important
to include companies in the peer group that are broadly comparable
in terms of size and
complexity. For this, potential peer group companies were
assessed on the metrics of market
capitalisation (where applicable), number of employees and revenue, with companies considered in
the range of one quarter up to four times the size of ING. For general industry peers and for
Western-European
financial services
peers, this ranges from one third
up to three times the size
of ING.
The applicable governance framework for
the company is also seen as a relevant factor.
ING is a
stock listed company subject to the Dutch financial
services regulatory framework,
operating within
the Dutch stakeholder environment. Therefore
the peer group selection is aligned with the Dutch
stakeholder environment and/or a financial services regulatory framework.
As a final factor,
the Supervisory Board looks at the balance of the peer group, ensuring it keeps
sight of relevant peer companies that do not sufficiently
match other criteria. This resulted in the
inclusion of a number of relevant Dutch peer companies.
The Supervisory Board intends to keep the peer group as stable as possible. Each year the
appropriateness of the selected companies will be assessed against the guiding principles, which
will not change. The peer group constituents will be reported in the Annual Report.
5
5
For more information on the peer group composition in 2020, we refer to the additional information on the next page.
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To
drive and reward
performance the Executive Board is eligible for annual variable remuneration,
in accordance with the applicable regulatory requirements.
The amount of variable remuneration is
based on actual performance as measured against agreed financial (50%), non-financial
(50%) and
risk objectives that are consistent with ING's strategy and align with the long-term interests of
stakeholders. For the CEO and CFO the applicable performance measures are
based on group
performance. Under ING's proposed Executive Board
remuneration policy, the CRO's performance
will be assessed predominantly based on individual functional objectives.
Any variable remuneration awarded
to the Executive Board members is fully paid in ING shares. In
combination with long-term deferral and holding requirements this ensures alignment with ING's
strategy, long-term performance and sustainability goals and with long-term stakeholder interests.
For this reason ING does not operate
separate short-
and long-term incentive plans but rather one
plan that has many characteristics of a long-term incentive plan. The amount of variable
remuneration awarded
to the Executive Board members can range
from 0% to 20% of annual base
salary.
To
mitigate risk relating to variable remuneration,
the Risk Committee carries out pre-award
and
post-award risk assessments of variable remuneration, which may result
in a downward
adjustment of the variable remuneration at the discretion of the Supervisory Board.
After the performance year, the Supervisory Board reviews performance on the applicable criteria
and determines the appropriate variable remuneration amount to be awarded.
It uses input and
support from the other Supervisory Board committees, such as the Risk Committee and the Audit
Committee. The outcomes for each quantitative performance measure are
assessed on a linear
scale ranging from threshold,
target to maximum. The outcomes for qualitative performance
measures are assessed using a standard 1-3
rating scale.
The actual individual performance measures and the actual outcome of the review of the
performance measures are disclosed retrospectively
in the Remuneration Report. The Supervisory
Board is of the opinion that the performance measures for the variable remuneration
are
commercially sensitive and that it would be detrimental to ING to disclose target details at the start
of the relevant performance year.
We will disclose according to the
SRD disclosure requirements.
With respect to pension, Executive Board members participate in ING’s general Collective Defined
Contribution (CDC) pension plan in the same way as all employees working in the Netherlands
without a supplementary pension scheme. Furthermore, Executive Board
members are eligible for
benefits at a level that the Supervisory Board considers appropriate in the context of the executive’s
role, specific individual circumstances and benefits
offered to the wider workforce and at
comparable roles in ING’s peer group.
Contractual arrangements
Members of the Executive Board are
appointed by the shareholders at the Annual General Meeting
(AGM) for a maximum period of four years. The appointment may be renewed subject to re-
election by shareholders (and in line with ING’s Articles of Association and
applicable rules and
regulations).
In principle, in the event of an involuntary exit, the Executive Board
member is eligible for a
severance payment. If termination of the contract is based on mutual agreement, the Executive
Board member is also eligible for severance payment. The arrangements
are subject to legal
requirements, including being limited to a maximum of one year of fixed base salary and under the
condition that there should be no reward
for failure.
Additional information not included
in the Executive Board
remuneration
policy
Based on these five guiding principles,
the selected peer group for 2020 consists of the following 16
companies. Note the guiding principles are part of the remuneration policy. (The list below only
relates to 2020):
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ABN AMRO
Ahold Delhaize
BBVA
Deutsche Bank
Aegon
ASML
Banco Santander
Intesa Sanpaolo
NN Group
Heineken
BNP Paribas
Société Générale
Rabobank
Philips
Crédit Agricole
UniCredit
Based on compensation data for 2018, compared to the peer group, total direct compensation
levels for the CEO amount to approximately 57% of the median (43% compared to the median of
the EURO STOXX 50). Total
direct compensation levels of the CRO and CFO amount to
approximately 81% of the median (63% compared to the median of the EURO STOXX
50).
Supervisory
Board:
proposed
remuneration
policy
2020
The Supervisory Board will propose a Supervisory Board remuneration
policy to shareholders at the
2020 AGM,
where it will be subject to a binding approval vote.
Compared to the existing policy,
which was approved at the AGM
on 25 April 2016, there are no significant changes other than that
the Supervisory Board remuneration will be benchmarked against a new reference
market and that
the policy is extended to include all relevant requirements of the
Dutch Act implementing SRD II.
Once adopted, the new Supervisory Board remuneration policy will be effective retroactively from
1
January 2020 until the 2024 AGM at the latest. The remuneration policy is available in full on ING's
corporate website https://www.ing.com/remuneration
.
In case of any differences between this
summary and the published Supervisory Board remuneration policy, the latter is leading. If any
changes are proposed, the revised
Supervisory Board remuneration policy will be subject to AGM
approval before
becoming effective.
It is important that ING is able to attract members for its Supervisory Board who have the ability,
experience, skills, values and behaviours to deliver on the company strategy and goals and support
ING's purpose. The Supervisory Board strives to have a diverse composition with regards
to gender,
ethnicity, nationality and generation. The Supervisory Board remuneration policy therefore
aims to
(i) be clear and easy, (ii) have remuneration levels in line with peers, (iii) enable ING to attract
qualified (international)
Supervisory Board members and (iv) align remuneration with
responsibilities and time spent.
Governance
The Remuneration Committee is responsible for
annually reviewing the Supervisory Board
remuneration policy and making recommendations to the Supervisory Board on amendments. The
review takes into account at least the following:
(i) ING's benchmark position, (ii) stakeholders'
views on remuneration and (iii) regulatory
requirements. Following
the periodic review, the
Supervisory Board can propose amendments to the Supervisory Board remunerati
on policy to the
General Meeting for adoption. In the event of no amendments the policy will be submitted to the
General Meeting for adoption every four years.
Remuneration components
As often as appropriate, but at least every four years, the total fees for Supervisory Board members
are reviewed
against comparable positions in the market. Under the proposed new Supervisory
Board remuneration policy,
the Supervisory Board will use an updated benchmark, similar to the
benchmark proposed for the Executive Board
.
This benchmark is periodically determined by the
Supervisory Board and based on the following peer group guiding principles: (i) geography, (ii)
relevant talent market, (iii) size, (iv) governance framework
and (v) a balancing factor.
In the
benchmark exercise ING’s position is for Supervisory Board member’s fees to be below the median.
The peer group will be disclosed annually in our Annual Report.
The remuneration structure of the Supervisory Board members reflects the roles and
responsibilities of individual Supervisory Board members. All fees for Supervisory Board members
are paid out fully in cash. No variable remuneration
is provided to ensure that the Supervisory
Board members can maintain independence. Additionally, the Supervisory Board members are not
eligible for retirement benefits nor for any other benefits
in relation to their position on the
Supervisory Board.
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C.
Board
practices
For information regardin
g
board practices, see Item 6.A
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 termination 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 Dutch Financial Supervision
Act and the Corporate Governance
Code
D.
Employees
The average number of employees at a full time equivalent basis was 53,431 at the end of 2019, of
which 14,415 or 27%, were employed in the Netherlands. Substantially all of the Group’s Dutch
employees are subject to a collective labor agreement covering ING in the Netherlands.
The distribution of employees with respect to the Group’s continuing operations for the years 2019,
2018 and 2017 were as follows:
Average number of employees at full time equivalent basis
Netherlands
International
Total
2019
2018
2017
2019
2018
2017
2019
2018
2017
Total average
number of
employees at full time equivalent
basis
14,415
13,600
13,141
39,016
38,633
38,363
53,431
52,233
51,504
The Group employs a significant numbers of temporary employees. The average number of
temporary employees, not included in the table above, at a full time equivalent basis was 7,394 at
the end of 2019.
E.
Share
ownership
For information regarding
share ownership, see Item 6.B of this Form 20-F and Note 27 ‘Staff
expenses’ to the consolidated financial
statements.
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Item 7.
Major shareholders
and related
party transactions
A. Major shareholders
ING Group ordinary shares
are listed on the stock exchanges of Amsterdam (Euronext
Amsterdam)
and Brussels (Euronext Brussels). ING Group American Depositary Shares
(“ADSs”)
are listed on the
New York
Stock Exchange (NYSE). Options on ING Group ordinary shares or in the form of American
depository receipts (ADRs) are traded
on the Euronext Amsterdam
Derivative Markets and the
Chicago Board Options Exchange.
Holders of ordinary shares or American Depositary Shares with a stake of 3% or more
To
the best of our knowledge, as of 31 December 2019, no holder of ordinary shares or ADSs, other
than BlackRock Inc. and Artisan Investments GP LLC held 3% or more of ING Group’s issued share
capital. Artisan Investments GP LLC has since notified the
AFM that
,
beneficial ownership of ING’s
issued share capital had dropped to 2.96%. Artisan Investments GP
LLC has since notified the AFM that, as of February 28, 2020, its beneficial
ownership of ING’s issued
share capital had increased to 3.06%.
On 30 January 2018, BlackRock, Inc. disclosed by way of a Schedule 13G filed
with the SEC,
beneficial ownership of 304,505,468
ordinary shares of ING Group as of 31 December 2017,
representing 7.8% of ING Group’s issued share
capital. On 4 February 2019, BlackRock, Inc. disclosed
by way of a Schedule 13G filed with the SEC, beneficial
ownership of 233,492,874 ordinary shares of
ING Group as of 31 December 2018, representing 6.0% of ING Group’s
issued share capital.
On 5 February 2020, BlackRock, Inc. disclosed by way of a Schedule 13G filed with the SEC,
beneficial ownership of 259,231,767
ordinary shares of ING Group as of 31 December 2019,
representing 6.7% of ING Group’s issued share
capital.
On 31 December 2019, ING Groep N.V.
and its subsidiaries held 919,387 ordinary shares or ADSs,
representing 0.02% of ING Group’s issued share
capital. ING Groep N.V.
does not have voting rights
in respect of shares and ADSs it holds or which are held by its
subsidiaries.
Pursuant to section 5.3 of the Dutch Financial Supervision Act (“Major
Holdings Rules”), shareholders
and holders of ADSs are only required to provide
updated information on their holdings once their
interest reaches, exceeds or falls below
threshold levels of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%,
50%, 60%, 75% and 95%. As a result, other than based on information available from public filings
available under the applicable laws of any other jurisdiction, ING Groep N.V.
is not aware of any
changes in the ownership of ordinary shares or ADSs between the thresholds levels
mentioned in
the previous sentence.
On 31 December 2019, no person is known to ING Groep N.V.
to be the owner of more than 10% of
the ordinary shares or ADSs. As of 31 December 2019, members of the Supervisory Board and their
related third parties held 54,065 Ordinary Shares
.
Members of the Supervisory Board do not hold
ING options.
As of 31 December 2019, members of the Executive Board and their related third parties held
172,523 ordinary shares of which 35,905 are restricted by a retention
period.
As of 31 December 2019 ING Groep N.V.
was not a party to any material agreement that becomes
effective, or is required to be amended or terminated in case of a change of control of ING Groep
N.V.
following a public bid as defined in
the Dutch Financial Supervision Act. ING Groep N.V.’s
subsidiaries may have customary change of control arrangements included in agreements related
to various business activities, such as joint venture agreements, letters of credit and other credit
facilities, ISDA-agreements, hybrid capital and debt instruments, reinsurance
contracts and futures
and option trading agreements. Following a change of control
of ING Groep N.V.
(as the result of a
public bid or otherwise), such agreements may be amended or terminated, leading, for example, to
an obligatory transfer of the interest in the joint venture, early repayment
of amounts due, loss of
credit facilities or reinsurance
cover and liquidation of outstanding futures and option trading
positions.
As of 31 December 2019 ING Groep N.V.
was not aware of any arrangements the operation of
which may result in a change of control of ING Groep N.V.
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B. Related
Party Transactions
In the normal course of business, ING Group enters into various transactions with related parties.
Parties are considered to be related
if one party has the ability to control or exercise significant
influence over the other party in making
financial or operating decisions. Related parties of ING
Group include, among others, its subsidiaries, associates, joint ventures, key management
personnel, and various defined
benefit and
contribution plans. Transactions between
related parties
include rendering or receiving of services, leases, transfers under finance arrangements and
provisions of guarantees or collateral.
There are no significant provisions for doubtful debts or
individually significant
bad debt expenses recognised on outstanding balances with related parties.
As of 31 December 2019, there was no amount outstanding in respect of loans and advances,
including mortgages, made to members of the Supervisory Board. The amount outstanding in
respect of loans and advances, mostly mortgages, to members of the Executive Board was EUR
2.402 million at an average interest rate
of 1.49%. The largest aggregate amount of loans and
advances outstanding to the members of the Executive Board during 2019 was EUR 2.681 million.
The loans and advances mentioned in the preceding paragraph (1) were
made in the ordinary
course of business, (2) were granted on conditions that are
comparable to those of loans and
advances granted to all employees and (3) did not involve more
than the normal risk of
collectability or present other unfavorable features. Loans
and advances to members of the
Executive Board are
compliant with the standards set out in the DNB guidelines for loans to officers
and directors of a regulated entity, such as ING.
As described under “Item 6. Directors, Senior Management and Employees”, some members of
the
Supervisory Board are current
or former senior executives of leading multi-national corporations
based primarily in the Netherlands. ING Group may at any time have lending, investment banking
or other financial relationships with one or more of these corporations in the ordinary course of
business on terms which we believe are no less favorable
to ING than those reached with
unaffiliated
parties of comparable creditworthiness.
In addition, ING Group has entered into various transactions with related parties. For
more
information, reference
is made to Note 50 “Related parties” in the consolidated financial
statements.
C. Interests
of experts
and counsel
This item does not apply to annual reports on Form 20-F.
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Item 8.
Financial information
A.
Consolidated
statements
and other
financial
information
Consolidated statements
For information regarding
consolidated statements and other financial
information, see Item 18 of
this Form 20-F.
Legal Proceedings
For a description of ING’s legal proceedings,
see Note 46 ‘Legal proceedin
gs’ in the consolidated
financial statements.
Policy on dividend distribution
ING Group’s dividend policy aims to pay a progressive
dividend that will reflect
considerations
including expected future capital requirements, growth
opportunities available to the Group, net
earnings, and regulatory developments.
The Executive Board proposes to pay a total cash dividend of EUR 2,689 million, or EUR 0.69 per
ordinary share, over
the financial year
2019. This is subject to the approval of shareholders at the
Annual General Meeting in April 2020.
Taking
into account the interim dividend of EUR 0.24 per ordinary share paid in August 2019, the
final dividend
will amount to EUR 0.45 per ordinary share and will be paid fully in cash. These
payments per share repre
sent gross amounts which are subject to Dutch dividend withholding tax.
Cash distributions on ING Groups ordinary shares
are generally paid in Euros.
However, the
Executive Board may decide, with the approval
of the Supervisory Board, to declare dividends in the
currency of a country other than the Netherlands in which the shares are traded. Amounts payable
to holders of ADSs that are paid to the Depositary in a currency other than dollars will be converted
to dollars and subjected to a charge by the Depositary for any expenses incurred by it in such
conversion.
If the Executive Board has been designated as a body authorised to resolve to issue shares,
it may
decide, with the approval of the Supervisory Board, that a distribution on ordinary shares shall be
made in the form of ordinary shares instead of cash or to determine that the holders of ordinary
shares shall be given the choice of receiving the distribution in cash or in the form of ordinary
shares on such terms as the Executive Board,
with the approval of the Supervisory Board, may
decide.
The right to dividends and distributions in respect of the ordinary shares will lapse if such dividends
or distributions are not claimed within five years following the day after the
date on which they
were made available.
There are no legislative or other legal provisions
currently in force in the Netherlands or arising
under ING Groups’ Articles of Association restricting the remittance of dividends to holders of
ordinary shares, or ADSs not resident in the Netherlands. Insofar as the laws of the Netherlands are
concerned, cash dividends paid in Euro may be transferred
from the Netherlands and converted
into any other currency, except that for statistical purposes such payments and transactions must
be reported by ING Group to DNB
and, further, no payments, including dividend payments, may
be
made to jurisdictions or persons, that are subject to certain sanctions,
adopted by the Government
of the Netherlands, implementing resolutions of the Security Council of the United Nations, or
adopted by the European Union.
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Dividends are subject to
withholding taxes in the
Netherlands as
described under Item 10,
“Additional Information -
Taxation - Netherlands Taxation”.
B.
Significant
changes
For information on subsequent events reference
is made to Note 51 ‘Subsequent events’ of the
consolidated financial statements.
Since 31 December 2019, until the filing
of this report, no other significant changes
have occurred
in the financial statements
of the Group included in “Item 18 Consolidated Financial Statements” of
this document
.
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Item 9.
The offer and listing
A.
Offer
and listing
details
Ordinary Shares (nominal value EUR 0.01 per share) are
traded on Euronext
Amsterdam, the
principal trading market for
the Ordinary Shares, under the symbol “INGA”.
The Ordinary Shares
are also listed on the stock exchange of Euronext
Brussels, under the symbol “INGA”. ADSs,
representing an equal number of Ordinary Shares,
are traded on the New York
Stock Exchange
under the symbol “ING”.
B.
Plan
of distribution
This item does not apply to annual reports on Form 20-F.
C.
Markets
For information regarding
markets, see Item 9.A of this Form 20-F.
D.
Selling
shareholders
This item does not apply to annual reports on Form 20-F.
E.
Dilution
This item does not apply to annual reports on Form 20-F.
F.
Expenses
of the
issue
This item does not apply to annual reports on Form 20-F.
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Item 10. Additional information
A.
Share
capital
This item does not apply to annual reports on Form 20-F.
B.
Memorandu
m
and articles
of association
For a description of ING’s memorandum and articles of association, please see Exhibit 2.1
“Description of Securities Registered under Section 12 of the Exchange Act”, which is incorporated
by reference
herein.
C.
Material
contracts
Except for the settlement of ING Bank N.V.
with the Dutch Public Prosecution Service (DPPS) in 2018
on regulatory issues in the ING Netherlands business that resulted in penalties totalling EUR 775
million, there have been no material contracts outside the ordinary course of business to which ING
Groep N.V.
or any of its subsidiaries is a party in the last two years.
D.
Exchange
controls
Cash distributions, if any,
payable in Euros on Ordinary Shares and ADSs
may be officially
transferred from the Netherlands and converted into
any other currency without
violating Dutch
law, except that for statistical purposes
such payments and transactions
must be reported by
ING
Groep N.V.
to the Dutch Central Bank and,
further, no payments,
including dividend payments,
may
be made to
jurisdictions or persons subject
to certain sanctions,
adopted by the government
of the
Netherlands
or the European Union.
E.
Taxation
The following is a summary of certain Netherlands tax consequences, and the United States federal
income tax consequences, of the ownership of our Ordinary Shares or American Depositary Shares
(“ADSs”)
by U.S. Shareholders (as defined below) who hold Ordinary Shares or ADSs as capital
assets.
For the purposes of this summary, a “U.S. Shareholder” is a beneficial owner of Ordinary Shares or
ADSs that is:
◾
an individual citizen or resident of the United States,
◾
a corporation organized under the laws of the United States or of any state of the United States,
or any entity taxable as United States corporation,
◾
an estate, the income of which is subject to United States federal income tax without regard to
its source, or
◾
a trust if a court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the authority to control
all substantial decisions of the trust.
Further, this summary is limited to U.S. Shareholders who are not, and are
not deemed to be, a
resident of the Netherlands for Dutch tax purposes.
This summary is based on the United States Internal Revenue Code of 1986 and the laws of the
Netherlands, each as amended, their legislative history, existing and proposed regulations,
published rulings and court decisions, and the tax treaty between the United States and the
Netherlands for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion
with respect
to Taxes
on Income (“Treaty”),
all as of the date hereof. These laws are
subject to change, possibly
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on a retroactive basis. The information provided
below is neither intended as tax advice nor
purports to describe all of the tax considerations that may be relevant to investors and prospective
investors. It should not be read as extending to matters not specifically discussed, and investors
should consult their own advisors as to the tax consequences of their ownership and disposal of
Ordinary Shares or ADSs. In particular, the summary does not take into account the specific
circumstances of particular investors (such as tax-exempt organizations, banks, insurance
companies, dealers in securities, traders in securities that elect to mark-to-market their securities
holdings, investors liable for alternative minimum tax, investors whose functional currency is not
the U.S. dollar, investors that actually or constructively own 10% or more of the combined voting
power of the voting stock or of the total value of ING Groep N.V.,
investors that hold Ordinary
Shares or ADSs as part of a straddle or a hedging or conversion transaction, investors that acquired
or dispose of Ordinary Shares or ADSs as part of a wash sale, or investors that own Ordinary Shares
or ADSs through a partnership), some of which may be subject to special rules.
Moreover, this summary does not discuss the Dutch tax treatment of a holder of Ordinary
Shares or
ADSs that is an individual who receives income or capital gains derived from the Ordinary Shares
and ADSs and this income received or capital gains derived are
attributable to the past, present or
future employment activities of such holder.
The summary is based in part upon the representations of the Depositary and the assumption that
each obligation in the Deposit Agreement and any related agreement will be performed in
accordance with its terms. In general, for United States federal
income tax and Netherlands tax
purposes, holders of ADSs will be treated as the owners of the Ordinary Shares underlying the ADSs,
and exchanges of Ordinary Shares for ADSs, and exchanges of ADSs for Ordinary
Shares, will not be
subject to United States federal income tax or Netherlands income tax. References to Ordinary
Shares in this section include references to ADSs.
It is assumed, for purposes of this summary, that a U.S. Shareholder is eligible for the benefits
of
the Treaty
and that a U.S. Shareholder’s eligibility is not limited by the limitation on benefits
provisions of the Treaty.
Netherlands Taxation
Withholding tax on dividends
The Netherlands imposes a withholding tax on a distribution of a dividend at the statutory rate of
15%. Dividends include:
i.
dividends paid in cash and in kind;
ii.
deemed and constructive dividends;
iii.
the consideration for the repurchase
or redemption of shares in excess of the qualifying
average paid-in capital unless such repurchase
is made for temporary investment purposes
or is exempt by law;
iv.
any (partial) repayment of paid-in capital not qualifying as capital for Dutch dividend
withholding tax purposes;
v.
liquidation proceeds in excess of the qualifying average paid-in capital for Dutch
dividend
withholding tax purposes; and
vi.
stock dividends up to their nominal value (unless distributed out of ING Groep N.V.’s
qualifying
paid-in capital).
Reduction of Dutch dividend withholding tax based on Dutch law
Under certain circumstances, a reduction of Dutch dividend withholding tax can be obtained based
on Dutch law:
i.
An exemption at source is available if the Dutch participation exemption applies and the
Ordinary Shares or ADSs are
attributable to a business carried out in the Netherlands. To
qualify for the Dutch participation exemption, the U.S. Shareholder must generally hold at
least 5.0 percent of our nominal paid-in capital and meet certain other requirements.
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ii.
An exemption at source is available for dividend distributions to certain qualifying corporate
U.S. Shareholders owning our Ordinary Shares
or ADSs if such shareholder would have been
able to apply the Dutch participation exemption if it would have been resident of the
Netherlands, unless such shareholder holds the Ordinary Shares or ADSs with the primary aim
or one of the primary aims to avoid the levy of Dutch dividend withholding tax at the level of
another person and the Ordinary Shares or ADSs are not held for valid commercial
reasons
that reflect economic reality.
iii.
Certain tax exempt organizations (e.g.
pension funds and excluding collective investment
vehicles) may be eligible for a refund of Dutch dividend withholding tax upon their request.
Based on domestic law not yet entered into force, in those circumstances, an exemption at
source may also become available upon request.
iv.
Upon request and under certain conditions, certain qualifying individual and corporate U.S
Shareholders of Ordinary Shares or ADSs which are
not subject to personal or corporate
income tax in the Netherlands may request a refund of Dutch dividend withholding tax
insofar the withholding tax withheld on the gross dividend is higher than the personal or
corporate income tax which would have been due on the net dividend if they were resident
or
established in the Netherlands. This refund is however not applicable when, based on the
Treaty,
the Dutch dividend withholding tax can be fully credited in the United States by the
U.S. Shareholder.
However, it is unclear whether (i) which (financing) costs can be taken into
account when determining the hypothetical personal or corporate income tax due on the net
income (ii) or how the Netherlands would determine whether, based on the double taxation
convention, a full credit is available in the country of residence
of the holder for purposes of
this refund. See “United States Taxation
—Taxes
on dividends” for more information. The
provision in essence is intended to be a codification of certain judgments by both the
European Free
Trade
Association Court of Justice and the European Court of Justice that
already indicated that in certain circumstances a refund
should be available prior to the
introduction of the provision in Dutch law.
It is possible that this provision is an insufficient
codification of these judgments
and that based on EU law a larger refund should be provided.
Reduction of Dutch dividend withholding tax based on the Treaty
Pursuant to the provisions of the Treaty,
certain corporate U.S. Shareholders owning directly
at
least 10% of our voting power are eligible for a reduction to 5% Dutch dividend withholding tax
provided that the U.S. Shareholder is the beneficial owner of the dividends received and does not
have an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a
permanent establishment or permanent representative in the Netherlands to which the dividends
are attributable. The Treaty
also provides for a dividend withholding tax exemption on dividends,
but only for a shareholder owning directly at least 80.0 percent of our voting power and meeting all
other requirements.
Provided that certain conditions are met, under the Treaty
dividends paid to qualifying exempt
pension trusts and other qualifying exempt organizations, as defined in the Treaty, are exempt
from Dutch dividend withholding tax. To
obtain a refund of the tax withheld such qualifying exempt
pension trusts are required
to file a request. Only if certain conditions are fulfilled,
such qualifying
exempt pension trusts may be eligible for relief at source upon payment of the dividend. Qualifying
exempt organizations (other than qualifying exempt pension trusts) can only file for a refund of the
tax withheld.
Anti-dividend stripping rules
Pursuant to the Dutch anti-dividend stripping rules, in the case of dividend-stripping, the 15%
dividend withholding tax cannot be reduced or refunded. Dividend-stripping is deemed to be
present if the recipient of a dividend is, different from what has been assumed above,
not the
beneficial owner thereof and is entitled to a larger credit, reduction or refund of dividend
withholding tax than the beneficial
owner of the dividends. Under these rules, a recipient of
dividends will not be considered the beneficial owner thereof if as a consequence of a combination
of transactions a person other than the recipient wholly or partly benefits
from the dividends,
whereby such person retains, whether directly or indirectly, an interest
similar to the shares on
which the dividends were paid.
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Credit for ING Groep N.V.
ING Groep N.V.
may, with respect to certain dividends received from qualifying non-Netherlands
subsidiaries, credit taxes withheld from those dividends against the Netherlands withholding tax
imposed on certain qualifying dividends that are redistributed by ING Groep N.V.,
up to a maximum
of the lesser of:
◾
3% of the amount of qualifying dividends redistributed by ING Groep N.V.;
and
◾
3% of the gross amount of certain qualifying dividends received by ING Groep N.V.
The reduction is applied to the Dutch dividend withholding tax that ING Groep N.V.
must pay to the
Dutch tax authorities and not to the Dutch dividend withholding tax that ING Groep N.V.
must
withhold.
Taxes
on income and capital gains
Income and capital gains
Income and capital gains derived from the Ordinary Shares or ADSs by an individual or corporate
U.S. Shareholder are generally
not subject to Netherlands income tax or corporation tax, unless:
i.
such income and gains are attributable to a (deemed) permanent establishment or (deemed)
permanent representative in the Netherlands of the U.S. Shareholder; or
ii.
the shareholder is entitled to a share in the profits of an enterprise or (in case of a non-Dutch
resident corporate shareholder
only) a co-entitlement to the net worth of an enterprise, that
is effectively managed in the Netherlands
(other than by way of securities) and to which
enterprise the Ordinary Shares or ADSs are attributable; or
iii.
such income and capital gains are derived from a direct, indirect or deemed substantial
interest in the share capital of ING Groep
N.V.
(such substantial interest not being a business
asset), and in the case of a non-Dutch resident corporate shareholder only, that substantial
interest is being held with the primary aim or one of the primary aims to avoid the levy of
income tax from another person and is put in place without valid economic reasons that
reflect economic reality;
iv.
in case of a non-Dutch resident corporate shareholder,
such shareholder is a resident of
Aruba, Curacao or Saint Martin with a permanent establishment or permanent representative
in Bonaire, Eustatius or Saba to which the Ordinary Shares
or ADS are attributable, while the
profits of such shareholder are taxable in the Netherlands pursuant to Article 17(3)(c) of the
Dutch Corporate Tax
Act 1969; or
v.
in case of a non-Dutch resident individual, such individual derives income or capital gains
from the Ordinary Shares
or ADSs that are taxable as benefits from ‘miscellaneous activities’
in the Netherlands (‘resultaat uit overige werkzaamheden’, as defined in the Dutch Income
Tax
Act 2001), which includes the performance of activities
with respect to the Ordinary
Shares or ADSs that exceed regular portfolio management.
Substantial interest
Generally speaking, for Dutch tax purposes, an interest in the share capital of ING Groep N.V.,
should not be considered a substantial interest if the holder of such interest, and, in case of an
individual, his or her spouse, registered partner, certain other relatives or certain persons sharing
the holder’s household, alone or together, does or do not hold, either directly or indirectly, the
ownership of, or certain rights over, shares or rights resembling shares
representing 5% or more
of
the total issued and outstanding capital, or the issued and outstanding capital of any class of
shares, of ING Groep N.V.
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Gift or inheritance tax
No Netherlands gift or inheritance tax will be imposed on
the transfer or deemed transfer of the
Ordinary Shares or ADSs by way of a gift by or on the death of a U.S. Shareholder if, at the time of
the gift or the death of that shareholder, such shareholder is not a (deemed) resident of the
Netherlands.
Netherlands inheritance or gift taxes (as the case may be) are due, however, if the transfer of the
bearer receipts or ADSs are
construed as an inheritance or as a gift made by or on behalf of a
person who, at the time of the gift or death, is deemed
to be a resident of the Netherlands. For the
purposes of Netherlands gift or inheritance tax, an individual
of Dutch nationality is deemed to be a
resident of the Netherlands if he or she has been a resident thereof at any time during the ten
years preceding the time of the gift or death. For the purposes of Netherlands gift tax, any person
is
deemed to be a resident of the Netherlands if he or she has resided therein at any time in the
twelve months preceding the gift.
United States Taxation
Taxes
on dividends
The tax treatment of owning Ordinary shares
will depend in part on whether or not ING Groep N.V.
is classified as a passive foreign investment company, or PFIC, for United States federal income tax
purposes.
Except as discussed below under “-PFIC Rules”, this discussion assumes that we are not
classified as a PFIC
for United States federal income tax purposes.
Under the United States federal income tax laws, a U.S. Shareholder will be required
to include in
gross income the full amount of a cash dividend (including any Netherlands withholding tax
withheld) as ordinary income when the dividend is actually or constructively received by the U.S.
Shareholder.
For this purpose, a “dividend”
will include any distribution paid by ING Groep N.V.
with
respect to the Ordinary Shares, but only to the extent such distribution is not in excess of ING Groep
N.V.’s
current and accumulated earnings and profits as determined for United States federal
income tax purposes. Distributions in excess of current and accumulated earnings and profits, as
determined for United States federal income tax purposes, will be treated
as a non-taxable return
of capital to the extent of a U.S. Shareholder’s basis in the Ordinary Shares
and thereafter as capital
gain. Because ING Groep N.V.
does not keep account of its earnings and profits, as determined for
United States federal income tax purposes, U.S. Shareholders should generally
expect to treat any
distribution as a dividend for U.S. federal income tax purposes.
For foreign
tax credit purposes, dividends will generally be income from sources
outside the United
States and will, depending on the circumstances of the U.S. Shareholder, generally be “passive”
income for purposes of computing the foreign tax credit allowable to the shareholder.
A dividend
will not be eligible for the dividends received deduction generally allowed to U.S. corporations
in
respect of dividends received from
other U.S. corporations. Dividends paid to a non-corporate U.S.
Shareholder that are considered
qualified
dividend income will be taxable to the shareholder at
preferential rates
applicable to long-term capital gains provided that the shareholder holds the
Ordinary Shares for more
than 60 days during the 121-day period beginning 60 days before the ex-
dividend date and meets other holding period requirements. Dividends paid by ING Groep N.V.
with
respect to the Ordinary Shares generally will be
qualified
dividend income.
Subject to certain limitations, a U.S. Shareholder may generally deduct from income, or credit
against its United States federal income tax liability, the amount of any Netherlands withholding
taxes under the Treaty.
The Netherlands withholding tax will likely not be creditable against the U.S.
Shareholder’s United States tax liability, however, to the extent that ING Groep N.V.
is allowed to
reduce the amount of dividend withholding tax paid over to the Netherlands Tax
Administration by
crediting withholding tax imposed on certain dividends paid to ING Groep N.V.
In addition, special
rules apply in determining the foreign tax credit limitation with respect to dividends that are
subject to preferential rates. To
the extent a reduction or refund of the tax withheld is available to
you under Dutch law or under the Treaty,
the amount of tax withheld that could have been
reduced or is refundable will not be eligible for credit
against your United States federal income tax
liability. In addition, to the extent an amount of Dutch tax withheld is contingent on the availability
of a credit against the amount of income tax owed to another country, that amount of Dutch tax
withheld will not be eligible for a credit against your United States federal income tax liability. It is
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unclear whether or how the Netherlands would apply this rule in determining whether, based on
the Treaty,
a credit is available in the United States for purposes of the dividend withholding tax
refund provision described in Section IV under “Netherlands Taxation
—Withholding tax on
dividends—Reduction of Dutch dividend withholding tax based on Dutch law”.
Since payments of dividends with respect to Ordinary Shares will be made in Euros, a U.S.
Shareholder will generally be required
to determine the amount of dividend income by translating
the Euro into United States dollars at the “spot rate”
on the date the dividend distribution is
includable in the income of the U.S. Shareholder.
Generally, any gain or loss resulting from currency
exchange fluctuations
during the period from the date the dividend distribution is includable in the
income of the U.S. Shareholder to the date such payment is converted into U.S. dollars will be
treated as ordinary income or loss and will not be eligible for the special tax rate applicable to
qualified dividend
income. Such gain or loss will generally be income or loss from sources within the
United States for foreign tax credit
limitation purposes.
Taxes
on capital gains
Gain or loss on a sale or exchange of Ordinary Shares by a U.S. Shareholder
will generally be a
capital gain or loss for United States federal income tax purposes. If such U.S. Shareholder has held
the Ordinary Shares for more
than one year, such gain or loss will generally be long-term capital
gain or loss. Long-term capital gain of a non-corporate U.S. Shareholder
is generally taxed at
preferential rates.
In general, gain or loss from a sale or exchange of Ordinary Shares
by a U.S.
Shareholder will be treated as income or loss from sources
within the United States for foreign tax
credit limitation purposes.
PFIC rules
ING Groep N.V.
believes it is not a PFIC for United States federal income tax purposes, and it does
not expect to become a PFIC in the foreseeable future. However, this conclusion is a factual
determination that must be made annually and thus may be subject
to change. It is therefore
possible that we could become a PFIC in a future taxable year
If ING Groep N.V.
were to be treated as a PFIC, unless a U.S. Shareholder
made an effective election
to be taxed annually on a mark-to-market basis with respect to the Ordinary Shares, any gain from
the sale or disposition of Ordinary Shares by a U.S. Shareholder would
be allocated ratably to each
year in the holder’s holding period and would be treated as ordinary income. Tax
would be imposed
on the amount allocated to each year prior to the year of disposition at the highest rate in effect
for that year, and interest would be charged at the rate
applicable to underpayments on the tax
payable in respect of the amount so allocated. The same rules would apply to “excess
distributions”, defined
generally as distributions in a single taxable year exceeding 125% of the
average annual distribution made by ING Groep N.V.
over the shorter of the holder’s holding period
or the three preceding years. Dividends received
by a U.S. Shareholder will not be eligible for the
special tax rates applicable to qualified dividend income if ING Groep N.V.
were to be treated as a
PFIC with respect to the shareholder either in the taxable year of the distribution or the preceding
taxable year, but instead will be taxable at rates applicable to ordinary income.
A U.S. Shareholder who owns Ordinary Shares
during any year that ING Groep N.V.
is a PFIC may be
required to file Internal Revenue Service Form 8621.
F.
Dividends
and paying
agents
This item does not apply to annual reports on Form 20-F.
G.
Statement
by experts
This item does not apply to annual reports on Form 20-F.
H.
Documents
on display
ING Groep N.V.
is subject to the informational requirements of the Securities Exchange Act of 1934,
as amended. In accordance with these requirements, ING Groep
N.V.
files reports and other
information with the Securities and Exchange Commission (”SEC”). These materials, including this
Annual Report and its exhibits, may be inspected and copied on the SEC’s website at www.sec.gov.
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You
may also inspect ING Groep N.V.’s
SEC reports and other information on the website of ING
Groep N.V.
(www.ing.com).
I.
Subsidiary
information
This item does not apply to annual reports on Form 20-F.
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Item 11. Quantitative and Qualitative
Disclosure
of Market Risk
See “Item 5. Operating and Financial Review and Prospects – Factors
Affecting Results of
Operations” and “Additional
information - ING Group Risk Management” for these
disclosures,
including disclosures relating to operational, compliance and other non-market-related
risks.
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Item 12. Description of Securities Other Than Equity
Securities
A.
Debt
securities
This item does not apply to annual reports on Form 20-F.
B.
Warrants
and rights
This item does not apply to annual reports on Form 20-F.
C.
Other
securities
This item does not apply to annual reports on Form 20-F.
D.
American
depositary
shares
Fees and Charges
Payable by a Holder of ADSs
JPMorgan Chase Bank, N.A., as ADR depositary,
may collect fees for, among other things, the
delivery and surrender of ADSs directly from investors,
or from intermediaries acting for them,
depositing Ordinary Shares or surrendering ADSs for the purpose of withdrawal.
The charges of the ADR depositary payable which may be payable by investors are as follows:
Type of Service
ADR Depositary Actions
Fee Payable
Depositing or
substituting the
underlying Ordinary
Shares
Issuance of ADSs against the deposit of Ordinary
Shares, including deposits and issuances in respect
of:
$5.00 for each 100 ADSs (or
portion thereof) issued, delivered
or upon which a share distributive
or elective distribution is made or
offered.
The ADR depositary may
sell sufficient
securities or
property received in respect
of
share distributions, rights and
other distributions prior to such
deposit to pay such charge.
Receiving or
distributing cash
dividends
Distribution of cash dividends or other cash
distributions, or offering of elective cash/stock
dividends.
$0.05 or less per ADS held.
Selling or exercising
rights
An amount equal to the fee for
the execution and delivery of
ADSs which would have been
charged as a result
of the deposit
of such securities.
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Withdrawing an
underlying Ordinary
Share
Acceptance of ADSs surrendered
for withdrawal of
deposited Ordinary Shares
$5.00 for each 100 ADSs (or
portion thereof) reduced,
cancelled or surrendered.
Type of Service
ADR Depositary Actions
Fee Payable
Transferring,
splitting
or grouping of ADRs
Registration, registration
of transfer, combination
and split-up of ADRs in the ADR register as evidenced
by the ADRs surrendered or upon delivery
of proper
instruments of transfer
$1.50 per ADR.
General depositary
services, particularly
those charged on an
annual basis
Other services performed by the ADR depositary in
administering the ADR program
$0.05 per ADS per calendar year
(or portion thereof), which may
be charged on a periodic basis
during each calendar year
against holders of the record
date(s) set by the ADR depositary
and shall be payable at the sole
discretion of the ADR depositary
by billing such holders or
deducting such charge from one
or more cash distributions.
Reimbursement of
fees, charges and
expenses of the ADR
depositary
The ADR depositary and/or any of its agents may
incur fees, charges and expenses (including
expenses incurred on behalf of holders of ADRs in
connection with compliance with foreign exchange
control regulations
or any law or regulation relating
to foreign investment) in connection with the
servicing of the underlying Ordinary Shares or other
deposited securities, the sale of securities (including,
without limitation, deposited securities), the delivery
of deposited securities or otherwise in connection
with the ADR depositary’s compliance with
applicable law, rule or regulation.
Fees and charges shall be
assessed on a proportionate basis
against holders of ADRs as of the
record date
or dates set by the
ADR depositary and shall be
payable at the sole discretion of
the ADR depositary by billing
such holders of ADRs or by
deducting such charge from one
or more cash dividends or other
cash distributions.
Type of Service
ADR Depositary Actions
Fee Payable
Other charges and
expenses of the ADR
depositary
The ADR depositary may incur charges and expenses
on behalf of holders in connection with:
Payable by holders or persons
depositing Ordinary Shares.
Payable by persons depositing, or
holders of ADRs delivering
underlying Ordinary Shares, Ads
or deposited securities.
Payable by persons depositing or
withdrawing deposited securities.
Payable by persons receiving
such foreign currency, as the ADR
depositary will deduct any fees,
expenses and other charges prior
to distributing such foreign
currency.
Fees and Payments
made by the ADR depositary to ING
In consideration for acting as depositary, the ADR depositary has agreed to provide ING with certain
amounts on an annual basis. In the year ended 31 December 2019, the ADR depositary
paid
aggregate fees and made other direct and indirect payments to ING in an amount of USD
6,807,428
.
Under certain circumstances, including removal of the ADR depositary or termination of the ADR
program by ING, ING is required
to repay the ADR depositary certain amounts reimbursed and/or
expenses paid to or on behalf of ING.
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PART
II.
Item
13. Defaults,
Dividend
Arrearages
and Delinquencies
None.
Item
14. Material
Modifications
to the
Rights
of Security
Holders
and
Use of
Proceeds
None.
Item
15. Controls
and Procedures
Internal control over
financial reporting
Due to the listing of ING shares on the New York
Stock Exchange, ING Group is required
to comply
with the SEC regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act (SOX 404).
These regulations require
that the Chief Executive Officer
(“CEO”) and the Chief Financial Officer
(“CFO”) of ING Group report and certify on an annual basis on the effectiveness of ING Group’s
internal controls over financial reporting.
Furthermore, the external auditors are required
to
provide an opinion on the effectiveness of ING Group’s internal controls over financial reporting.
SOX 404 activities are organized
along the lines of the governance structure, and involve the
participation of senior management across ING. Following the SOX 404 process, ING is in the
position to publish an unqualified
statement that the Company’s internal control over financial
reporting was effective as of 31 December 2019. The SOX 404 statement by the Executive Board is
included on this page, followed by the report of the external auditor as issued on Form 20-F.
Disclosure Controls
and Procedures
The Company’s management under the supervision and with the participation
of the CEO and CFO,
has performed an evaluation of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures.
Based on that evaluation, the Company’s management
concluded that the Company’s disclosure controls and procedures
were effective as of December
31, 2019, the end of the period covered by the 2019 Form 20-F.
Report of the Executive
Board on Internal Control
Over Financial Reporting
The Executive Board is responsible
for establishing and maintaining adequate internal control over
financial reporting. ING’s internal
control over financial reporting is a process designed under the
supervision of our principal executive and principal financial
officers
to provide reasonable
assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial
reporting includes those policies and procedures that:
●
Pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect
the transactions and dispositions of assets of ING;
●
Provide reasonable assurance
that transactions are recorded
as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance
with
authorisations of our management and directors; and
●
Provide reasonable assurance
regarding prevention
or timely detection of unauthorised
acquisition, use or disposition of our assets that could have a material effect on
our financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
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subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedure
s
may deteriorate.
The Executive Board assessed the effectiveness of internal control over financial reporting as of 31
December 2019. 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 disclosure and financial reporting was effective as of 31 December 2019.
Attestation Report
of the Registered
Public Accounting Firm
Our independent registered public accounting firm has audited and issued their report on ING’s
internal control over financial reporting, which appears on the page below.
Changes in Internal Controls
over Financial Reporting
There have been no changes in the Company’s internal controls over
financial reporting during the
period covered by this Annual Report that have materially affected or are reasonably likely to
materially affect, our internal controls over financial reporting.
Report of Independent Registered
Public Accounting Firm
To
the Shareholders and the Supervisory Board
ING Groep N.V.:
Opinion on Internal Control
Over Financial
Reporting
We have audited ING Groep
N.V.
and subsidiaries’ (the Company) internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated
Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control – Integrated
Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway
Commission.
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, 2019 and 2018, the related consolidated statements of profit or loss,
comprehensive income, changes in equity, and cash flows for each of the years in the three year
period ended December 31, 2019, and the related notes and specific disclosures described in Note 1
of the consolidated financial
statements as being part of the consolidated statements (collectively,
the consolidated financial
statements), and our report dated March 2, 2020 expressed an
unqualified opinion
on those consolidated financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Report of the Executive Board on Internal Control
over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We are
a public accounting firm registered with the PCAOB
and are required
to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards
of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit of
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internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and
testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audit also included performing such other procedures as we considered necessary in the
circumstances. We
believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control
Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded
as necessary to permit preparation of financial statements in
accordance with generally accepted
accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance
regarding prevention
or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets
that could have a
material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures
may deteriorate.
/s/ KPMG Accountants N.V.
Amstelveen, The Netherlands
March 2, 2020
Item
16A.
Audit
Committee
Financial
Expert
The Supervisory Board has determined that Margarete Haase, who is a member of the Supervisory
Board, qualifies as an “audit committee financial
expert” as defined
by the SEC pursuant to section
407 of the Sarbanes-Oxley Act of 2002. The Supervisory Board has further determined
that
Margarete Haase is “independent”, as defined in Rule 10A-3 under the U.S. Securities Exchange Act
of 1934. She was appointed as a member of the Supervisory Board at the General Meeting in May
2017 and her appointment became effective as per 1 May 2018, as decided
by the Supervisory
Board in January 2018.
Item
16B.
Code
of Ethics
How we work
Creating a differentiating employee experience starts with ING’s distinctive culture: entrepreneurial,
open, collaborative, innovative
and energetic. Who we are and how we work are
set out in the
Orange Code, our internal Code of Ethics. Putting
‘integrity above all’
, it comprises:
• Our values.
The
non-negotiable promises we make to the world no matter what.
• We are
honest.
• We are
responsible.
• We are
prudent.
• Our behaviours.
The commitments we make to each other and the standards by which we
measure each other’s performance:
• You take
it on and make it happen.
• You help
others to be successful.
• You are
always a step ahead.
The Orange Code is supported by a compliments tool, kudos, that allows employees to give each
other compliments based on Orange Code behaviours. Employees are introduced to the Orange
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Code early with new joiners invited to complete a global online e-learning introduction module that
explains more about ING’s culture, how we work
and what we expect from employees. In 2019, ING
also developed a global code of conduct that builds on the Orange Code and sets the standards we
expect our people to uphold. This ING Global Code of Conduct was launched in February 2020.
Our Orange Code behaviours are included within the performance management process and
discussed throughout the year.
They are also linked to our Employee Value Proposition,
which
forms the basis of all people-related programmes. Through
these activities, our aim is to develop a
culture that is focused on long-
term value creation.
The Orange Code applies to all employees worldwide, including the principal executive, financial
and accounting officers.
The values and behaviours of the Orange Code are available
on the ING
website at
https://www.ing.jobs/Global/Careers/Orange-code.htm
.
In 2019, there were no amendments to the Orange
Code. ING did not grant any waivers
(including
implicit waivers) under the Orange Code to the principal executive, financial or accounting officers
in 2019.
Regarding the management of actual or potential conflicts
of interest, ING maintains a Policy on
Information Barriers and Conflicts of Interest which applies to all employees worldwide, including
the principal executive, financial and accounting officers.
A description of the Policy on Information
Barriers and Conflicts of Interest is available to view on the ING website at
https://www.ing.com/About
-us/Compliance/Information-Barriers-Conflicts-of-Interest.htm
.
The relevant principle as defined in the Conflict
of Interest Policy is:
‘Any person not being a third party working for or on behalf of ING Bank, on contract or temporary,
including Senior Management and members of the Executive Board, Management Board Banking
and the Supervisory Board must not put themselves in a position in which their personal, financial
or otherwise, might influence or give the foreseeable appearance of influencing
any action they
take, judgment they make, or advice they give on behalf of ING’.
In 2019, there were no amendments to the Policy on Information Barriers and Conflicts of Interest.
ING did not grant any waivers (including implicit waivers) under the Policy on Information Barriers
and Conflicts of Interest to the principal executive, financial
or accounting officers
in 2019.
Regarding reporting of breaches of the Orange
Code and raising concerns about suspected or
actual criminal conduct, unethical conduct or other
misconduct by or within ING, ING maintains a
Whistleblower Policy next to the standard reporting and escalation lines. This requires
prompt
internal reporting of violations of the Orange Code and applies to all employees worldwide,
including the principal executive, financial and
accounting officers.
A description of the
Whistleblower Policy is available on the ING website at
www.ing.com/About
-us/Compliance/ING-
Group-Whistleblower-Policy
.
ING did not grant any waivers (including implicit waivers) under the Whistleblower Policy to the
principal executive, financial or accounting officers
in 2019.
Banker’s Oath
All employees working for ING in the Netherlands (including ING's principal executive, financial
or
accounting officers)
take the Banker's Oath. The oath contains a set of principles affirming
the
banking industry's commitment to maintain high standards of ethical behaviour.
Accountability
and a disciplinary sanction mechanism are linked to breaches of these principles.
Compliance is trained to support employees in dealing with dilemmas via workshops and dialogue
sessions,
using the Orange Code dilemma model (a so-called “four-step approach”
weighing the
rights and interest of stakeholders involved).
In 2019, there were no amendments to the Banker's Oath. ING did not grant any waivers under the
Banker's Oath to principal executive, financial or accounting
officers
in 2019. The text of the
Banker’s oath can be found here:
https://www.ing.com/About
-us/Corporate-governance/Dutch-
Banking-Code.htm
Item
16C.
Principal
Accountant
Fees
and Services
At the Annual General Meeting held on 11 May 2015, KPMG was appointed as the external audit
firm for ING Group for the financial
years 2016 through 2019. This appointment includes the
responsibility to provide an audit opinion on the financial statements and internal control over
financial reporting on 31 December 2019
and to report on the outcome of these audits to the
Executive Board and the Supervisory Board.
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The external auditor may be questioned at the Annual General Meeting in relation to its audit
opinion on the financial
statements. The external auditor will therefore attend and be entitled to
addresses this meeting. The external auditor attended the meetings of the Risk Committee and of
the Audit Committee and attended and addressed the 2019 Annual General Meeting, at which the
external auditor was questioned its audit opinion.
The external auditor may only provide services to ING Group and its subsidiaries with the
permission of the Audit Committee, in line with the ING Group Policy on External Auditor
Independence. All services were pre
-approved by the Audit Committee and the exception
procedure was not applied to any engagement.
Following the advice of the Supervisory Board, in 2019 the General Meeting of Shareholders
reappointed KPMG as external auditor for the fiscal years 2020 up and
until 2023. More information
on ING Group’s policy on External Auditor Independence is available on the website of ING Group
www.ing.com.
Audit fees
Audit fees were paid for professional
services rendered by the auditors for the audit of the
consolidated financial statements
of ING Group and statutory financial statements of ING’s
subsidiaries or services provided in connection with the audit of Form 20-F and other filings for
regulatory and supervisory purposes as well as the review on interim financial statements and
work performed relating to comfort letters issued in connection with prospectuses and reviews of
SEC product filings.
Audit-related fee
s
Audit-related fees were paid for
assurance and related services that are
reasonably related to the
performance of the audit or review of the consolidated financial statements and are not reported
under the audit fee item above.
These services consisted primarily of specific
agreed-upon
procedure engagements and assurance engagements.
Tax
fees
Over 2019 no tax fees were paid. Under the current ING Policy
on External Auditor Independence
most tax services are prohibited and some tax services are
only allowed after specific
approval
under an ‘exception procedure’.
Reference is made to Note 28 in the consolidated financial statements for audit, audit-related, tax
and all other fees paid to the external auditors in 2019, 2018 and 2017.
Item
16D. Exemptions
from
the Listing
Standards
for Audit
Committees
Not applicable.
Item
16E.
Purchases
of Equity
Securities
by the
Issuer
and Affiliated
Purchasers
There were no purchases
by us or any of our affiliated
purchasers of any of our equity securities
registered pursuant to Section 12 of the U.S. Securities Exchange Act of 1934 during the fiscal years
ended December 31, 2019 and 2018.
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Item
16F.
Changes
in Registrant
’s Certifying
Accountant
Not applicable.
Item
16G.
Corporate
Governance
This chapter reports on the application of the Dutch Corporate Governance Code
effective as from 1
January 2017, by ING Groep N.V.
(‘ING Group’), including information on ING’s share capital, control,
Executive Board, Supervisory Board and external auditor.
Dutch
Corporate
Governance
Code
Compliance with the Dutch
Corporate
Governance Code
ING Group uses the Dutch Corporate Governance
Code as reference
for its corporate governance
structure and practices.
The Dutch Corporate Governance
Code can be downloaded from the website of the Dutch
Corporate Governance
Code Monitoring Committee
www.commissiecorporategovernance.nl
.
ING’s application of the Dutch Corporate Governance Code
is described in the 2019 publication
ING’s
application of the Dutch Corporate Governance Code
, available on the website of ING Group
www.ing.com
. This is to be read in conjunction with this chapter and is deemed to be incorporated
into this chapter.
Dutch Banking Code
The Dutch Banking Code (‘Banking Code’), a revised version of which was adopted by the Dutch
Banking Association in 2014, is applicable only to ING Bank N.V.
and not to ING Group. The Banking
Code can be downloaded from the website of the Dutch Banking Association (
www.nvb.nl
). Its
application by ING Bank is described in ‘
Application of the Dutch Banking Code by ING Bank N.V.
’,
available on ING Group’s website (
www.ing.com
). ING Group voluntarily applies the principles of the
Banking Code regarding remuneration
of the members of its Executive Board. ING Group’s
remuneration policy for the Executive
Board and senior management is compliant with the Banking
Code principles.
Differences between Dutch and US corporate governance practices
ING Groep N.V.
is a public limited liability company (
naamloze vennootschap
) organised under the
laws of the Netherlands and qualifies
as a foreign private issuer under SEC rules and for the
purposes of the New York Stock Exchange (‘NYSE’)
listing standards. Under NYSE listing standards,
listed companies that are foreign private
issuers are permitted to follow home-country practice in
some circumstances in lieu of the provisions of the corporate
governance rules contained in Section
303A of the NYSE Listed Company Manual that are applicable to US listed companies. In
accordance with the requirements
of the SEC and NYSE, ING Group must disclose in its Annual
Report on Form 20-F any significant differences between its corporate governance practices and
those applicable to US companies under NYSE listing standards. ING Group believes the following to
be the significant differences between its corporate governance practices and the NYSE corporate
governance rules applicable to US companies:
◾
ING Group has a two-tier board structure,
in contrast to the one-tier board structure used by
most US companies. In the Netherlands, a public limited liability company with a two-tier board
structure has an executive board as its management body and a supervisory board that advises
and supervises the executive board. Supervisory board members are often former state or
business leaders and sometimes former members of the executive board. A member of the
executive board or other officer or employee of the
company cannot simultaneously be a
member of the supervisory board. The supervisory board must approve specified decisions of the
executive board.
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◾
NYSE listing standards generally require
that a majority of board members be ‘independent’ as
determined under the NYSE listing standards. Under the Corporate Governance
Code, all
members of the supervisory board, with the exception of not more than one person, should be
‘independent’ as determined under the Corporate Governance Code.
However, the definition of
‘independent’ under the Corporate Governance Code
differs in its details from the definition
of
‘independent’ under the NYSE listing standards. In some cases, Dutch requirements are
stricter; in
other cases the NYSE listing standards are stricter.
All members of the Supervisory Board, other
than Eric Boyer de la Giroday, are independent as determined under the Corporate Governance
Code.
◾
NYSE listing standards require
a US company to have a compensation committee and a
nominating/corporate
governance committee, each composed entirely of independent directors.
The Nomination and Corporate Governance Committee
and Remuneration Committee are
composed entirely of members of the Supervisory Board who are independent as determined
under the Corporate Governance
Code.
◾
NYSE listing standards require
that, when a member of the audit committee of a US company
serves on four or more audit committees of public companies, the company should disclose
(either on its website or in its annual proxy statement or annual report filed with the SEC) that
the board of directors has determined that this simultaneous service would not impair the
director’s service to the company. Dutch law does not require the Supervisory Board to make
such a determination.
◾
In contrast to the NYSE listing standards, the Corporate
Governance Code contains an ‘apply-or
explain’ principle, offering the possibility of deviating from the Corporate Governance Code.
For
any deviations by ING Group, please refer to the paragraph
‘Compliance with the Dutch
Corporate Governance
Code’
◾
NYSE listing standards applicable to US companies require
that external auditors be appointed by
the audit committee. By contrast, Dutch law requires
that ING Group’s external auditors be
appointed by the General Meeting and not by the Audit Committee. The Audit Committee is
responsible for preparing the Supervisory Board’s nomination to the General Meeting for the
appointment and remuneration of the Group’s external auditor, and annually evaluates the
independence and functioning of, and the developments in the relationship with, the Group’s
external auditor and informs the Supervisory Board of its findings and
proposed measures.
The 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.
◾
Under NYSE listing standards, shareholders of US companies must be given the opportunity to
vote on all equity compensation plans and to approve material revisions
to those plans, with
limited exceptions set forth in the NYSE rules. The NYSE rules require
a shareholder vote on all
equity compensation plans applicable to any employee, director or other service provider of a
company. The results of such votes are advisory in nature
rather than binding. Under Dutch law
and the Corporate Governance
Code, binding shareholder approval
is only required for equity
compensation plans (or changes thereto) for members of the executive board and supervisory
board, and not for equity compensation plans for other groups of employees.
◾
by the audit committee. By contrast, Dutch law requires
that ING Group’s external auditors be
appointed by the General Meeting and not by the Audit Committee. The Audit Committee is
responsible for preparing the Supervisory Board’s nomination to the General Meeting for the
appointment and remuneration of the Group’s external auditor, and annually evaluates the
independence and functioning of, and the developments in the relationship with, the Group’s
external auditor and informs the Supervisory Board of its findings
and proposed measures.
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◾
The 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.
◾
Under NYSE listing standards, shareholders of US companies must be given the opportunity to
vote on all equity compensation plans and to approve material revisions
to those plans, with
limited exceptions set forth in the NYSE rules. The NYSE rules require
a shareholder vote on all
equity compensation plans applicable to any employee, director or other service provider of a
company. The results of such votes are advisory in nature
rather than binding. Under Dutch law
and the Corporate Governance
Code, binding shareholder approval
is only required for equity
compensation plans (or changes thereto) for members of the executive board and supervisory
board, and not for equity compensation plans for other groups of employees.
Item
16H.
Mine
Safety
Disclosure
Not applicable.
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PART
III.
Item
17.
Consolidated
Financial
Statements
Not applicable.
Item
18. Consolidated
Financial
Statements
Reference is made to the Consolidated financial statements of ING Group starting on page F-1.
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Item
19. Exhibits
The following exhibits are filed as part of this Annual Report:
Exhibit
2.2
Exhibit
2.3
Exhibit
2.4
Exhibit
2.5
Exhibit
2.6
Exhibit
2.7
Exhibit
2.8
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Exhibit
2.9
Exhibit
2.10
Exhibit
2.11
Exhibit
101
eXtensible Business Reporting Language (XBRL)
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SIGNATURES
The registrant hereby
certifies that
it meets all the requirements for filing on Form 20-F and that it
has duly caused and authorised the undersigned to sign this annual report on its behalf.
ING Groep N.V.
(Registrant)
By:/s/T.
Phutrakul
T.
Phutrakul
Chief Financial Officer
Date: March 2, 2020
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Additional information
ING Group
Risk
Management
As a global financial
institution with a strong European base, offering banking services, ING is
exposed to a variety of risks. We manage these risks through a comprehensive
risk management
framework that integrates risk management into daily business activities and strategic planning.
This safeguards ING Group’s financial strength by promoting the identification, measurement and
control of risks at all levels of the organisation. Taking
measured risks is the core of ING’s business.
The risk management function supports
the Executive Board in formulating the risk appetite,
strategies, policies and limits. It provides review,
oversight and support functions throughout ING on
risk-related items. ING’s main financial risks exposures are to credit risk (including transfer risk),
market risk (including interest rate, equity, real estate, credit
spread, and foreign exchange risks),
funding & liquidity risk and business risk. ING Group is also exposed to non-financial
risks, including
operational, IT and compliance risks, as well as to model risks. The ING Group Chief Risk Officer (CRO)
is also the CRO of ING Bank.
This section sets out how ING manages its risks on a day-to-day basis. It explains
how the risk
management function is embedded within the organisation based on the ‘three lines of defence’. It
describes the key risks that arise from ING’s business model and how these are managed by
dedicated risk management departments, with various specific
areas of expertise. The section
provides qualitative and quantitative disclosures
about credit, market, funding & liquidity, business,
operational, IT, compliance and model risks.
Basis of disclosures
The risk management section contains information relating to the nature and the extent of the
risks of financial instruments
as required by International Financial Reporting Standards (IFRS) 7
'Financial Instruments: Disclosures'.
These disclosures are an integral
part of ING Group
Consolidated financial statements and are indicated by the symbol (*). Chapters, paragraphs,
graphs or tables within the risk management section that are indicated with this symbol in the
respective headings or table header are considered to be an integral
part of the consolidated
financial statements.
This risk management section also includes additional disclosures beyond those required by IFRS-
IASB standards, such as certain legal and regulatory disclosures. Not all information in this section
can be reconciled back to the primary financial statements
and corresponding notes, as it has been
prepared using risk data that differs to the accounting basis of measurement. Examples of such
differences include the exclusion of accrued interest and certain costs and fees from risk data, and
timing differences in exposure values (IFRS 9 models report expected credit loss on underlying
exposures). Disclosures in accordance
with Part Eight of the CRR and CRD IV, and as required by the
supervisory authority, are published in our ‘Additional Pillar III Report’, which can be found on our
corporate website ing.com.
Risk governance (*)
Effective risk management requires firm-wide risk governance. ING’s risk and control structure is
based on the ‘three lines of defence’ governance model, whereby each line has a specific role and
defined responsibilities in such a way that the execution of tasks is separated from the control of
these same tasks. At the same time, they have to work closely together to identify, assess, and
mitigate risks. This governance framework is designed such that risk is managed in line with the risk
appetite as approved
by the Management Board Banking (MBB), the Executive Board (EB) and the
Supervisory Board (SB), and is cascaded throughout ING. The MBB is composed of the Executive
Board of ING Group, the heads of the business lines and the chief operating officer.
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The heads of ING’s banking business & support functions
and the heads of the country units, or
their delegates, are the first line of defence. They have the primary ownership, accountability and
responsibility for assessing, controlling and mitigating all financial and non-financial
risks affecting
their businesses, and, for the completeness and accuracy of the financial statements
and risk
reports with respect to their responsible areas. The COO is responsible
and accountable for proper
security and controls on global applications and IT platforms servicing the Bank and implementing
proper processes.
The second line of defence consists of oversight and specialised functions in risk management and
compliance, and includes at least the control functions Risk and Compliance. They (i) have co-
responsibility for risk management, through articulating and translating the risk appetite into
methodologies and policies to support and monitor business
management's control of risk, (ii)
objectively challenge risk management execution and control processes and coordinate the
reporting of risks and controls by the first line of defence, (iii) advise management on risk
management and compliance and have decision-making power in relation to business activities
that are judged to present unacceptable risks to ING and (iv) can set minimum requirements
in
terms of quality and quantity of global resourcing in the risk management and compliance
functions.
The internal audit function forms the third line of defence. It provides an independent assessment
of the effectiveness of internal controls over the risks to ING’s business processes and assets,
including risk management activities performed in both
the first and
second lines of defence. To
protect its independent nature, decisions
regarding the
appointment, re-appointment or dismissal
from office as well as the remuneration package of the head of the internal audit function require
supervisory board approval.
The next graph illustrates the different key senior management level committees in place in the
risk governance structure.
(*)
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Board level
risk oversight (*)
ING has a two-tier board structure consisting of a management board (EB for ING Group
and MBB
for ING Bank) and the SB; both tiers play an important role in managing and monitoring the risk
management framework.
◾
The SB is responsible for supervising EB and MBB policy, the general course of affairs of ING
Group, ING Bank and its business (including its financial
policies and corporate structure). For risk
management purposes the SB is advised mainly by the Risk Committee, which assists and
advises in monitoring the risk profile and
approving the overarching
risk appetite of the company
as well as the structure and effective operation of the internal risk management and control
systems.
◾
The EB is responsible for managing risks associated with all activities of ING Group, whereas the
MBB is responsible for managing risks associated with all activities of ING Bank. The EB and MBB
responsibilities include ensuring that internal risk management and control systems are effective
and that ING Group and ING Bank comply with relevant legislation and regulations. On a regular
basis, the EB and MBB report on these issues and discuss the internal risk management and
control systems with the SB. On a quarterly basis, the EB and MBB report on ING’s risk profile
versus its risk appetite to the Risk Committee, explaining changes in the risk profile.
As a member of the EB and the MBB, the CRO is responsible for ensuring that risk management
issues are heard and discussed at the highest level. The CRO steers a risk organisation both at
head-office
and business-unit levels, which participates in commercial decision-making, bringing
countervailing power to keep the agreed risk profile within the risk tolerance. The CRO reports to the
SB committees on ING’s risk appetite levels and on ING’s risk profile at least quarterly. In addition,
the CRO briefs them on developments in internal and external risk-related issues and seeks to
ensure they understand specific risk concepts.
Executive level
(*)
The key risk committees described below act within the overall risk policy and delegated authorities
granted by the MBB:
◾
Global Credit & Trading
Policy Committee (GCTP) discusses and approves policies, methodologies,
and procedures related
to credit, trading, country, and reputation
(i.e. environmental and social
risk or ESR) risks. The GCTP meets on a monthly basis. After the MBB and
the GCTP, the Credit &
Trading
Risk Committee (CTRC) is the highest level body authorised to discuss and approve
policies, methodologies, and procedures related to credit
risk;
◾
Global Credit Committee – Transaction
Approval (GCC(TA))
discusses and approves transactions
that entail taking credit risk (including investment risk), country, legal, and ESR risk. The GCC(TA)
meets twice a week;
◾
Asset and Liability Committee Bank (ALCO Bank) discusses and steers, on a monthly basis, the
overall risk profile of all ING Bank’s balance sheet and capital management risks. ALCO Bank
discusses and approves policies, methodologies and procedures regarding
solvency, market risk
in the banking book and funding and liquidity risks;
◾
Non-Financial Risk Committee Bank (NFRC Bank) is accountable for the design and maintenance
of the Non-Financial Risk Management Framework including Operational
Risk Management,
Compliance and Legal policies, minimum standards, procedures
and guidelines, development of
tools, methods, and key parameters (including major changes) for risk identification,
measurement,
mitigating and monitoring/ reporting. NFRC Bank meetings are at least quarterly;
and
◾
The Model Risk Management Committee (MoRMC) aims to align overall model strategy, model
risk appetite, supporting model frameworks, policies and methodologies.
Regional and business unit level
(*)
ING’s regional and/or business unit management have primary responsibility for the management
of risks (credit, market, funding and liquidity, operational, IT and compliance risks) that arise in their
daily operations. They are accountable for the implementation and execution of appropriate risk
frameworks affecting their businesses in order to comply with procedures and processes
at the
corporate level. Where
necessary, the implementation is adapted to local requirements. The
regional and/or business unit CROs are
involved in these activities. The local (regional and BU) CRO
is responsible for the analysis, control and management of risks across the whole value chain (from
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front to back office). The local risks are discussed in local risk committees that roll up to the key risk
committees at executive level. Local
Client Integrity Risk Committees (CIRCs) assess client integrity
risk and they have a final decision on client acceptance or client off-boarding,
from a risk-based
perspective, in the areas of Financial Economic Crime (FEC), Foreign
Account Tax
Compliance Act
(FATCA),
Common Reporting Standards (CRS) and ESR.
Risk management function (*)
Organisational structure
(*)
Over the past years, banks have been faced with regulatory and public pressure
with regard to their
risk management policies, processes, and systems. A raft of new requirements and regulations has
been introduced and implemented. To
address these internal and external (market and regulatory)
developments and challenges effectively, ING regularly reviews the set-up of its risk-management
organisation. This allows for better support of the Bank’s Think Forward strategy
and enhances the
interconnectedness of the risk oversight responsibilities in business units with global risk functions.
The organisation chart illustrates the reporting lines in 2019 for the risk organisation:
Risk policies, procedures
and standards (*)
ING has a framework of risk management policies, procedures, and minimum standards
in place to
create consistency throughout the organisation, and to define requirements that are binding to all
business units. The goal of the governance framework of the local business units is to align with
ING’s framework and to meet local (regulatory) requirements.
Senior management is responsible
for the implementation and adherence to policies, procedures and standards.
Policies, procedures,
and standards are regularly
reviewed and updated via the relevant
risk committees to reflect
changes in requirements, markets, products and practices.
Internal Control
Framework
ING has organised its Internal Control Framework
(ICF) with the objective to translate policies and
control objectives into consistent standards and controls
in the business lines and as such support
and promote an effective risk and control environment. The framework
includes binding principles,
(*)
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definitions,
process steps and roles and responsibilities
to create consistent bank-wide policies and
standards.
The scope of the ICF is the development and maintenance or update of global internal control
documents: policies, minimum standards, product control frameworks,
support control frameworks
and process-related control
standards. These global documents are designed by head office
functions and are to be adhered to by entities and support functions. Domain ownership of policies
and minimum standards is with the 2nd Line of Defence, whereas product and support control
frameworks are
owned by the 1st Line of Defence and are approved
by 2nd line of Defence. Process
control standards can be owned by both 1st and 2nd Line of Defence, related
to the underlying
processes involved.
Domain owners are responsible for a specific risk domain and aim that their internal policies and
standards do not overlap with other documents. The ICF aims for single testing for multiple
purposes meaning that the same control should not have to be tested more than once for different
functions. This means that the test results of one control can be used for more than one sign-off.
The principal role of the independent ICF gatekeeper function is that of a quality assurance role and
to provide advice for approval
to the SB, EB, MBB and NFRC Bank. The ICF gatekeeper challenges the
alignment of the internal control documents with the agreed methodology and taxonomy and
verifies that the process of development and communication of internal control documents is
executed in adherence to the process as described below.
The ICF gatekeeper is the guardian of the
ICF binding principles.
The process of developing internal control documents is standardised
for each type of internal
control document. Domain owners should adhere to the standardised process
that includes the
following steps: domain owner identification, risk-based approach, impact assessment,
approval
body and involvement of local entities for sounding on key and expected controls. The gatekeeper
oversees the steps above.
All policies, procedures and control
standards are published on ING’s intranet and new
and updated
documents are periodically communicated by means of a policy update to all country senior
managers and heads of business departments.
Risk model governance and
validation (*)
Risk models are built according to ING’s internal risk modelling methodology standards and model
life cycle. After the review and documentation of each model by the Model Development (MD) and
Model Risk Management (MoRM) departments, dedicated risk committees approve new and
changed models. After approval by the applicable risk committee, and where necessary by the
regulator, the risk model is implemented. MoRM re-validates models on a regular basis. Validation
results and capital impacts are reported on a quarterly basis to senior management, the risk
committees and the supervisor.
The MoRM department is one of the cornerstones of ING’s risk model governance. The department
sets and maintains a model risk framework containing (1) the governance setting out the
responsibilities; (2) the model risk appetite; (3) model risk management policies and standards; and
(4) the model management inventory and tooling. MoRM monitors global model risk and model
performance.
The validation teams provide independent model validation, which starts with the determination
that a model is appropriate for its intended use. This is followed by an on going process whereby
the reliability of the model is verified at different stages during its lifecycle: at conception, before
approval, periodically after implementation and when significant changes to
the model are made.
The validation process contains a mix of developmental evidence
assessment, process verification
and outcome analysis. When model validation identifies
model risks, it provides recommendations
to address those.
Risk culture
The reputation and integrity of ING’s organisation are core
elements to operate successfully in the
financial world. ING’s
risk culture promotes awareness
of collectively shared values, ideas and
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goals, but also of potential threats and aligns the individual performance objectives with the short-
and long-term strategy. ING therefore
aims to make risk responsibilities transparent within the
different levels of the organisation and to hold every employee accountable for his/her actions.
Orange code
Commonly seen as norms and traditions of behaviour of individuals and of groups within an
organisation, risk culture determines the way in which employees identify, understand, discuss,
and act on the risks the organisation is confronted with and the risks it takes. This is a continuous
long-term commitment and journey. In this respect, The Orange Code is a declaration of who we
are. It describes what we can expect from each other when we turn up to work each day. It is a set
of standards that we collectively value, strive to live up to, and invite others to measure
us by.
The Orange Code is the sum of two parts, the ING values and ING behaviours, with integrity being
the overarching
principle. The ING values (being honest, prudent and responsible) are designed to
be non-negotiable promises
we make to the world, principles we seek to stick to, no matter what.
The ING behaviours (take it on and make it happen, help others to be successful, and always be a
step ahead) represent our way to differentiate ourselves. The Orange
Code is embedded in
commitments we make to each other and the standards by which we will measure each other’s
performance.
Risk awareness is about being alert to potential threats that can occur during day-to-day business,
which can be specific to the
sector, the region or the clients ING is doing business with. To support
the further embedding of risk culture into business practices, ING has initiated different
programmes and issued several
guidelines.
To
reinforce
the values and behaviours in our Orange Code, which puts integrity above all, we invite
all employees to participate in e-learnings that aim to equip them to make
the right decisions
when faced with a dilemma or issue. In 2019, we commenced the creation of new e-learnings on
anti-competitive conduct, anti-bribery and corruption and data protection for launch early 2020.
We also developed a global code of conduct that builds on the Orange Code and sets the standards
we expect our people to uphold.
This global code of conduct was launched during 1Q 2020.
Orange code dilemma dialogue
To
enhance risk awareness we continued to support the business in the area of risk culture and
monitor compliance risk. This included training by compliance and data experts to enhance
balanced decision-making in line with the Orange Code dilemma model (introduced in 2017) to
support well-balanced and integrity-led decision-making. This four-step model helps to delay
judgment and aims to find
out where the moral weight lies for a potential decision.
The model is already embedded in some decision-making processes (such as the data ethics
governance process) and we are
exploring how to embed it in other decisive governance processes
within the bank. During early 2019 around 30 compliance officers
were trained globally to support
the organisation in properly applying the model in practice in their respective countries.
Global data ethics and the I-for-integrity
programme
Other initiatives such Global Data Ethics and the I-for-integrity programme within the Netherlands
and Belgium are continuing. In addition, new employees undergo a series of e-learnings on topics
such as KYC, compliance, dealing with dilemmas, data risk and integrity in practice.
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We also introduced
a new global learning model in 2019 to further professionalise Compliance, KYC
and risk training. It introduces governance,
a board to approve
trainings based on business needs,
global planning and greater cooperation between content owners, learning experts and corporate
communications teams to ensure the best fit for the training need. In addition, a Risk Academy was
set up for people working in risk, with the aim of eventually bringing Risk training to a broader
audience if necessary.
Banker’s Oath
In the Netherlands, employees of all financial
institutions – and that includes ING – are required to
take the Banker’s Oath. This requirement came into force on 1 April 2015 as part of the joint
approach from all banks, known as ‘Future
-oriented Banking.' The introduction of social regulations,
the revision of the Dutch Banking Code, and the implementation of a Banker’s Oath (with the
associated rules of conduct and disciplinary law), are a way for Dutch banks to show society what
they stand for and are accountable for, as both individual banks and as a sector.
Remuneration
ING aims to align its remuneration policy with its risk profile and the interests of all stakeholders.
For more
information on ING’s compensation and benefits
policies and its relation to the risk taken,
please refer to the “Capital Requirements
Regulation (CRR) Remuneration disclosure”
published on
the corporate website ing.com. https://www.ing.com/About
-us/Annual-reporting-suite.htm
Centre of Expertise on
Behavioural Risk
Behavioural Risk Management (BRM) is a new expertise that has been added to ING's global Risk
organisation. Behavioural risk is an increasingly important risk area for ING and across the financial
industry. It arises when behavioural patterns are at the root of financial and non-financial
risks in
the organisation.
The complexity of this type of risk is less tangible compared to other risk areas. It is about how
decisions are made, how people communicate and whether they can take ownership. Behaviour is
motivated by formal and informal drivers. Examples of formal drivers are
the processes ING applies
and how its governance is structured. Informal drivers are less tangible, such as group
dynamics or
underlying beliefs that influence behaviour.
At ING, BRM is positioned in the second line of defence, reporting directly to the chief risk officer.
The global BRM Centre of Expertise, set up in 2018, not only assesses behavioural risk in the
organisation, but also has the mandate to direct, challenge and support business owners to
intervene on high-risk behaviours and their underlying drivers.
Behavioural risk assessment
s
Behavioural risk assessments identify, analyse and mitigate high-risk behaviours within ING and
provide management with specific direction on how to change these behaviours. They focus on the
effectiveness of groups rather than individuals, the role of leadership and on less visible aspects
such as team dynamics and unwritten social norms. The goal is to understand and systematically
assess what drives undesired habits at ING. The BRM model of behavioural risk will be used as the
standard across ING to signal behavioural risks going forward.
In 2019, the outcomes of the first behavioural risk assessments were shared with senior leaders at
ING’s International Conference in March
and with the relevant departments. These were primarily
teams involved in Know Your
Customer activities in the Netherlands, US and Philippines.
Based on
these outcomes, a number of interventions have been implemented with the goal to change high-
risk behavioural patterns.
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Behavioural risk assessments were also carried out in Belgium and the interventions based on
these outcomes will be implemented in 2020. The BRM team will continue to assess behavioural
risk, focusing predominantly on KYC.
Behavioural risk interventions
Effective mitigation requires a deep understanding of what drives undesired behaviours. Theory
and evidence-based techniques and tools developed in behavioural science play an important role
in designing and evaluating interventions. These interventions impact all levels of the organisation.
Employees are invited to participate in ‘nudge labs’ where they work together to identify small
behavioural changes that can have a positive impact on processes and collaboration.
Given the crucial role of leaders in creating the right conditions for employees, interventions are
first initiated at leadership
level. These include leadership labs, which address topics such as
‘governance and ownership’ and ‘alignment and trust’, as well as bringing together the ‘whole
system in the room’. Here senior leaders delve into the outcomes of the assessments, identifying
deeply rooted and often complex issues for improvement.
The BRM team works closely with the business units and departments such
as HR, Audit, and
Compliance to align on and embed desired leadership and risk behaviours (i.e. speak up,
psychological safety, communication, guiding leadership).
Risk profile
This chart provides high level information on the risks arising from ING’s business activities:
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Risk cycle process
ING uses a step-by-step risk management approach to monitor, manage and mitigate its financial
and non-financial
risks. The approach consists of a cycle of five recurrent activities: risk
identification, risk assessment,
risk control, risk monitoring, and risk reporting. In short, this implies:
determining what the risks are, assessing which of those risks can really do harm, taking mitigating
measures to control these risks, monitoring the development of the risk to see if the measures
taken are effective, and reporting the findings to management
at all relevant levels to enable them
to take action when needed.
The recurrence is twofold.
Firstly, the identification, assessment,
review, and update of mitigating
measures are done periodically. Secondly, the periodic monitoring exercise may indicate emerging
risks, known risks that are changing, risk levels that are changing, or current control
measures that
are not effective enough. Further analyses of these findings
may result in renewed
and more
frequent risk identification, and/or assessment, and/or change of mitigating measures.
Risk identification
Risk identification is
a joint effort of the business and the risk management
functions. Its goal is to
detect potential new risks and determine changes in known risks. Regular risk identification
is
essential for effective risk management. Potential risks that are not identified,
will not be controlled
and monitored and may lead to surprises later.
Known risks may have changed over time and as a
consequence the existing mitigating measures and monitoring may be inadequate or obsolete.
Risk identification is
performed periodically. In case of material internal or external change,
additional ad-hoc risk identification
can be performed.
Risk assessment
Each identified risk is assessed to determine
its importance. This enables ING to decide which of the
identified risks need
control measures and how strict or tolerant these measures
should be. Known
risks are re-assessed to detect any change in the risk level.
The importance of a risk is based on the likelihood that the risk materialises
and the subsequent
financial or reputational impact that
may occur should the risk arise. Unlikely risks with a
potentially high impact need to be controlled. A risk that is likely to happen regularly but expected
to have a modest financial impact
may not need to be mitigated if the consequences are accepted
by management.
Risk control
Risks can be controlled by mitigating measures that lower the likelihood the risk occurs, lower the
impact when it occurs or both. The ultimate measure to lower a risk is to stop the activity or service
that causes the risk (risk avoidance). Risk control and mitigation measures are
defined and
maintained at both the bank-wide and local level.
Monitoring and reporting
ING monitors the risk control measures by checking if they are executed, complied with and have
the expected mitigating effects
and by following the development of the risks and their risk levels.
Risk reporting provides senior and local management with information needed
to manage risks.
Risk Appetite Framework
The Risk Appetite Framework
(RAF) is one of the pillars of the Enterprise Risk Management (ERM)
Framework.
Its objective is to set the appropriate risk appetite at the consolidated level across the
different risk categories and to allocate the risk appetite throughout the organisation.
The RAF policy states the overarching
global risk appetite. Within the RAF, ING monitors a range of
financial and non-financial
risk metrics to ensure that our risk profile is in line with our risk appetite
while executing our strategy. ING’s RAF, which is approved by the Supervisory Board (SB), defines
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our desired risk profile that is integrated in the strategic decision-making and financial planning
process. It is designed to be able to withstand market volatility and stress, while meeting
regulatory requirements.
The framework including underlying assumptions and metrics, is
regularly reviewed
so that it remains relevant. The
RAF combines various financial
and non-
financial risk appetite
statements into a single coordinated approach to provide the business with a
clear overview of the relevant
risks and the tools to manage them. This view allows the Executive
Board (EB), the Management Board Banking (MBB) and senior management to form an opinion on
the adequacy of internal risk management and control systems for the risks ING faces while
pursuing its strategy.
Process
The RAF is focused on setting the risk appetite at the consolidated level and across the different risk
categories, and provides the principles for cascading this risk appetite down into the organisation.
The RAF and underlying limit allocation is reviewed on an annual basis, or more frequently if
necessary, based on their quarterly review in the EB, the MBB and the SB. It is therefore a top-down
process, which bases itself on the ambition of the bank in terms of its risk profile and is a function
of
the capital and liquidity levels, the regulatory environment,
and the economic context. The set of
limits used are split based on the approval level
needed for them. The limits that need SB approval
are called Boundary and the underlying metrics supporting the boundaries which need EB and
MBB
approval are
called instruments.
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Step 1. Identify & assess ING’s key risks
The outcome of the risk identification
& risk assessment process is used as starting point for the
review of the RAF.
Within this step the risks ING is facing when executing its strategy are identified,
it is assessed if the potential impact is material and if it is controlled within ING’s risk management
function; benchmarking current risk framework versus regulatory developments;
re-assessing
known risks to confirm risk level or detect potential changes;
and reflecting on the current set of
Risk Appetite Statements.
Step 2. Set Risk Appetite Framework
Based on ING’s risk assessment and risk purpose, boundary for the overarching risk frameworks are
set. Once the overarching
risk appetite thresholds have been set and approved by EB/MBB and
subsequent SB, the statements are translated into risk-type specific statements and lower level
thresholds which are set and approved
by senior risk committees ALCO Bank, GCTP and NFRC Bank.
Cascading is done via a number of detailed risk appetite statements which have been defined per
risk type, the combination of which ensure compliance with the overarching
Solvency,
Concentration and Funding
& Liquidity RAS.
Step 3. Cascade into statements
per risk type and business unit
The bank-wide risk appetite is translated per risk type, which is further cascaded into the
organisation to the lowest level. Risk appetite statements are then translated
into dedicated
underlying risk limits that are used for the day-to-day monitoring and management of ING’s risks.
The suite of risk appetite statements serve as inputs for the quarterly planning process as well as
for the establishment of key performance indicators and targets for senior management.
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Risk Appetite Statements
Boundaries
Underlying risk metrics
Funding & Liquidity
Liquidity Coverage Ratio
Net Liquidity Position – internal stress
test
Solvency
CET1 ratio
Leverage
ratio
Capital Utilisation
MREL
TLAC
Concentration
Concentration event
Risk (LGD)
Event Risk
Instruments
Underlying risk metrics
Credit Risk
EAD
RWA
ECL
INCAP
Market Risk (Trading
Book)
Value-at-Risk
Stressed VaR
Incremental Risk Charge
Regulatory/ Economic Market Risk
capital
Market Risk (Banking Book)
IFRS P&L-at-Risk
NPV-at-Risk
Customer Behavior/Market Risk
Economic capital
Revaluation-Reserve-at-Risk
Non-Financial Risk
Expected Loss
Regulatory/ Economic Operational
Risk capital
Overdue iRisk
Business Risk
IFRS P&L-at-Risk
Step 4. Monitor and manage underlying risk
limits
In order to verify that it remains within the risk appetite framework,
ING reports its risk positions vis-
à-vis its limits on a regular basis to senior management committees. The Quarterly Risk Update
reflecting the exposure of ING against the risk appetite targets is submitted quarterly to the EB and
the MBB and to the (Risk Committee of the) SB. Moreover every quarter the financial plan is checked
for potential limit breaches within a 1 year horizon, where in the strategic dialog the MBB can take
mitigating measures or adjustments to the dynamic plan can be made.
Stress testing
Stress testing is an important risk management tool that provides input for strategic decisions and
capital planning. The purpose of stress testing is to assess the impact of plausible but severe stress
scenarios on ING’s capital and liquidity position. Stress tests provide insights into the vulnerabilities
of certain portfolios, with regards to adverse macroeconomic circumstances,
stressed financial
markets, and changes in the (geo)political climate.
Types of stress
tests
Within ING, different types of stress tests are performed. The most comprehensive type of stress
tests are the firm-wide scenario analyses, which involve setting scenario assumptions for all the
relevant macroeconomic
and financial
market variables in all countries relevant to ING. These
assumptions usually follow a qualitative narrative that provides
a background to the scenario. In
addition to firm-wide
scenario analyses, ING executes scenario analyses for specific countries or
portfolios. Furthermore, sensitivity analyses are performed, which focus on stressing one or more
risk drivers; usually without an underlying scenario narrative. Finally, ING performs reverse
stress
tests, which aim to determine scenarios that could lead to a pre-defined severe adverse outcome.
Process
The stress testing process of ING consists of several
stages, which
are:
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◾
Risk identification
& risk assessment: It identifies
& assesses the risks ING or the relevant entity is
facing when executing its strategy based on the current and possible future economic, political,
regulatory and technological environment. It provides
a description of the main risks related to
the nature of ING’s business, activities and vulnerabilities.
◾
Scenario definition
& parameterisation: Based on the outcome of the previous step, a set of
scenarios should be determined where the relevant scope and set of risk drivers is determined for
each scenario, as well as the severity, the key assumptions and input parameters. The output of
this phase includes a quantitative description of the stress scenarios to be analysed, the relevant
output metrics and, when applicable, a narrative description.
◾
Impact calculation and aggregation: Based on the quantitative description of the stress scenarios
determined in the previous step, the impact is determined for the relevant scenario, scope and
horizon. The impact calculation and aggregation can be part of a recurring process or are part of
a specific process set-up for one-off stress tests.
◾
Scenario reporting: For each stress test, a report
is prepared after each calculation which
describes the results of the scenario, gives a recap of the scenario and its main assumptions and
parameters. It is complemented, if needed, with an advice for management action based on the
stress testing results.
◾
Scenario control & management assessment: Depending on the outcomes of the stress test and
the likelihood of the scenario, mitigating actions may be proposed. Mitigating actions
may
include, but are not limited to, sales or transfers of assets and reductions of risk limits.
Methodology
Detailed and comprehensive models are used to calculate the impact of the scenarios. In these
models, statistical analysis is combined with expert opinion to make sure that the results
adequately reflect the scenario assumptions. The methodologies
are granular and portfolio-specific
and use different macroeconomic and market variables as input variables. The calculations are in
line with our accounting and regulatory reporting frameworks. The stress
testing models are
subject to review by Model Risk Management.
Regulatory environment
CRRII/CRDV and BRRDII
On 16 April 2019, the European Parliament (EP) approved
the final agreement on a package of
reforms proposed by EC to strengthen
the resilience and resolvability
of European banks. The
package of reforms comprises two regulations
and two directives, namely amendments to the
Capital Requirements Regulation
and Directive (CRR/CRD), the Bank Recovery and Resolution
Directive (BRRD), and the Single Resolution Mechanism Regulation (SRMR).
The key changes introduced by the banking reform package consist of among others a binding
Leverage
Ratio (LR) requirement, independent from
the riskiness of the underlying exposures, as a
backstop to risk-weighted capital requirements, and a Net Stable Funding
Ratio (NSFR) based on the
Basel NSFR standard but including adjustments with regard to pass-through models and covered
bonds issuance. Further, the EBA obtained a mandate to investigate how to incorporate
environmental, social, and governance (ESG) risks into the supervisory process and what the
prudential treatment of assets associated with environmental or social objectives should look like.
Also, the rules on the subordination of Minimum Requirement
for own funds and Eligible Liabilities
(MREL) instruments are tightened and a new category of large banks with a balance sheet size
greater than EUR 100 billion, is introduced.
Basel III revisions and
upcoming regulations
In December 2017, the Basel III revisions were formally announced by the Basel Committee on
Banking Supervision (BCBS). These new prudential rules for banks consist of a revision to the
standardised approach to credit
risk, the introduction of a capital floor based
on standardised
approaches, the use of internal models, the limitation of options for modelling operating risks, and
new rules for the establishment of risk-weighted items and unused credit lines at the banks. In
Europe, this will be implemented through the CRR III / CRD VI in the coming years. With this long
implementation phase and the transposition into EU regulation still pending, some question marks
remain on how this will shape up.
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Targeted
Review of Internal
Models
In order to make capital levels more comparable
and to reduce variability in banks’ internal models,
the European Central
Bank (ECB) introduced the Targeted
Review of Internal Models (TRIM) in June
2017 to assess the reliability and comparability between banks’ models. The TRIM aims to create a
level playing field by harmonising the regulatory guidance around internal models with the
ultimate goal to restore trust in European
banks’ use of internal models.
In July 2019, the ECB published final chapters of the
guide to internal models, covering credit risk,
market risk and counterparty credit risk. These risk type-specific
chapters are intended to ensure a
common and consistent approach to the most relevant aspects of the regulations
on internal
models for banks directly supervised by the ECB. Additionally, they provide transparency on how
the ECB understands the regulations on the use of internal models to calculate own funds
requirements for the three
risk types. Impact on ING is through more stringent regulation on
internal models as well as an increase of Risk Weigthed Assets (RWA).
Top
and emerging risks
The risks listed below are defined as material existing and emerging risks that may have a
potentially significant impact
on our financial
position or our business model. They may have a
material impact on the reputation of the company, introduce volatility in future operation results,
or impact ING’s medium and long-term strategy including the ability to pay dividends, maintain
appropriate levels of capital or meet liquidity and funding targets. An emerging risk
is defined
as a
risk that has the potential to have a significant
negative effect on our performance, but whose
impact on the organisation is currently more difficult to assess than other risk factors
that are not
identified as emerging risks.
The topics have emerged as part of the annual Risk Assessment that is performed as part of the
Stress Testing
Framework
and the Risk Appetite Framework. The
sequence in which the risks are
presented below is not indicative of their likelihood of occurrence
or the potential magnitude of
their financial
consequences.
During 2019, several changes were made to our top and emerging
risks. The top risks in 2019 are
related to financial crime, cybercrime and persistent low interest rates in Eurozone.
Also, climate
change risk remains an emerging risk, reflecting the impact a deterioration of the climate may
have for the financial position and/or reputation of ING.
Macroeconomic developments
The economic activity was marked in 2019 by a slowdown in global growth led by prolonged
uncertainty on Brexit, effects of US-China trade tensions and reduced US fiscal stimulus. The
decision of the United Kingdom to leave the European Union (‘Brexit’) remains a major political
and
economic event that continues to affect
sentiment. Despite negotiating a revised deal in October
2019, the vote in the UK parliament did not go ahead. The UK parliament chose to postpone the
vote on the deal until legislation needed to turn the withdrawal agreement into UK law was
completed. ING continued to take steps throughout the year to prepare for various options.
Although ING has activities in the UK through the Wholesale Banking (WB) business line, no
material asset quality deterioration following the Brexit decision has taken place.
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The coronavirus,
COVID-19, is recently dominating global news. As the coronavirus outbreak
spreads rapidly, a central
ING team has been set up to monitor the situation globally and provide
guidance on health and safety measures, travel advice and business continuity for our company.
As the situation differs from country to country, we are following local government guidelines in
our response to the virus. Also the potential economic implications for the countries and sectors
where ING is active in are being assessed and discussed in order to identify possible mitigating
actions.
Financial economic crime
Knowing who we do business with helps us to protect our customers, society and our bank from
financial economic
crimes (FEC). We believe
that as gatekeepers to the financial
system we have an
obligation to prevent criminals from misusing it or detect and respond when it is being misused. We
believe we can be even more
effective in safeguarding the financial
system if we join forces and
work with other banks and with national, European and global authorities and law enforcement
agencies to tackle financial
economic crime.
In 2019, we continued to implement and execute policies and procedures to further enhance our
Know Your
Customer (KYC) activities. We continued to work on the global KYC enhancement
programme that started at ING in 2017 and which we built on in 2018 and 2019. The programme
encompasses all customer segments in all ING business units. For more information on FEC and KYC
see ‘Compliance risk’ chapter.
Model risk
Risk management also depends on models more and more as banking has become a digital
business in a volatile, uncertain, complex and ambiguous world with constantly changing customer
needs, more demanding regulatory expectations, increasing dependency on the use of models and
the need to adapt and react quickly.
In 2019, we initiated a programme (the Model Paradigm
Shift) to improve the availability and
quality of our data, model governance and processes, further strengthening our risk modelling and
data capabilities to give ING a competitive advantage.
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. Threats from
Distributed Denial of Service (DDoS), targeted attacks (also called Advanced Persistent Threats) and
Ransomware have intensified worldwide.
ING builds on its cybercrime resilience through its dedicated Cyber Crime Expertise and Response
Team,
further enhancing the control environment to protect, detect and respond to e-banking
fraud, DDoS and targeted attacks. Controls
and monitoring continue to be embedded in the
organisation as part of the overall internal control
framework and are
continuously re-assessed
against existing and new threats. The identification and monitoring of new threat actors and
campaigns relevant to ING also informs this process
as does the closer alignment between IT
security and fraud teams. In addition, ING continues to strengthen its global cybercrime and fraud
resilience through extensive collaboration
with financial
industry peers, law enforcement
authorities, government (e.g. National Cyber Security Center) and internet service providers
(ISPs).
Low interest
rates in Eurozone
The persistence of a low interest rate environment
in Europe, where
central banks held their rates
at very low and even negative levels
in most countries, continued to negatively impact short-term
as well as long-term market rates. This is posing a challenge for banks to maintain positive income
in the form of net interest income from traditional
savings activities.
Sourcing risk and third
-party resources
The amount of business processes that is sourced to third-parties increased significantly over the
years. Most notable is our (internal) sourcing in Poland, the Philippines and Slovakia but also
(external) third-party sourcing increased.
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Through the renewed sourcing
policy and related control standard, ING will actively monitor the
controls around sourcing
(internal & external). According to 2019 EBA guidelines, all external and
internal contracts have to re-assessed and properly classified and registered before end of 2021. In
2020, NFR will focus on improving business units’ risk data on Sourcing risk and related reporting.
Climate change risk
The urgency around climate change is escalating and climate-related risk tops the World
Economic
Forum’s global ranking in terms of likelihood and impact. The potential financial impacts
of extreme
weather events such as hurricanes, floods and heatwaves are elevating the risks associated with
climate change. With more than 38 million customers in over 40 countries, our business activities
can both significantly influence
communities and the environment and be impacted by climate
risks. As such, we take our responsibility to help mitigate this risk seriously.
Shifts in societal expectations on
climate change and developments in climate science are driving
new initiatives and policy updates within the bank to address this threat. For example, we’ve
set
ambitious targets to reduce financing for coal power generation to close to zero by 2025, and no
longer provide financing to new clients whose business is over 50 percent reliant on coal-fired
power.
By the end of 2025, we will not finance
any clients in the utilities sector who are more than
five percent reliant on coal. In addition, we are steering our loan portfolio to meet the well-below
two degrees goal of the Paris Climate Accord.
In 2019, we published our first
progress report
on
Terra,
our pathway towards climate alignment in the sectors most responsible for climate change.
We expect climate change to remain firmly on ING’s agenda, as well as the agendas of our
customers and of regulatory and supervisory bodies around the world. We have
committed to
report in line with the recommendations of the Taskforce
for Climate-related Financial Disclosures
(TCFD) and we continue to work on the challenging exercise of translating
potential climate risks
and transition risks into financial risk for ING.
Task
Force
on Climate-Related Financial
Disclosures (TCFD)
ING endorses the Financial Stability Board’s (FSB) Task
Force
on Climate-Related Financial
Disclosures (TCFD) recommendations. This voluntary disclosure
outlines the progress made to date.
To
further strengthen understanding and adoption of TCFD recommendations, ING has joined the
UNEP FI TCFD Phase 2 to develop transition and physical risk assessment models in 2019.
Governance
ING’s Climate Change Committee (CCC) is mandated to oversee and set priorities for the
implementation of the TCFD recommendations and other strategic climate-related topics that
impact the group. For details please refer
to our approach to climate governance.
Strategy
In order to get an understanding of our company’s exposure to climate risk, we have started with
the analysis of climate-affected sectors
as outlined in the report ‘Recommendations of the Task
Force
on Climate-related Financial Disclosures (June 2017)’. We
conducted an Energy Transition
assessment for particularly sensitive sectors within the Transportation, Industrials, Power and Real
Estate sectors where the results can help improve
our understanding of the impacts of changing
regulation and technology developments. ING is committed to continuously reviewing
and
monitoring its policies and strategies as climate-related risks and opportunities emerge. As a result
of transition risk ING further refined its coal policy in 2017, targeting near-zero coal exposure by
2025.
In 2018, ING started measuring and steering our lending portfolio towards the Paris Agreement’s
well-below two degree goal by 2040 – our Terra
Approach (Report of the Executive Report). For
instance, our automotive, real estate and power portfolio have been assessed. For
an overview of
how we capitalise on climate-related opportunities, please refer to Responsible Finance (Report of
the Executive Report).
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Risk Management
Our approach continues to evolve as we develop
a better understanding of climate risk and we
start to embed climate risk within our risk management process. ING has a Risk Identification
and
Risk Assessment process in place, helping us to adjust risk appetite and policies to reflect external
environment management.
ING’s Environmental and Social Risk (ESR) management process evaluates risks on a client and
transaction basis. In 2019, we updated our ESR policy and implemented a standalone climate
change policy which aims to limit deal-specific
potential negative climate impacts. (refer to ESR
policy).
Metrics and Targets
We have set climate-related
targets in our lending portfolio. This includes exiting coal by 2025 and
steering our €600 billion portfolio towards meeting the Paris Agreement’s well-below two
degree
goal (Terra
Approach). Under Terra,
we need to set one target per sector for each of the nine
sectors. As of year-end 2019, we had developed an approach and target for five sectors. For details
refer to our 2019 Terra
Progress Report. For
our approach to setting opportunity-related metrics
and targets please refer to Climate Fi
nance.
Next Steps
In the course of 2020 we aim to identify physical risk in our lending portfolio while we continue our
transition risk analysis. We utilise learnings and best practices from
sector initiatives and our
participation in the UNEP FI TCFD programme.
Credit
risk
Introduction
Credit risk is the risk of loss from the default and/or
credit rating deterioration
of clients. Credit risks
arise in ING's lending, financial
markets and investment activities. The credit risk section provides
information on how ING measures, monitors and manages credit risk and gives an insight into the
portfolio from a credit risk perspective.
Governance (*)
ING’s credit risk strategy is to maintain an internationally diversified loan and bond portfolio,
avoiding large risk concentrations. The emphasis is on managing business developments within the
business lines by means of a top-down risk appetite framework, which sets concentration limits for
countries, individual clients, sectors, products, secondary risk (collateral/guarantees) and
investment activities. The aim is to support relationship-banking activities,
while maintaining
internal risk/reward
guidelines and controls.
Credit risk is a Tier 1 level risk function within ING and is part of the second line of defence. It is
managed by regional and/or business unit CROs. The CRO Wholesale Banking (WB), CRO
Challengers & Growth Markets (C&G), CRO Netherlands and CRO Belux focus on specific
risks in the
geographical and/or business areas
of their responsibilities. The Financial Risk department is a Tier 2
level risk function, which is responsible for the consolidated risk appetite setting, risk frameworks,
model development
and policies.
The credit risk function encompasses the following activities:
◾
Measuring, monitoring and managing credit risks in the bank’s portfolio;
◾
Challenging and approving new and modified transactions and borrower reviews;
◾
Managing the levels of provisioning and risk costs, and advising on impairments; and
◾
Providing consistent credit risk policies, systems and tools to manage the credit lifecycle of all
activities.
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Credit risk categories
(*)
Credit risk uses the following risk categories to differentiate between the different types of credit
risk:
◾
Lending risk:
principal, interest or fees on a loan when they are due, or on demand for letters of credit (LCs)
and guarantees provided by ING..
◾
Investment risk
: is the credit default and risk rating migration
risk that is associated with ING’s
investments in bonds, commercial paper, equities, securitisations, and other similar publicly
traded securities. This can be viewed as the potential loss that ING may incur as a result of
holding a position in underlying securities whose Issuer's credit quality deteriorates or defaults.
All investments in the banking book are classified in the investment risk category. The primary
purpose of ING’s investments in the banking books is for liquidity management.
◾
Money market (MM) risk
: arises when ING places short-term deposits with a counterparty
in
order to manage excess liquidity. In the event of a counterparty default, ING may lose the
deposit placed.
◾
Pre-settlement (PS) risk
: arises when a client defaults on a transaction before settlement and
ING must replace the contract by a trade with another counterparty at the then prevailing
(possibly unfavourable) market price. This credit risk category is associated with derivatives
transactions (exchange-traded derivatives, over-the-counter
(OTC) derivatives and securities
financing transactions).
◾
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 delivers but does not receive delivery from
its counterparty. ING manages settlement
risk in the same way as other credit risks by setting a risk limit per client. Due to the short-term
nature (typically one day), ING does not hold provisions or capital for settlement risk. Although a
relatively low risk, ING increasingly uses DVP
(delivery versus payment) and safe settlement
payment techniques to reduce settlement risk.
For the reconciliation between
credit risk outstandings categories and financial assets, refer to table
below:
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Reconciliation between credit risk categories and financial position
(*)
Credit risk categories
Mainly relates to:
Notes in the financial statements
Lending risk
-Cash and balances with central banks
Note 2 Cash and balances with central banks
-Loans and advances to banks
Note 3 Loans and advances to banks
-Loans and advances to customers
Note 4 Financial assets at fair value through profit or loss
-Off-balance sheet items e.g. obligations under financial guarantees and letters of credit and undrawn credit
facilities
Note 5 Financial assets at fair value through other comprehensive
income
Note 7 Loans and advances to customers
Note 45 Contingent liabilities and commitments
Investment risk
-Debt securities
Note 4 Financial assets at fair value through profit or loss
-Equity securities
Note 5 Financial assets at fair value through other comprehensive
income
Note 6 Securities at amortised cost
Money market (MM) risk
-Cash and balances with central banks
Note 2 Cash and balances with central banks
-Loans and advances to banks
Note 3 Loans and advances to banks
-Loans and advances to customers
Note 7 Loans and advances to customers
Pre-settlement (PS) risk
-Financial assets at fair value through profit or loss (trading assets and
non-trading derivatives)
Note 4 Financial assets at fair value through profit or loss
-Financial liabilities at fair value through profit or loss (trading assets and non-trading
derivatives)
Note 15 Financial liabilities at fair value through profit or loss
-Securities financing
Note 44 Offsetting financial
assets and liabilities
Settlement risk
-Financial assets at fair value through profit or loss (trading assets and
non-trading derivatives)
Note 4 Financial assets at fair value through profit or loss
-Financial liabilities at fair value through profit or loss (trading assets and non-trading
derivatives)
Note 11 Other assets
-Amounts to be settled
Note 15 Financial liabilities at fair value through profit or loss
Note 17 Other liabilities
Credit risk appetite and concentration
risk framework
(*)
The credit risk appetite and concentration risk framework
is designed to prevent undesired high
levels of credit risk and credit concentrations
within various levels of the ING portfolio. It is derived
from the concepts of boundaries and instruments as described in the Risk Appetite Framework.
Credit risk appetite statements
(*)
Credit risk appetite is the maximum level of credit risk ING is willing to accept for growth
and value
creation. The credit risk appetite
is linked to the overall bank-wide risk appetite framework. The
credit risk appetite is expressed in quantitative and qualitative measures. Having a credit
risk
appetite achieves:
◾
Clarity about the credit risks that ING is prepared to assume, target
setting and prudent risk
management;
◾
Consistent communication to different stakeholders;
◾
Guidelines on how to align reporting and monitoring tools with the organisational structure and
strategy; and
◾
Alignment of business strategies and key performance indicators of business units with ING’s
credit risk appetite through dynamic planning..
Credit risk appetite is present across different levels
within ING, at portfolio level as well as
transaction level. The various credit risk appetite components at portfolio and transaction levels
together result in the credit risk appetite framework
.
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The credit risk appetite and concentration risk framework
is composed of:
◾
Country risk concentration
: Country risk is the risk that arises due to events in a specific country
(or group of countries). In order to manage the maximum country event loss ING is willing to
accept, boundaries are approved
by the Supervisory Board ensure ING’s consolidated 3-year
average result
before tax can absorb an estimated country event loss due to a country risk
occurrence. The estimated level
is correlated to the risk rating assigned to a given country.
Actual country limits are set by means of country instruments, which are reviewed monthly and
updated when needed. For countries with elevated levels of geopolitical or severe
economic cycle
risk, monitoring is performed on a more frequent basis with strict pipeline and exposure
management.
◾
Single name and industry sector concentration
: ING has established a credit concentration risk
framework in order to identify, measure
and monitor single name concentration and industry
sector concentration (systemic risk). The same concept of boundaries and instruments are
applied.
◾
Product and secondary risk concentration
: ING has established a concentration framework to
identify, measure and monitor product concentration and secondary risk.
◾
Scenarios and stress tests
: Stress testing evaluates ING’s financial stability under severe, but
plausible stress scenarios, and supports decision-making that assures ING remains a financially
going concern even after a severe event occurs. In addition to the bank-wide stress
testing
framework as described above, ING performs regularly
sensitivity analysis to assess portfolio risks
and concentrations. These sensitivity analyses are consistent with the stress scenario established
in the Group-wide credit risk appetite framework
.
◾
Product approvals
: The product approval and review
process (PARP)
assesses and manages risks
associated with the introduction of new or modified
products. It ensures that sound due diligence
is performed by relevant stakeholders and the relevant
risks (credit, operational, compliance,
etc.) are addressed appropriately
..
◾
Sector policies
: These are detailed analyses of defined products and/or industries. They identify
the major risk drivers and mitigants, the internal business mandate, and propose the risk
(including business) parameters – and potentially the maximum product and/or portfolio limit -
to undertake that business. A sector policy is always prepared by the front office responsible for
the internal business mandate and requires an approval from
the designated approval authority.
Sector policies may carry various names and/or may have geographical and/or
business
limitations (e.g. local
vs global).
◾
Reference benchmarks:
The maximum credit risk appetite per obligor group is expressed as a
(benchmark) exposure at the concentration risk level, which corresponds
to (maximum) internal
capital consumption for credit risk. It is used as a reference
amount in the credit approval
process.
◾
Credit approval process
: The purpose of the credit approval process
is that individual
transactions and the risk associated with these 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. Risk 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.
Given the nature of the retail business, roles
and responsibilities of the local credit risk policy are
delegated to local retail credit risk management. However,
the global retail risk policy prescribes
no-go criteria and minimum standards for underwriting. Lending standards, including material
changes to those standards, are approved
by the global head of retail risk.
Environmental and
Social Risk Framework
ING’s environmental and social risk (ESR) policy framework helps us make transparent
choices
about how, where and who we do business with. In 2019 we renewed our ESR Framework
based on
input from different stakeholders including clients, peers, NGOs and our own colleagues. Through
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regular updates like these we keep abreast of societal norms and regulation relating
to
sustainability and challenge our own increasingly strong commitments on the topics of human
rights and climate change.
ESR in practice in 2019
The ESR policy framework includes standards and best practice guidance for ESR-sensitive sectors.
It includes explicit restrictions on activities not in line with ING’s values and harmful to people or the
environment (for example companies involved
in manufacturing cluster munitions), which we will
not directly finance.
The next table gives insight into the ESR policies that are part of the Framework
and where they are
applied.:
Credit risk portfolio per economic sector and application of ESR framework
in percentage
2019
outstandings
ING Values
Human rights
Environmental
compliance
Animal
welfare
Defence
Equator principles
Forestry and
Agrocommodities
Mining and Metals
Tobacco*
Infrastructure
Generic engineering*
Manufacturing
Chemicals
Energy**
Fisheries*
Consumer lending
32.4%
●
Financial institutions
20.5%
●
Governments
7.1%
●
Other
0.4%
●
Corporates
39.6%
●
●
●
Real estate
6.6%
●
●
●
●
Natural resources
5.5%
●
●
●
●
●
●
Transportation
& logistics
4.4%
●
●
●
●
●
●
Services
3.7%
●
●
●
●
●
●
●
Food, beverages
& personal care
3.2%
●
●
●
●
●
●
●
●
●
General industries
3.2%
●
●
●
●
●
●
●
Builders & contractors
2.0%
●
●
●
●
●
Chemicals, health & pharmaceuticals
2.0%
●
●
●
●
●
●
●
Other
1.9%
●
●
●
●
Utilities
1.5%
●
●
●
●
●
Media and telecom
1.4%
●
●
●
●
●
●
Retail
1.1%
●
●
●
●
Automotive
0.8%
●
●
●
●
●
●
Technology
2.2%
●
●
●
●
●
●
●
*
Fully or partially excluded activities.
** Includes policies on Oil and Gas, Coal, Nuclear Energy and Power Generation.
The way the Framework
is applied in practice differs per product type. Generally the largest
potential environmental and social impacts come from large corporates
within our Wholesale
Banking (WB) segment. WB is therefore the initial focus of our assessments and where we promote
active ESR dialogue. We have been working with wholesale clients for more than 15 years to
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support them in understanding and managing their environmental and social impact. A simplified
version of the ESR policy framework, following the same rationale
and principles, applies to ING’s
retail activities for mid-corporates and small medium enterprises.
The ESR policy framework is incorporated in ING’s KYC
policy framework, meaning the ESR client
assessment is part of client on-boarding and review.
The ESR framework minimum requirements
are also included in ING’s procurement policy and apply to the scree
ning of suppliers of ING’s
procurement activities.
ESR is applied in practice in different ways, including an ESR client assessment during KYC
onboarding, an ESR transaction assessment for Wholesale Banking, separate in-depth advice from
the global ESR team for ESR high-risk WB transactions and name screening for transactions with
fully restricted clients. These ESR check and controls are integrated
into our client and transaction
due diligence processes.
Of all WB engagements in scope of the ESR policy framework in 2019, 85 percent were considered
ESR low risk, 9 percent ESR medium risk and 6 percent ESR high risk. ESR high-risk cases require
specialised advice from the global ESR team. The team now consists of 13 dedicated ESR advisors,
11 of them are in Amsterdam and two
are located in Geneva and New York.
Whereas we have a
strong ESR policy framework, we
acknowledge that we need to further improve our processes in
order to ensure accuracy
and completeness of the data. The ESR advice assesses the specific
product offered and impacts associated with it, the sector, operating context and geography of the
engagement and other relevant factors. Based on this in-depth research, a binding advice is given
that can only be overruled at Board level.
Of the 304 ESR advices given in 2019, 45 percent were
positive, 25 percent positive subject to conditions and 30 percent negative. Conditions
can play an
important role in helping clients transition towards improved
environmental and social
performance on the ground.
The ESR team’s main focus is on its policy development and transaction advisory roles. However
the team also provides training (both in-person and via webinars) to hundreds of colleagues around
the world every year in risk, front-office, KYC and compliance teams, so that ESR knowledge is built
on and spread.
Updates in the ESR Framework
The renewed ESR Framework
went live in July 2019. In this review, building on internal and external
stakeholder input, we improved our structure and aimed to provide more
clarity on the scope and
governance of ESR. The Framework
now includes standalone policies on human rights and climate
change and an infrastructure policy. This reflects external developments, societal expectations and
our ambitions for these topics and sustainability in general.
New restrictions in the updated framework include arctic offshore oil and gas exploration and
production, white phosphorus, asbestos and small arms and light weapons for private individuals.
We have a zero
-tolerance policy for some of the restrictions, such as with companies involved in
the production of cluster munitions. For others, we try to refrain
as much as possible from any form
of involvement, whether directly or indirectly.
The new framework also affects companies with
both controversial and non-controversial
activities.
In the updated ESR policy framework we have ensured
that each sector policy includes the proper
references
to the relevant standards of the
human rights and climate change overarching pillars.
Incorporating
these helps us to determine which transactions require further analysis and action,
and provides our stakeholders with a better understanding of our approach to human rights and
climate change when assessing transactions. The updated ESR policy also encourages clients to
identify and be transparent about how human rights and/or environmental
issues affect their
supply chains. They should provide evidence of proper monitoring and where
relevant, translate
these findings into
acceptance criteria for partners
and suppliers.
Developing international
best practice and stakeholder
engagement
Our ESR approach helps us and our clients to gradually enhance the implementation of key
standards like the UN Guiding Principles on Human Rights and the Organisation for Economic
Cooperation and Development (OECD) Guidelines for Multinational Enterprises. But beyond
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stimulating better environmental and social performance in our own portfolio, ING actively
collaborates with other institutions, peers and regulators to address the environmental
and social
challenges we face:
◾
ING and the Equator Principles (EPs):
framework adopted by over 100 banks globally, were
updated in 2019. The new version (EP4),
has increased the scope to capture more
project-related transactions. It contains new
commitments on human rights, climate change, Indigenous people and biodiversity. ING, an
active EP Association member, co-led the coordination of the EP4 update process. ING is a
member of several working groups,
including those on social risks, climate change and scope. ING
also co-leads the capacity building and training working group, which resulted in the roll-out
of
an online EP learning tool to ING risk and front-office
employees last year.
The tool is used by
other EP banks globally.
◾
Dutch Banking Sector Agreement
: We continued our engagement in Dutch multi-stakeholder
platforms to implement the Dutch Banking Sector Agreement on International Responsible
Business Conduct Regarding Human Rights. In 2018, we published our first human rights
report in
which we disclosed our saliency process and the human rights salient to ING – child labour,
forced labour and land-related community issues. In 2019, we published an update focused on
our role as a corporate lender and the outcome of an exercise
where we proactively engaged
with 29 clients in human rights.
◾
Thun Group
: In the international arena, ING actively participates in the Thun Group, an informal
group of bank representatives
sharing expertise and experience to support the
integration of the
UN Guiding Principles on Business and Human Rights into the policies and practices of banks.
◾
OECD
: ING’s active role in promoting and integrating human rights is reflected in our participation
as a formal advisory member to the OECD on responsible business conduct in our sector. In 2019
the OECD published the Due Diligence for Responsible Corporate Lending
and Securities
Underwriting report that provides a global environmental and social risk framework
for financial
institutions. We participate in the annual meetings for practitioners from financial institutions
(export credit agencies, EP financial
institutions, commercial banks, development institutions,
etc.) organised by the OECD in Paris, enhancing knowledge sharing and collaboration.
◾
United Nations Human Rights Office
: In May, at the request of the UN Human Rights Office
of
the High Commissioner, ING hosted a meeting with Dutch private sector industrials and the UN
High Commissioner for Human Rights, Ms Michelle Bachelet, during her first
official
visit to the
Netherlands, to discuss the role and leverage of the private sector in this important area.
By taking part in the above-mentioned initiatives, we aim to contribute our viewpoint and those of
our clients, employees and other stakeholders to help shape a consensus and develop clear
guidelines that can serve as a standard for our industry.
Credit risk models (*)
Within ING, internal Basel compliant models are used to determine probability of default (PD),
exposure at default (EAD) and loss given default (LGD)
for regulatory and economic capital
purposes. These models also form the basis of ING’s IFRS 9 loan loss provisioning (see “IFRS 9
models” below). Bank-wide, ING has implemented around 100 credit risk models, for regulatory
capital,
economic capital and loan loss provisioning purposes.
There are two
main types of PD, EAD and LGD models used throughout the Bank:
◾
Statistical models
are characterised by a sufficient number of data
points that facilitate meaningful statistical
estimation of the model parameters. The model parameters are estimated with statistical
techniques based on the data set available;
◾
Hybrid models
experience of experts from risk management and front-office
staff, literature from rating
agencies, supervisors and academics. These models are especially appropriate for ‘low default
portfolios’, where limited historical defaults exist.
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Credit risk rating process
(*)
In principle, all risk ratings are based on a Risk Rating (PD) Model that complies with the minimum
requirements detailed in CRR/CRDIV, ECB Supervisory Rules and EBA guidelines. This concerns all
borrower types and segments.
ING’s PD rating models are based on a 1-22 scale (1=highest rating; 22=lowest rating)
referred to as
the ‘Master scale’, which roughly corresponds to the rating grades
that are assigned by external
rating agencies, such as Standard & Poor’s, Moody’s and Fitch. For
example, an ING rating of 1
corresponds to an S&P/Fitch
rating of AAA and a Moody’s rating of Aaa; an ING rating of 2
corresponds to an S&P/Fitch
rating of AA+ and a Moody’s rating of Aa1, and so on.
The 22 grades are composed of the following categories:
◾
Investment grade (risk rating 1-10);
◾
Non-investment grade (risk rating 11-17);
◾
Sub-standard (risk rating 18-19); and
◾
Non-performing (risk rating 20-22).
The three first categories (1-19) are risk ratings for performing loans. The ratings are calculated in IT
systems with internally developed models based on data that is either manually or automatically
fed. Under certain conditions, the outcome of a manually fed model can be challenged through a
rating appeal process. Risk ratings for
non-performing loans (NPL) (20-22) are set by the global or
regional credit restructuring department. For securitisation portfolios, the external ratings of the
tranche in which ING has invested are leading.
Risk ratings assigned to clients are reviewed
at least annually, with the performance of the
underlying models monitored regularly. Over 90 percent of ING’s credit
exposures have been rated
using one of the in-house developed PD rating models. Some of these models are global in nature,
such as models for large corporates, commercial
banks, insurance companies, central
governments, local governments, funds, fund managers, project finance and leveraged companies.
Other models are more regional-
or country-specific:
there are PD models for Small Medium
Enterprise (SME) companies in Central Europe,
the Netherlands, Belgium, Luxembourg, as well as
residential mortgage and consumer loan models in the various retail markets.
Rating models for retail clients are predominantly
statistically driven and automated, such that
ratings can be updated on a monthly basis. Rating models for large corporates,
institutions and
banks include both statistical characteristics and manual input, with the ratings being manually
updated on at least an annual basis.
Credit risk models - Pre
-settlement measurement models
For regulatory capital,
pre-settlement (PS) exposure is calculated using a marked to market (MtM)
plus regulatory-based add-on. For internal capital purposes,
ING uses a combination of a MtM plus
model add-on approach and a scenario simulation approach.:
ING recognises that the above approaches are
not sufficiently
accurate for certain trading products
such as highly structured or exotic derivative transactions. For the assessment of risk exposures of
such complex products a bespoke calculation is made.
Under Pillar 1, ING uses the Current Exposure Method (Mark to Market method), which is a standard
approach prescribed by the regulation. There
are no exposures under the advanced, Internal Model
Method (IMM) under Pillar1. Under Pillar 2 however, for FX and interest rate derivatives, ING
uses a
risk sensitive approach based on Monte Carlo simulations.
Credit risk tools
Credit risk systems and data standards
The acceptance, maintenance, measurement, management and reporting of credit risks at all
levels of ING is executed through single, common credit
risk data standards using shared credit risk
tools that support standardised and transparent credit risk practices.
ING has chosen to develop
credit risk tools centrally. The philosophy is to use a single source of data, in an integrated
approach that includes ING policy, the regulatory environment in which we operate,
and the daily
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processes that are active throughout the Group.
Disciplined application in these three areas is
essential for achieving high data quality
standards. The customer-centric data model conforms to
the three core business needs of ING:
◾
To
monitor the risks we undertake.
◾
To
be compliant with our internal and external obligations; and
◾
To
transact effectively and efficiently
with our clients.
Credit risk portfolio (*)
ING’s credit exposure is mainly related to lending to individuals and businesses followed by
investments in bonds and securitised assets. Loans to individuals are mainly mortgage loans
secured by residential property. Loans
(including guarantees issued) to businesses are often
collateralised, but may be unsecured based on the internal analysis of the borrower’s
creditworthiness. Bonds in the investment portfolio are generally
unsecured, but predominantly
consist of bonds issued by central governments and EU and/or OECD
based financial
institutions.
Secured bonds, such as mortgage backed securities and asset backed securities are secured by the
underlying diversified pool of assets
(commercial or residential mortgages, car loans and/or other
assets) held by the securities issuer.
The last major credit risk source involves pre
-settlement (PS)
exposures which arise from trading activities, including derivatives, repurchase
transactions and
securities lending/borrowing transactions. This is also commonly referred
to as counterparty credit
risk.
The prior period outstandings have been updated to improve consistency and comparability to the
current year presentation. This is applicable to all following tables in the sections credit risks
portfolio, credit risk mitigation and credit quality that include outstandings with prior period
comparatives.
Portfolio analysis per business
line (*)
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Outstandings per line of business
1,2,3
(*)
Wholesale Banking
Retail Benelux
Retail Challengers &
Growth Markets
Corporate Line
Total
Rating class
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Investment grade
1 (AAA)
31,859
25,179
372
466
18,973
16,390
24,774
29,333
75,978
71,368
2-4 (AA)
46,394
46,847
5,853
5,572
36,460
28,515
1,832
1,431
90,539
82,365
5-7 (A)
66,756
63,917
20,922
19,645
48,587
41,325
323
398
136,588
125,285
8-10 (BBB)
115,888
110,875
115,192
109,844
49,681
56,551
3,190
3,149
283,951
280,419
Non-Investment grade
11-13 (BB)
86,342
93,152
63,993
66,899
41,584
43,154
31
957
191,950
204,162
14-16 (B)
22,929
18,462
15,845
16,447
14,755
12,098
13
53,528
47,020
17 (CCC)
1,081
1,648
2,223
2,324
933
764
98
90
4,335
4,826
Substandard grade
18 (CC)
1,228
1,441
1,409
1,492
531
602
.
3,168
3,536
19 (C)
659
298
1,056
1,093
672
630
.
2,387
2,022
NPL grade
20-22 (D)
4,516
4,395
4,316
4,229
2,399
2,189
275
314
11,506
11,128
Total
377,651
366,214
231,180
228,011
214,575
202,220
30,524
35,685
853,930
832,130
Industry
Private Individuals
31
32
164,466
164,220
167,262
156,385
331,758
320,637
Central Banks
34,044
28,962
8,383
6,124
23,339
27,116
65,766
62,202
Commercial Banks
44,152
45,213
250
251
8,884
8,889
3,502
4,461
56,788
58,814
Natural Resources
54,113
52,458
976
1,153
806
910
55,894
54,521
Central Governments
37,449
32,356
1,364
1,306
6,356
6,244
3,131
3,131
48,300
43,037
Non-Bank Financial Institutions
45,214
37,032
1,832
2,138
378
623
512
926
47,936
40,720
Real Estate
30,819
38,517
12,769
12,222
2,732
2,353
46,320
53,092
Transportation
& Logistics
27,334
27,009
2,882
2,704
764
769
30,980
30,481
Food, Beverages
& Personal Care
16,691
14,996
5,960
5,601
2,151
2,325
24,802
22,923
Services
10,252
12,461
10,929
9,911
862
990
3
2
22,046
23,363
General Industries
12,599
14,799
4,269
3,934
2,764
2,801
19,632
21,535
Lower Public Administration
3,594
3,459
5,619
5,296
8,184
8,227
17,397
16,983
Utilities
16,377
15,154
741
597
145
143
17,263
15,893
Chemicals, Health & Pharmaceuticals
9,213
10,190
6,213
6,258
1,017
1,129
16,443
17,577
Other
35,769
33,574
12,910
12,420
3,889
4,309
36
50
52,603
50,353
Total
377,651
366,214
231,180
228,011
214,575
202,220
30,524
35,685
853,930
832,130
Region
Europe
Netherlands
41,255
41,807
142,547
142,621
905
657
25,340
30,025
210,046
215,110
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Belgium
33,936
36,546
82,368
79,362
572
671
18
16
116,894
116,595
Germany
18,067
15,832
485
476
99,966
96,278
43
45
118,561
112,630
Poland
15,713
14,377
66
66
20,377
17,801
36,156
32,244
Spain
8,849
10,957
68
64
21,838
19,092
30
15
30,785
30,128
United Kingdom
27,026
26,633
277
256
225
258
1,872
1,463
29,400
28,610
Luxemburg
22,209
18,145
4,051
3,779
1,554
1,603
13
13
27,827
23,540
France
13,914
13,736
519
519
6,267
4,605
3
5
20,703
18,865
Rest of Europe
65,432
65,324
406
400
22,816
23,962
25
21
88,679
89,706
Americas
67,893
64,672
223
294
1,457
1,572
340
379
69,912
66,917
Asia
52,065
48,563
103
105
180
194
2,840
3,703
55,188
52,564
Australia
8,622
6,755
27
28
38,416
35,524
1
1
47,066
42,308
Africa
2,671
2,867
40
43
2
4
2,713
2,915
Total
377,651
366,214
231,180
228,011
214,575
202,220
30,524
35,685
853,930
832,130
1
Based on credit risk measurement contained in lending, pre-settlement, money market and investment activities.
2
Based on the total amount of credit risk in the respective column using ING’s internal credit risk measurement methodologies. Economic sectors (industry) below 2% are not shown separately but grouped in Other.
3
Geographic areas are based on country of residence, except for private individuals for which the geographic areas are
based on the primary country of risk.
Overall Portfolio (*)
During 2019, ING’s portfolio size increased by EUR 22.3 billion (2.69%) to EUR 854 billion
outstanding, driven by volume growth and foreign exchange rate
changes. The net volume growth
was concentrated in the Lending
risk category. FX rate movements contributed to EUR 3.2 billion of
the total growth, driven by the appreciation of the US dollar (+1.8%), British pound (+5.5%),
Australian dollar (+1.5%) and Polish new zloty (+0.9%), partially off-set by the depreciation of New
Turkish Lira
(-9.0%) and New Romania Leu (-2.7%) against the Euro
.
Rating distribution (*)
Overall the rating class concentration
improved. The share of Investment
grade rating classes
increased from 67.2% to 68.7%, while the share of non-investment grade
slightly decreased, from
30.8% to 29.3%. Substandard grade outstanding remained stable at EUR 5.5 billion whereas the
NPL grade increased by 3.4%.
With respect to the rating distribution within the Business lines, in Wholesale Banking AAA-rated
assets increased driven by the reserve deposit to Banque Centrale
du Luxembourg
and bond
exposure to the Federal
Government of the United States of America. Wholesale A rating class
increased as a result of outstanding to Bank of Japan and large corporate
customers in the US, Asia
and the Netherlands. Reduced concentration in the BB rating class was mainly seen in real estate
exposure.
In Retail Challengers & Growth Markets, the increase in AAA-rating
was explained by increased
reserve deposit to Deutsche Bundesbank. Volume growth
in AA and A-rated residential mortgages
was
visible in Australia, Germany, Poland and Spain. This positive effect on the rating composition
of C&G was slightly off-set by an increase in B rating related to lower ratings of Turkey’s
mid-
corporate segment.
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The rating distribution for Retail Benelux improved
mostly driven by improved risk profile of Dutch
residential mortgages shifting from rating classes BB to BBB, driven by historically low
unemployment rate and continuing increase of the NVM House price index, improving LTV’s.
Corporate line decreased
concentration in AAA rating class due to a reduction in the reserve
deposit with De Nederlandsche Bank.
Industry (*)
The industry composition within Retail is concentrated in private individuals with 71% for Retail
Benelux and 78% for Retail Challengers & Growth. In C&G, mortgage volume increased, primarily in
Germany, Poland and Australia.
In Retail Benelux the slight increase in Belgium and Luxemburg
was largely off-set by the overall
reduction in Dutch mortgages due to a trend of early pre-payments and the transfer from
Westland Utrecht
Bank to Nationale Nederlanden.
Within Wholesale Banking, the sector development in Central Governments and Central Banks is
consistent with the aforementioned development in the AAA-rating category. Exposure
towards
Commercial Banks decreased mainly due to reduced
pre-settlement and lending exposures within
UK, Republic of Korea and Spain. Outstanding to Non-Bank FIs increased,
most notably in funds &
fund management sub-industry in Western Europe.
Apart from the movements against the financial counterparties,
ING Wholesale increased its
exposure to Food, Beverages
& Personal Care industry (in Brazil
and Hong Kong); to Natural
Resources (UK and Singapore), and to Utilities (Luxemburg
and the UK). Exposure decreased
in Real
Estate (Italy and the Benelux), Services (France
and Belgium), and General Industries (US and the
Netherlands).
Portfolio analysis per geographical
area (*)
The portfolio analysis per geographical area re-emphasizes the international distribution of the ING
portfolio. The share of Netherlands in the overall portfolio decreased
further from 25.9% to 24.6%.
The most noticeable outstanding trends in the Netherlands were the previously mentioned
reduction in regulatory reserves with the central
bank. The lower volumes of residential mortgage
loans were almost completely off-set by a growth in term loans granted to SMEs. For
Belgium the
overall exposure
remained fairly stable as the reduction in the central bank deposit was off-set by
increased exposures to Non-Bank FIs and growth
in term loans to mid-corporates. Outstanding in
Germany increased mainly due to residential mortgage lending, instalment loans and central bank
exposures.
The higher exposure in the Americas was mainly driven by bond exposures to the US central
government. In Asia, the concentration of outstanding slightly increased, with noticeable growth in
exposure to Japan and Singapore, partly off-set by reduced exposures in China and Republic of
Korea. Australia
reported a growth in outstanding which was mainly driven by trade related
transactions with Commercial Banks and mortgage lending to Private Individuals.
The top 5 countries within Rest of Europe based on outstanding were:
Italy (EUR 16,781 million),
Switzerland (EUR 12,016 million), Turkey (EUR 11,383 million), Romania (EUR 7,473 million) and
Russian Federation (EUR 5,652 million).
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Outstandings by economic sectors and geographical area
(*)
Region
Total
Total
Industry
Netherlands
Belgium
Germany
Poland
Spain
United
Kingdom
Luxemburg
France
Rest of
Europe
America
Asia
Australia
Africa
2019
2018
Private Individuals
117,194
43,057
84,281
11,296
20,758
248
3,019
2,242
15,626
222
179
33,602
36
331,758
320,637
Central Banks
21,635
16,651
7,573
211
370
1,867
5,048
796
6,454
0
4,951
200
8
65,766
62,202
Commercial Banks
1,918
358
4,231
254
743
7,206
3,771
5,945
7,398
7,682
13,576
3,353
352
56,788
58,814
Natural Resources
2,556
1,323
959
729
220
4,307
2,339
652
16,037
9,521
15,442
749
1,061
55,894
54,521
Central Governments
7,970
5,777
3,033
6,626
4,597
42
184
1,554
6,668
9,724
1,071
689
367
48,300
43,037
Non-Bank Financial Institutions
4,168
2,516
3,824
1,292
906
7,486
4,438
1,815
4,974
12,435
3,259
674
149
47,936
40,720
Real Estate
17,162
8,949
450
2,375
659
326
2,410
3,006
3,682
3,395
805
3,091
8
46,320
53,092
Transportation
& Logistics
4,722
2,298
505
1,100
569
2,081
868
812
6,129
3,979
6,818
651
447
30,980
30,481
Food, Beverages
& Personal Care
6,301
3,095
322
2,093
329
995
1,779
874
2,602
4,632
1,651
111
19
24,802
22,923
Services
4,683
9,272
574
822
162
774
646
711
1,109
2,264
604
426
0
22,046
23,363
General Industries
4,096
3,301
1,143
2,295
274
382
437
144
3,504
2,628
1,423
5
0
19,632
21,535
Lower Public Administration
522
5,949
5,798
727
4
728
471
536
958
18
1,686
0
17,397
16,983
Utilities
1,331
1,056
1,673
654
418
2,032
571
445
3,103
3,493
1,380
843
265
17,263
15,893
Chemicals, Health & Pharmaceuticals
4,160
3,517
935
1,066
112
95
257
524
2,812
2,286
474
205
0
16,443
17,577
Other
11,628
9,774
3,260
4,614
664
1,560
1,331
712
8,045
6,694
3,536
782
2
52,603
50,353
Total
210,046
116,894
118,561
36,156
30,785
29,400
27,827
20,703
88,679
69,912
55,188
47,066
2,713
853,930
832,130
Rating class
Investment grade
144,134
73,010
95,685
22,921
23,598
24,429
21,444
15,418
50,878
42,689
41,134
31,542
175
587,056
559,437
Non-Investment grade
60,937
39,994
21,616
12,219
6,832
4,807
6,229
5,163
35,775
25,660
13,553
14,573
2,457
249,814
256,007
Substandard grade
1,993
1,023
555
212
85
17
75
25
484
464
347
265
9
5,555
5,558
NPL grade
2,983
2,867
705
806
270
148
79
96
1,541
1,100
154
686
71
11,506
11,128
Total
210,046
116,894
118,561
36,156
30,785
29,400
27,827
20,703
88,679
69,912
55,188
47,066
2,713
853,930
832,130
1
Geographic areas are based on country of residence, except for private individuals for which the geographic areas are
based on the primary country of risk.
Credit risk mitigation (*)
ING uses various credit risk mitigation techniques and instruments to mitigate the credit risk
associated with an exposure and to reduce the losses incurred subsequent to a default by a
customer.
The most common terminology used in ING for credit risk protection is ‘cover’. While a
cover may be an important mitigant of credit risk and an alternative source of repayment,
generally it is ING’s practice to lend on the basis of the customer’s creditworthiness rather than
exclusively relying on the value of the cover
.
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Cover forms
(*)
Within ING, there are two
distinct forms of covers. First, where the asset has been pledged to ING as
collateral or security ING has the right to liquidate it should the customer is unable to fulfil its
financial obligation.
As such, the proceeds can be applied towards
full or partial compensation of
the customer's outstanding exposure. This may be tangible (such as cash, securities, receivables,
inventory, plant and machinery, and mortgages on real estate properties) or intangible (such as
patents, trademarks, contract rights and licenses). Second, where there
is a third-party obligation,
indemnification or
undertaking (either by contract and/or by law) ING has the right to claim from
that third party an amount, if the customer fails on its obligations. The most common examples
are guarantees (such as parent
guarantees and export credit insurances), letters of comfort or
third-party pledged mortgages.
Cover valuation
methodology (*)
General guidelines for cover valuation are
established to ensure consistent application within ING.
These also require that the value of the cover
is monitored on a regular basis. Covers
are revalued
periodically and whenever there is reason to believe
that the market is subject to significant
changes in conditions. The frequency of monitoring and revaluation depends on the type of cover.
The valuation method also depends on the type of covers. For asset collateral, the valuation
sources can be the customer’s balance sheet (e.g. inventory, machinery and equipment), nominal
value (e.g. cash and receivables),
market value (e.g. securities and commodities), independent
valuations (commercial real estate) and market indices (residential real
estate). For third-party
obligations, the valuation is based on the value that is attributed to the contract between ING and
that third party.
Cover values
(*)
This section provides insight into the types of covers and the extent to which exposures benefit
from collateral or guarantees.
The disclosure differentiates between risk categories (lending,
investment, money market and pre-settlement). The most relevant types of cover
include
mortgages, financial
collateral (cash and securities) and guarantees. ING obtains cover
that is
eligible for credit risk mitigation under CRR/CRDIV, as well as cover that is not eligible. Collateral
covering financial market transactions is valued on a daily basis, and as such not included
in the
following tables. To
mitigate the credit risk arising from Financial Markets transactions, the bank
enters into legal agreements governing the exchange of financial collateral (high-quality
government bonds and cash).
The cover values are
presented for the total portfolio of ING, both the performing and non-
performing portfolio. Our definition of
non-performing is explained in detail in the Credit
restructuring section (below). For additional insight, a breakdown of ING’s portfolio by industry and
geography is provided.
Exposures are categorised into different Value
to Loan (VTL) buckets that give insight in the level of
collateralisation of ING’s portfolio. VTL is calculated as the cover value
divided by the outstandings
at the balance sheet date. The cover values are indexed
where appropriate and exclude any cost of
liquidation. Covers can either be valid for all or some of a borrower’s
exposures or particular
outstandings, the latter being the most common. For the purpose of aggregation, over-
collateralisation is ignored in the total overview
and VTL coverage of more than 100% is reported as
fully covered. For
VTL coverage in the tables for Dutch mortgages, consumer lending and business
lending, each cover is subsequently assigned to one of the six defined
VTL buckets: no cover, >0%
to 25%, >25% to 50%, >50% to 75%, >75% to <100%, and ≥ 100%.
The next table gives an overview of the collateralisation of the ING’s total portfolio.
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186
Cover values including guarantees received
- Total
ING Bank – 2019
(*)
Outstandings
Cover type
Value to Loan
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
Partially
covered
Fully covered
Consumer Lending
329,949
574,786
3,775
26,766
36,774
6.9%
7.6%
85.5%
Business Lending
378,444
154,351
21,073
93,407
296,286
36.7%
24.3%
39.1%
Investment and Money Market
94,866
33
133
64
266
96.0%
3.9%
0.1%
Total
Lending, Investment and Money Market
803,258
729,171
24,981
120,236
333,326
31.4%
15.0%
53.5%
Pre-settlement
50,672
Total
Bank
853,930
1
More information on the credit risk mitigants can be found in the Pre-settlement section.
Cover values including guarantees received
- Total
ING Bank – 2018
(*)
Cover type
Value to Loan
Outstan-dings
Mortgages
Financial
Collateral
Guarantees
Other
No Cover
Partially
covered
Fully covered
Consumer Lending
318,804
547,832
3,509
25,760
39,446
6.6%
7.9%
85.4%
Business Lending
365,804
147,205
19,090
86,222
257,929
37.0%
24.5%
38.5%
Investment and Money Market
95,857
80
145
214
90.8%
9.1%
0.2%
Total
Lending, Investment and Money Market
780,465
695,037
22,679
112,128
297,590
31.2%
15.8%
52.9%
Pre-settlement
51,665
Total
Bank
832,130
1
More information on the credit risk mitigants can be found in the Pre-settlement section.
Over the year, the collateralisation level of the total portfolio remained stable.
Excluding the pre-
settlement portfolio, 53.5% of ING Group’s outstandings were fully collateralised in 2019 (2018:
52.9%). Since investments traditionally do not require
covers, the percentage for ‘no covers’
in this
portfolio is close to 90%. However, 99% of the investment outstanding is investment grade.
Improved economic conditions in ING’s main markets contributed to improved
collateral valuations,
observed in consumer lending.
Consumer lending portfolio (*)
The consumer lending portfolio accounts for 38.6% of ING’s total outstanding, primarily consisting
of residential mortgage loans and other consumer lending loans, which mainly comprise term
loans, revolvers
and personal loans to consumers. As a result, most of the collateral consists of
mortgages. The mortgage values are collected in an internal central database and in most cases
external data is used to index the market value (e.g. mortgage values for the Netherlands are
updated on a quarterly basis using the NVM house price index).
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A significant part
of ING’s residential mortgage portfolio is in the Netherlands (37.9%), followed by
Germany (25.0%), Belgium and Luxembourg (13.6%) and Australia (10.7%). Given the size of the
Dutch mortgage portfolio, the valuation methodology to determine the cover values for Dutch
residential mortgages is provided below.
Dutch mortgages valuation (*)
When a mortgage loan is granted in the Netherlands, the policy dictates maximum loan to market
value (LTMV)
for an existing property and for construction property financing
of 100 percent.
In case of newly built houses usually the building /purchase agreement is sufficient as valuation. In
the case of existing houses three types of valuations are allowed. If the LTMV
is below 90 percent,
either WOZ (fiscal market value, determined by government authorities) or an automated model
valuation (the Calcasa ING Valuation)
are permitted. In most cases, a valuation is performed by
certified valuers that are registered at one of the organisations accepted by ING. In addition, the
valuer must be a member of the NVM (Nederlandse Vereniging
van Makelaars – Dutch Association
of Real Estate Agents), VBO (Vereniging
Bemiddeling Onroerend Goed – Association of Real Estate
Brokers), VastgoedPRO
(Association of Real Estate Professionals) or NVR (Nederlandse Vereniging
van Rentmeesters).
Consumer lending portfolio – cover
values (*)
The below tables show the values of different covers and the VTL split between performing and
non-performing loans.
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Cover values including guarantees received
- Consumer lending portfolio – 2019
(*)
Cover type
Value to Loan
Out-
stan-
dings
Mortgages
Financial
Colla-teral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Performing
Residential Mortgages (Private Individuals)
294,658
561,766
2,897
24,281
30,541
0.1%
0.8%
7.2%
91.8%
Residential Mortgages
(SME)
5,687
8,786
258
145
1,402
0.2%
0.8%
1.4%
8.0%
89.6%
Other Consumer Lending
26,025
183
603
2,204
3,980
83.8%
0.3%
0.1%
0.1%
0.3%
15.4%
Total
Performing
326,370
570,734
3,759
26,630
35,922
6.7%
–
0.1%
0.8%
6.7%
85.7%
Non-performing
Residential Mortgages (Private Individuals)
2,477
3,804
14
121
720
0.2%
0.2%
0.7%
2.3%
9.6%
87.1%
Residential Mortgages
(SME)
147
240
–
7
36
0.2%
0.3%
0.8%
2.9%
6.0%
89.8%
Other Consumer Lending
956
7
2
8
96
94.0%
0.4%
0.2%
0.4%
0.5%
4.6%
Total
Non-performing
3,579
4,052
16
136
852
25.3%
0.2%
0.5%
1.8%
7.0%
65.2%
Total
Consumer Lending
329,949
574,786
3,775
26,766
36,774
6.9%
–
0.1%
0.8%
6.7%
85.5%
1
Consists mainly of residential mortgages to small one man business clients
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2019 ING Group Annual Report on Form 20-F
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Cover values including guarantees received
- Consumer lending portfolio – 2018
(*)
Cover type
Value to Loan
Outstanding
s
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% -
<100%
≥ 100%
Performing
Residential Mortgages (Private Individuals)
285,976
535,664
2,839
23,741
33,446
0.1%
1.0%
7.3%
91.6%
Residential Mortgages
(SME)
5,383
8,219
160
155
1,239
0.3%
0.8%
1.7%
7.5%
89.7%
Other Consumer Lending
23,937
156
493
1,694
4,072
84.7%
0.3%
0.1%
0.1%
0.5%
14.3%
Total
Performing
315,297
544,039
3,492
25,591
38,757
6.4%
0.1%
0.1%
0.9%
6.8%
85.7%
Non-performing
Residential Mortgages (Private Individuals)
2,490
3,568
16
152
607
0.5%
0.2%
0.8%
2.9%
13.6%
82.0%
Residential Mortgages
(SME)
134
218
9
29
0.4%
0.7%
2.4%
8.9%
87.7%
Other Consumer Lending
884
7
1
9
52
95.4%
0.5%
0.1%
0.2%
0.6%
3.2%
Total
Non-performing
3,508
3,793
17
169
689
24.4%
0.2%
0.6%
2.2%
10.1%
62.4%
Total
Consumer Lending
318,804
547,832
3,509
25,760
39,446
6.6%
0.1%
0.1%
1.0%
6.9%
85.4%
1
Consists mainly of residential mortgages to small one man business clients
The collateralisation of the consumer lending portfolio continued to improve during 2019. The rise
in collateralisation levels was due to rising housing prices observed in different mortgage markets,
specifically noticeable in the
Netherlands.
ING’s residential mortgage outstanding increased mainly in Germany (3.1%), Spain (14.8%) and
Poland (23.2%). Mortgage outstanding in the Netherlands decreased slightly (0.8%). For the
residential mortgages portfolio, the cover type guarantees relate to mortgages covered
by
governmental insurers under the Nationale Hypotheek Garantie (NHG) in the Netherlands. The NHG
guarantees the repayment of a loan in case of a forced
property sale.
Business lending portfolio (*)
Business lending accounts for 44.3 percent of ING’s total outstanding (44.0 percent in 2018). In line
with our objective to give stakeholders insight into the portfolio, we present the business lending
portfolio per industry breakdown in accordance with the NAICS definition and per region and main
market. Business Lending presented in this section does not include pre-settlement, investment
and money market exposures, which are outlined in the next sections.
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Cover values including guarantees received
- Business lending portfolio – 2019
(*)
Cover type
Value to Loan
Industry
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Natural Resources
53,796
1,197
2,426
22,041
35,691
26.6%
15.3%
9.6%
11.6%
12.9%
24.1%
Real Estate
45,927
85,946
1,442
5,942
17,765
2.6%
0.7%
1.9%
2.0%
9.7%
83.1%
Central Banks
42,087
7
100.0%
Non-Bank Financial Institutions
30,230
13,726
11,486
6,565
43,672
26.2%
2.8%
4.6%
5.0%
5.9%
55.6%
Transportation
& Logistics
29,303
3,293
168
7,519
36,223
17.0%
6.4%
2.3%
4.1%
11.3%
58.9%
Food, Beverages
& Personal Care
22,585
8,030
407
8,777
34,633
24.5%
5.2%
7.8%
10.3%
12.8%
39.5%
Commercial Banks
22,508
331
129
1,656
6,062
72.4%
3.3%
2.0%
1.6%
5.9%
14.8%
Services
21,044
10,090
1,519
8,799
29,470
30.7%
5.0%
6.3%
6.5%
6.9%
44.6%
General Industries
18,849
5,031
246
5,369
22,154
32.2%
5.1%
4.3%
8.3%
9.6%
40.6%
Utilities
15,952
242
1,036
3,785
7,928
41.7%
19.7%
3.9%
5.5%
2.0%
27.3%
Chemicals, Health & Pharmaceuticals
15,410
8,361
203
3,744
12,439
26.4%
6.7%
3.9%
7.5%
11.8%
43.7%
Builders & Contractors
15,054
7,449
201
3,802
15,704
27.5%
6.7%
7.2%
8.6%
8.7%
41.2%
Others
45,698
10,655
1,800
15,407
34,546
41.5%
4.9%
4.6%
5.8%
7.7%
35.4%
Total
Business Lending
378,444
154,351
21,073
93,407
296,286
36.7%
6.0%
4.4%
5.7%
8.2%
39.1%
of which Total Non-performing
7,856
2,600
281
2,643
6,305
32.6%
3.6%
7.9%
9.2%
16.5%
30.2%
1
‘Others’ comprises industries with outstandings lower than EUR 10 billion.
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2019 ING Group Annual Report on Form 20-F
191
Cover values including guarantees received
- Business lending portfolio – 2018
(*)
Cover type
Value to Loan
Industry
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Natural Resources
52,783
1,170
2,142
17,944
38,366
23.9%
15.5%
11.9%
11.2%
13.3%
24.2%
Real Estate
52,476
93,181
1,500
7,399
10,995
4.3%
1.2%
2.2%
3.1%
7.6%
81.6%
Central Banks
34,365
6
100.0%
Non-Bank Financial Institutions
21,083
1,581
9,163
5,529
32,346
34.6%
5.6%
3.2%
9.1%
6.9%
40.6%
Transportation
& Logistics
28,980
3,085
148
7,470
30,855
17.7%
6.2%
3.0%
4.5%
10.3%
58.4%
Food, Beverages
& Personal Care
20,970
7,376
302
7,380
24,099
28.7%
4.9%
6.8%
10.3%
11.8%
37.6%
Commercial Banks
23,876
323
338
1,312
3,918
78.8%
2.6%
1.7%
0.3%
6.2%
10.4%
Services
22,248
9,379
2,889
7,480
21,432
34.1%
4.7%
4.2%
6.7%
6.0%
44.3%
General Industries
20,391
5,027
263
6,065
31,648
33.2%
5.9%
3.7%
8.4%
8.3%
40.5%
Utilities
14,442
376
616
3,447
7,955
42.2%
16.4%
5.6%
5.1%
3.6%
27.1%
Chemicals, Health & Pharmaceuticals
16,444
8,634
203
3,899
10,849
35.5%
2.8%
3.9%
7.6%
11.9%
38.3%
Builders & Contractors
14,843
7,132
205
4,370
13,739
27.0%
7.5%
5.7%
8.2%
10.5%
41.1%
Others
42,901
9,941
1,315
13,927
31,728
43.5%
4.2%
5.1%
4.7%
7.8%
34.6%
Total
Business Lending
365,804
147,205
19,090
86,222
257,929
37.0%
5.9%
4.6%
5.9%
8.2%
38.5%
of which Total Non-performing
7,543
3,578
266
2,676
4,447
28.7%
3.8%
4.9%
9.1%
15.7%
37.7%
1
‘Others’ comprises industries with outstandings lower than EUR 10 billion.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
192
Cover values including guarantees received
- Business lending portfolio – 2019
(*)
Cover type
Value to Loan
Region
Outstandings
Mortgages
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Europe
Netherlands
81,383
60,334
3,265
8,845
52,909
37.4%
2.8%
3.7%
5.3%
10.7%
40.1%
Belgium
51,881
35,937
1,231
23,583
51,204
25.4%
1.8%
2.6%
4.0%
6.7%
59.5%
Germany
18,366
3,143
95
1,237
4,916
62.7%
9.2%
2.4%
2.2%
2.5%
20.9%
Luxembourg
19,013
7,076
1,690
3,780
31,685
48.3%
2.3%
6.6%
3.2%
3.0%
36.7%
Poland
17,498
8,896
135
3,053
27,356
30.1%
3.4%
4.6%
7.0%
11.4%
43.4%
United Kingdom
14,919
1,132
1,128
4,381
10,159
39.0%
18.0%
5.7%
8.9%
5.3%
23.0%
Switzerland
11,328
83
656
2,950
6,085
35.7%
13.7%
12.3%
7.4%
11.7%
19.2%
France
10,015
6,843
147
2,003
4,661
39.5%
5.7%
5.5%
3.5%
1.3%
44.6%
Rest of Europe
48,494
15,504
2,873
17,219
40,243
32.1%
7.8%
4.9%
4.7%
10.2%
40.2%
America
48,048
7,253
7,856
8,827
39,792
39.7%
6.1%
5.0%
6.6%
9.2%
33.4%
Asia
45,131
920
1,941
14,051
24,632
37.2%
8.4%
4.5%
9.2%
7.2%
33.5%
Australia
9,731
7,219
4
1,640
1,867
37.3%
9.6%
1.5%
3.0%
5.5%
43.1%
Africa
2,638
9
51
1,838
778
9.2%
16.5%
9.6%
13.2%
12.2%
39.3%
Total
Business Lending
378,444
154,351
21,073
93,407
296,286
36.7%
6.0%
4.4%
5.7%
8.2%
39.1%
of which Non-performing
7,856
2,600
281
2,643
6,305
32.6%
3.6%
7.9%
9.2%
16.5%
30.2%
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Additional Information
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Financial Statements
2019 ING Group Annual Report on Form 20-F
193
Cover values including guarantees received
- Business lending portfolio – 2018
(*)
Cover type
Value to Loan
Region
Outstandings
Mortgages
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Europe
Netherlands
84,669
56,560
2,978
7,560
49,346
43.4%
2.1%
2.9%
5.7%
9.8%
36.1%
Belgium
49,464
34,299
990
18,601
45,209
25.0%
2.0%
3.1%
4.2%
6.4%
59.4%
Germany
15,168
2,288
71
1,366
4,064
62.4%
5.0%
3.3%
3.9%
2.3%
23.1%
Luxembourg
12,903
6,834
2,626
3,768
22,132
23.4%
5.6%
12.8%
6.1%
3.6%
48.5%
Poland
15,982
7,992
122
3,054
26,346
30.2%
3.8%
3.4%
7.1%
10.1%
45.4%
United Kingdom
14,623
1,031
1,191
3,411
7,883
41.1%
18.5%
4.8%
3.4%
9.9%
22.3%
Switzerland
11,109
18
470
2,543
4,773
30.7%
25.2%
11.0%
7.6%
6.8%
18.8%
France
9,828
7,312
106
2,631
4,054
42.1%
2.5%
4.8%
4.0%
1.0%
45.6%
Rest of Europe
52,084
17,813
2,690
18,908
28,064
33.7%
7.5%
4.7%
6.2%
8.3%
39.7%
America
47,458
6,105
6,408
7,007
39,839
40.1%
5.6%
6.1%
6.8%
9.1%
32.2%
Asia
41,943
868
1,153
14,391
23,332
37.9%
9.1%
5.2%
7.4%
9.0%
31.3%
Australia
7,741
6,074
226
939
1,965
33.6%
3.4%
1.8%
3.7%
6.3%
51.2%
Africa
2,830
10
62
2,043
925
15.5%
4.6%
6.5%
16.6%
25.0%
31.7%
Total
Business Lending
365,804
147,205
19,090
86,222
257,929
37.0%
5.9%
4.6%
5.9%
8.2%
38.5%
of which Non-performing
7,543
3,578
266
2,676
4,447
28.7%
3.8%
4.9%
9.1%
15.7%
37.7%
The tables above describe the collateralisation of ING’s business lending portfolio. Breakdowns are
provided by industry as well as by geographical region
or market, based on the residence of the
borrowers.
Broken down by industry, the largest increase
in outstanding is attributable to Non-Bank Financial
Institutions (EUR 9.1 billion, 43.1%), followed by Central Banks (EUR 7.7 billion, 22.5%), with low
covers. The largest decrease in outstanding was observed in
Chemicals, Health & Pharmaceuticals
(EUR 8.2 billion), where the total cover percentage increased.
The proportion of the business lending portfolio in Africa and the Netherlands with no cover
decreased substantially year-on-year, respectively from 15.5% to 9.2% and from 43.4% to 37.4% in
2019. All industry types experienced an increase in total covers, but while the industries’ cover
levels grew, only the outstanding for Utilities grew
slightly faster.
The largest increases in outstanding in absolute figures were seen in Germany (21.1%) and Asia
(7.6%). The increase in Germany (EUR 3.2 billion) was primarily due to increases in term loans,
regulatory reserve deposits and nostro
accounts. As these deposits and nostro accounts are not
collateralised, this increase had only a small impact on total cover amounts.
Credit quality (*)
Following the higher credit risk levels
seen as a result of the financial crisis and economic downturn,
credit quality has been improving since 2014 and also continued the improving
trend in 2019..
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Financial Statements
2019 ING Group Annual Report on Form 20-F
194
Credit
risk categories
(*)
Regular
Watch List
Restructurin
g
Non-
performing
Possible ratings
1–19
1–19
11–20
20-22
Typical ratings
1–14
15–17
18–20
20-22
Deterioration in risk
Not
significant
Significant
Significant
Significant
Significant intervention
Not required
Not required
Required
Required
Includes impairments
No
No
Yes
Yes
Account Ownership
Front Office
Front Office
Front Office
Front Office
Credit Risk Management
Regular
Regular
Credit
Restructurin
g
Credit
Restructurin
g
Primary Manager
Front Office
Front Office
Credit
Restructurin
g
Credit
Restructurin
g
Accounting provisioning
Stage 1/2
Stage 1/2
Stage 2/3
Stage 3
1
More information on the Restructuring and Non-performing categories can be found in the Credit restructuring section.
Credit quality outstandings
(*)
2019
2018
Neither past due nor non-performing
831,340
816,588
Business lending past due but performing (1–90 days)1
1
7,747
Consumer lending past due but performing (1–90 days)
3,367
4,440
Non-performing
2
11,477
11,102
Total
853,930
832,130
1
For 2018, the business lending amount past due but performing could not be isolated.
2
Based on lending and investment activities
The credit quality of the ING portfolio improved overall.
For consumer lending past due but
performing, the portfolio decreased by EUR 1.1 billion mainly in Retail portfolio in Belgium &
Luxembourg,
from EUR 1.9 billion to EUR 0.9 billion. For non-performing assets, an increase was
observed mainly in Belgium & Luxembourg for Retail
portfolio (EUR 0.4 billion) and Wholesale
Banking portfolio (EUR 0.3 billion), and the United Kingdom WB (EUR 0.3 billion).
This increase was
partially offset by the decrease in non-performing exposures in Netherlands Retail (EUR 0.4 billion)
and Real Estate & Other (EUR 0.4 billion).
Past due obligations (*)
Retail Banking continuously measures its portfolio in terms of payment arrears and on a monthly
basis determines if there are any significant changes in the level of arrears. This methodology is
principally extended to loans to private individuals, such as residential mortgage loans, car loans
and other consumer loans. An obligation is considered ‘past due’ if a payment of interest or
principal is more than one day late. ING aims to help its customers as soon as they are past due by
communicating to remind them of their payment obligations. In its contact with the customers,
ING aims to solve the (potential) financial difficulties
by offering a range of measures (e.g. payment
arrangements, restructuring). If the issues cannot be cured, for example because the customer is
unable or unwilling to pay, the contract is sent to the recovery unit. The facility is downgraded
to
risk rating 20 (non-performing) when arrears exceed 90 days past due and to risk rating 21 or 22
when the contract is terminated. The table below captures all past due exposures starting from day
1.
Aging analysis (past due but performing): Consumer lending portfolio, outstandings
(*)
2019
2018
Past due for 1–30 days
2,564
3,283
Past due for 31–60 days
639
892
Past due for 61–90 days
163
265
Total
3,367
4,440
1
Based on consumer lending. The amount of past due but performing
financial assets in respect of non-lending
activities was
not significant.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
195
Aging analysis (past due but performing): Consumer lending portfolio by geographic area,
outstandings
1
(*)
2019
2018
Region
Residential
Mortgages
Other retail
Total
Total
Europe
Netherlands
829
11
840
934
Belgium
733
166
899
1,870
Germany
372
104
476
606
Poland
145
90
236
215
Luxemburg
21
36
56
46
Spain
3
24
27
55
France
2
10
13
11
United Kingdom
3
3
5
Rest of Europe
195
290
484
515
America
3
3
3
Asia
3
3
2
Australia
310
18
328
178
Africa
1
Total
2,619
749
3,367
4,440
1
Based on consumer lending. The amount of past due but performing
financial assets in respect
of non-lending activities
was not significant.
Total
past due, but performing exposure, for consumer loans decreased by EUR 1.1 billion. The
improvement was mainly visible in the 1-30 days bucket driven by Belgium and the Netherlands
residential mortgages due to macro-economic factors (low unemployment, low inflation and
increasing house prices). This was partially offset by the increase in Australia. Less significant
decreases were witnessed in the 31-60 and 61-90 days past due buckets mainly driven by the
Belgium residential mortgages portfolio.
In Wholesale Banking, ING classifies
the relevant obligors for business loans (governments,
institutions, and corporates) as non-performing when any of the following default triggers occur:
◾
The borrower has failed in the payment of principal or interest/fees and such payment failure has
remained unresolved for
the following periods:
Ÿ
for corporates:
more than 90 days; and
Ÿ
for financial institutions
and governments – from day 1. However,
a period of 14 calendar days
will be observed in order for ING to establish whether the payment default was due to non-
operational reasons (i.e.
the deteriorated credit quality of the financial institution) or due to
operational reasons. The latter does not trigger default.
◾
ING believes the borrower is unlikely to pay; the borrower
has evidenced significant financial
difficulty,
to the extent that it will have a negative impact on the future cash flows of the
financial asset. The
following events could be seen as indicators of financial difficulty:
Ÿ
The borrower (or third
party) has started insolvency proceedings.
Ÿ
A group company/co
-borrower has NPL status.
Ÿ
Significant fraud (affecting
the company’s ability to service its debt).
Ÿ
There is doubt as to the borrower’s ability to generate
stable and sufficient
cash flows to
service its debt.
Ÿ
Restructuring of debt.
◾
ING has granted concessions relating to the borrower’s
financial
difficulty,
the effect of which is a
reduction in expected future cash flows of the financial
asset below current carrying amount.
Further, Wholesale Banking has an individual name approach, using Early Warnings indicators to
signal possible future issues in debt service.
Aging analysis (past
due but performing): Business lending, outstandings
(*)
2019
Past due for 1–30 days
6,681
Past due for 31–60 days
658
Past due for 61–90 days
408
Total
7,747
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2019 ING Group Annual Report on Form 20-F
196
Aging analysis (past due but performing): Business lending portfolio by geographic area,
outstandings
(*)
Region
Total
Europe
Netherlands
751
Belgium
1,028
Germany
385
United Kingdom
820
Spain
688
France
639
Luxemburg
340
Poland
279
Rest of Europe
1,445
America
1,159
Asia
187
Australia
23
Africa
2
Total
7,747
Credit restructuring (*)
Global Credit Restructuring (GCR) is the dedicated and independent department that deals with
non-performing loans and loans that hold a reasonable probability that ING will end up with a loss,
if no specific action
is taken. GCR deals with accounts or portfolios requiring an active approach,
which may include renegotiation of terms & conditions and business or financial
restructuring. The
loans are managed by GCR or by units in the various regions and business units.
ING uses three distinct statuses to categorise the management of clients with (perceived)
deteriorating credit risk profiles, i.e. there
is doubt as to the performance and the collectability of
the client’s contractual obligations:
◾
Watch List
: Usually, a client is first
classified
as Watch List when there are
concerns of any
potential or material deterioration in credit risk profile that may affect the ability of the client to
adhere to its debt service obligations or to refinance its existing loans. Watch List status requires
more than usual attention, increased monitoring and quarterly reviews. Some clients with a
Watch List status may develop into a Restructuring status or even
a Recovery status.
◾
Restructuring
: A client is classified
in Restructuring when there are concerns about the client’s
financial stability, credit worthiness, and/or ability to repay, but where the situation does not
require the recall
or acceleration of facilities or the liquidation of collateral. ING’s actions aim to
maintain the going concern status of the client by:
o
Restoring the client’s financial stability;
o
Supporting the client’s turnaround;
o
Restoring the balance between debt and equity; and
o
Restructuring the debt to a sustainable situation.
◾
Recovery
: A client is classified
as in Recovery when ING and/or
the client concludes that the
client’s financial
situation cannot be restored and a decision is made to end the (credit)
relationship or even to enter into bankruptcy. ING will prefer an amicable exit, but will enforce
and liquidate the collateral or claim under the guarantees if deemed necessary.
Watch List, Restructuring and Recovery accounts
are reviewed
at least quarterly by the front office,
GCR, and the relevant credit
risk management executives.
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2019 ING Group Annual Report on Form 20-F
197
Non-performing loans (*)
ING’s loan portfolio is under constant review.
Loans with past due financial obligations of more than
90 days are reclassified as non-performing. For commercial lending portfolios, there generally are
reasons for declaring a loan non-performing prior to being 90 days past due. These reasons include,
but are not limited to, ING’s assessment of the customer’s perceived inability to meet its financial
obligations, or the customer filing
for bankruptcy or bankruptcy protection.
The table below represents the breakdown
by industry of credit risk outstandings for lending and
investment positions that have been classified as non-performing.
Non-performing Loans: outstandings by economic sector and business lines
1
(*)
Wholesale
Banking
Retail Benelux
Retail Challengers
& Growth
Markets
Corporate Line
Total
Industry
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Private Individuals
–
1
2,173
2,163
1,573
1,535
3,746
3,698
Natural Resources
1,108
925
35
43
53
54
1,196
1,022
Food, Beverages
&
Personal Care
599
372
351
294
168
109
1,119
775
Transportation
&
Logistics
651
599
96
177
40
28
787
804
Services
320
260
357
265
60
38
737
563
Builders & Contractors
265
405
258
332
168
152
691
889
Real Estate
312
823
311
333
9
3
631
1,159
General Industries
248
373
204
186
153
135
605
693
Non-Bank Financial
Institutions
426
25
34
27
2
2
462
54
Retail
89
80
172
134
63
44
325
258
Other
467
507
326
274
110
90
275
314
1,178
1,187
Total
4,487
4,370
4,316
4,229
2,399
2,188
275
313
11,477
11,102
1
Based on Lending and Investment outstandings.
2
Economic sectors not specified
in above overview are grouped in Other.
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Non-performing Loans: outstandings by economic sectors and geographical area
(*)
Region
Total
Total
Industry
Netherlands
Belgium
Germany
Poland
Spain
United
Kingdom
France
Luxemburg
Rest of
Europe
America
Asia
Australia
Africa
2019
2018
Private Individuals
840
1,271
585
134
195
4
14
24
411
4
3
261
1
3,746
3,698
Natural Resources
83
21
28
63
254
533
84
111
20
1,196
1,022
Food, Beverages
& Personal
Care
315
153
63
117
1
12
68
1
109
254
26
1,119
775
Transportation
& Logistics
432
48
1
31
47
49
3
88
32
10
46
787
804
Services
224
377
0
36
3
49
42
6
737
563
Builders & Contractors
88
226
1
103
1
3
230
39
691
889
Real Estate
219
225
0
96
19
7
28
27
8
4
631
1,159
General Industries
176
148
12
89
3
1
127
48
1
605
693
Non-Bank Financial Institutions
53
8
3
7
0
0
5
14
107
264
462
54
Retail
74
147
40
4
7
1
52
325
258
Other
464
239
44
130
10
1
9
173
34
23
51
1,178
1,187
Total
2,968
2,864
705
805
270
144
96
79
1,534
1,099
154
686
71
11,477
11,102
1
Economic sectors not specified
in above overview are grouped in Other.
The non-performing portfolio increased slightly during 2019. The increase was mainly visible in
Challengers & Growth and Wholesale Banking. The increase in Challengers & Growth was due to a
combination of various smaller items, while the increase in Wholesale Banking was mainly driven
by Food, Beverages
& Personal Care and Natural
Resources. This was largely
offset by a significant
decrease in Real Estate NPL outstandings. The largest
increases were witnessed in Belgium in the
services industry, the natural resources industry in the Americas and in Australia
over various
smaller items. The largest decreases were
visible in the Netherlands in real estate and private
individuals.
.
Forbearance
(*)
Forbearance occurs when a client is unable to meet their financial commitments due to financial
difficulties
it faces or is about to face and ING grants concessions towards this client. Forborne
assets are assets in respect of which forbearance measures
have been granted.
Forbearance may enable clients experiencing financial difficulties
to continue repaying their debt.
For business customers, ING mainly applies forbearance measures to support clients with
fundamentally sound business models that are experiencing temporary difficulties
with the aim of
maximising the client’s repayment ability and therewith avoiding a default situation or helping the
client to return to a performing situation.
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2019 ING Group Annual Report on Form 20-F
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For ING retail units, clear criteria have been established to determine whether a client is eligible for
forbearance process. Specific approval mandates are
in place to approve the measures, as well
as
procedures to manage, monitor and report the forbearance
activities.
ING reviews the performance of forborne exposures at least quarterly, either on a case-by-case
(business) or on a portfolio (retail) basis.
All exposures are eligible for forbearance
measures, i.e. both performing (Risk Ratings 1-19) and
non-performing (Risk Ratings 20-22) exposures. ING uses specific criteria to
move forborne
exposures from non-performing to performing or to remove
the forbearance statuses that are
consistent with the corresponding EBA standards. An exposure is reported
as forborne for a
minimum of two years. An additional one year probation period is observed for forborne exposures
that move from
non-performing back to performing.
The prior period outstandings and performing/ non-performing amounts in the table Summary
Forborne
assets have been updated by EUR 46 million to improve consistency and comparability to
the current year presentation.
This is also applicable to the other tables in this section
Forbearance.
Summary Forborne portfolio
(*)
2019
2018
Business Line
Outstandi
ngs
Of which:
Perfor-
ming
Of which:
Non-
Perfor-
ming
% of total
portfolio
Outstandi
ngs
Of which:
Perfor-
ming
Of which:
Non-
Perfor-
ming
% of total
portfolio
Wholesale Banking
4,632
2,699
1,932
1.7%
5,081
3,088
1,994
1.9%
Retail Banking
4,861
2,686
2,175
1.1%
5,012
2,862
2,151
1.2%
Total
9,492
5,385
4,107
1.3%
10,094
5,949
4,145
1.4%
1
Undrawn commitments
are excluded.
Summary Forborne portfolio by forbearance type
1
(*)
2019
2018
Forbearance type
Outstandi
ngs
Of which:
Perfor-
ming
Of which:
Non-
Perfor-
ming
% of total
portfolio
Outstandi
ngs
Of which:
Perfor-
ming
Of which:
Non-
Perfor-
ming
% of total
portfolio
Loan modification
8,285
4,800
3,485
1.1%
8,410
4,827
3,583
1.2%
Refinancing
1,208
585
622
0.2%
1,684
1,122
561
0.2%
Total
9,492
5,385
4,107
1.3%
10,094
5,949
4,145
1.4%
1
Undrawn commitments are excluded.
As per December 2019 ING’s total forborne assets decreased by EUR 0.6 billion (6%) against
December 2018 to EUR 9.5 billion, mainly driven by Wholesale Banking (-EUR 0.5 billion). Please
note, that 2018 amount includes EUR 46 million of non-IFRS eligible items (i.e. undrawn
commitments and guarantees).
Wholesale Banking
(*)
As per December 2019, Wholesale Banking forborne assets amounted to EUR 4.6 billion, which
represented 1.7% of the total Wholesale Banking portfolio.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
200
Wholesale Banking: Forborne portfolio by geographical area
(*)
2019
2018
Region
Outstandi
ngs
Of which:
Perfor-
ming
Of which:
Outstandi
ngs
Of which:
Perfor-
ming
Of which:
Non-
Perfor-
ming
Non-
Perfor-
ming
Europe
Netherlands
822
410
412
1,138
687
451
Belgium
41
16
25
131
102
29
Germany
246
182
63
127
94
33
United Kingdom
332
251
81
287
246
41
Italy
197
115
83
388
113
275
Ukraine
169
77
93
297
108
189
Norway
151
124
27
258
236
22
Poland
134
31
103
190
78
113
Rest of Europe
502
322
180
462
288
174
America
1,315
759
556
1,173
695
478
Asia
316
206
109
378
300
78
Australia
214
85
129
104
86
17
Africa
192
122
71
148
55
93
Total
4,632
2,699
1,932
5,081
3,088
1,994
1
Undrawn commitments are excluded.
Wholesale Banking: Forborne portfolio by economic sector
(*)
2019
2018
Industry
Outstandi
ngs
Of which:
Perfor-
ming
Of which:
Outstandi
ngs
Of which:
Perfor-
ming
Of which:
Non-
Perfor-
ming
Non-
Perfor-
ming
Natural Resources
1,587
909
678
1,474
943
532
Transportation
& Logistics
674
362
313
833
445
388
General Industries
427
286
142
402
190
212
Food, Beverages
& Personal Care
375
227
148
244
161
83
Real Estate
374
207
167
998
601
397
Chemicals, Health & Pharmaceuticals
212
209
3
189
171
19
Builders & Contractors
195
79
116
145
37
109
Utilities
188
55
133
181
30
152
Services
129
69
60
129
76
53
Retail
114
92
22
118
84
34
Automotive
108
72
36
134
131
3
Other
248
134
114
233
220
12
Total
4,632
2,699
1,932
5,081
3,088
1,994
1
Undrawn commitments are excluded.
The main concentration of forborne assets in a single country was in the Netherlands with 18%
(2018: 22%) of the total Wholesale Banking forborne assets and 21% (2018: 23%) of the total non-
performing forborne assets.
Wholesale Banking forborne assets decreased by EUR 0.5 billion compared to 2018, of which the
performing forborne assets decreased by EUR 0.4 billion. The decrease of the performing forborne
assets was attributed mostly to a few cured large entities which exited forborne status.
Wholesale Banking forborne assets were mainly concentrated in Natural Resources,
Transportation
& Logistics and General Industries. Together
they accounted for 58% of the total Wholesale
Banking forborne assets and 59% of the total Wholesale Banking non-performing forborne assets.
Back in 2018, the main concentration was witnessed in Natural Resources,
Real Estate and
Transportation
& Logistics, with 65% of the total WB forborne. A significant decrease in forborne
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assets was visible in the Real Estate industry (EUR 0.6 billion) during 2019, followed by the
Tra
nsportation & Logistics (-EUR 0.2 billion), partly offset by the Food, Beverages & Personal Care
and the Natural Resources
(+EUR 0.1 billion each).
Retail Banking
(*)
As per end of December 2019, Retail Banking forborne assets amounted to a total of EUR 4.9 billion,
which represented 1.1% of the total Retail Banking portfolio.
Retail Banking: Forborne portfolio by geographical area
(*)
2019
2018
Region
Outstandi
ngs
Of which:
Perfor-
ming
Of which:
Outstandi
ngs
Of which:
Perfor-
ming
Of which:
Non-
Perfor-
ming
Non-
Perfor-
ming
Europe
Netherlands
2,212
1,367
845
2,461
1,514
946
Belgium
1,149
435
714
1,046
383
663
Germany
425
294
131
462
337
126
Turkey
314
184
130
273
197
77
Poland
209
101
109
216
115
101
Romania
101
55
46
69
36
33
Italy
25
13
12
25
13
12
Spain
25
13
12
39
23
16
Rest of Europe
43
22
22
37
18
19
America
2
1
1
1
1
Asia
1
0
1
3
2
1
Australia
354
201
153
381
225
156
Africa
Total
4,861
2,686
2,175
5,012
2,862
2,151
1
Undrawn commitments are excluded.
The main concentration of forborne assets in a single country was in the Netherlands with 46%
(2018: 49%) of the total Retail Banking forborne assets and 39% (2018: 44%) of the non-performing
forborne assets. .
Loan Loss Provisioning
(*)
Since 1 January 2018, ING has recognised loss allowances based on the expected credit loss model
(ECL) of IFRS 9, which is designed to be forward-looking. The IFRS 9 impairment requirements are
applicable to on-balance sheet financial
assets measured at amortised cost or fair value through
other comprehensive income (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. These financial instruments are divided into three
groups, depending on the stage of credit quality deterioration.
IFRS 9 models (*)
The IFRS 9 models leverage the advanced internal rating
-based (AIRB) models (PD, LGD, EAD), which
include certain required conservatism. In order
to include IFRS 9 requirements, such regulatory
conservatism is removed from
the ECL parameters (PD, LGD and EAD). The IFRS9 models apply two
types of adjustments to the ECL parameters: (1) to economic outlook and (2) for stage 2 and stage
3 assets only, to the lifetime horizon. The IFRS9 model parameters are estimated based on
statistical techniques and supported by expert judgement.
Portfolio quality (*)
As shown in the table below, 94.0% of the total gross carrying amounts is classified as stage 1,
mainly composed of investment grade, while stage 2 and 3 make up 4.7% and 1.3% of total
amounts, respectively..
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Gross Carrying amount per IFRS 9 stage and rating class
1,2,3,4
(*)
2019
Stage 1
Stage 2
Stage 3
Total
Rating class
Gross Carrying
Amount
Provisions
Gross Carrying
Amount
Provisions
Gross Carrying
Amount
Provisions
Gross Carrying
Amount
Provisions
Investment grade
1 (AAA)
75,144
1
75,144
1
2-4 (AA)
82,992
3
28
83,020
3
5-7 (A)
131,931
11
273
132,204
11
8-10 (BBB)
295,449
55
4,905
6
300,354
61
Non-Investment grade
11-13 (BB)
194,643
209
7,925
54
202,568
263
14-16 (B)
36,683
202
18,416
367
55,099
569
17 (CCC)
405
7
4,067
146
4,472
153
Substandard grade
18 (CC)
3,253
160
3,253
160
19 (C)
2,216
148
2,216
148
NPL grade
20-22 (D)
10,955
3,275
10,955
3,275
Total
817,247
490
41,082
881
10,955
3,275
869,284
4,646
1 Compared to the credit risk portfolio, the differences are mainly undrawn committed amounts (EUR 115 billion) not included in Credit outstandings and non-IFRS 9 eligible assets (EUR 100 billion,
mainly guarantees, letters of credit and pre-settlement exposures)
included in Credit outstandings.
2 For a reference
to the Notes in the consolidated financial
statements, we refer to the table ‘Reconciliation between credit risk categories and financial position’, page 176.
3 IAS 37 provisions (EUR 93.3 million) are excluded.
4 The table is generated in 2019 for the first time, no comparable schedule for 2018 available.
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Changes in loan loss provision and gross carrying amounts
(*)
##SL
Changes in gross carrying amounts and loan loss provisions
(*)
1,2,3,4
2019
Stage 1
Stage 2
Stage 3
Total
Gross carrying
amount
Provisions
Gross carrying
amount
Provisions
Gross carrying
amount
Provisions
Gross carrying
amount
Provisions
Opening balance
788,537
501
46,949
925
10,758
3,141
846,244
4,568
Transfer
into 12-month ECL (Stage 1)
12,856
30
-12,579
-253
-277
-23
-246
Transfer
into lifetime ECL not credit impaired
(Stage 2)
-21,577
-73
22,382
474
-805
-81
320
Transfer
into lifetime ECL credit impaired
(Stage 3)
-2,210
-6
-1,753
-135
3,964
1,113
972
Net remeasurement of loan loss provisions
-77
36
283
242
New financial assets originated or purchased
180,605
205
180,605
205
Financial assets that have been derecognised
-126,082
-103
-9,108
-162
-1,659
-137
-136,849
-402
Net drawdowns and repayments
-14,880
-4,807
1
-19,686
Changes in models/risk parameters
15
2
-8
9
Increase in loan loss provisions
-9
-39
1,147
1,099
Write-offs
-1
-1
-2
-2
-1,027
-1,028
-1,030
-1,031
Recoveries of amounts previously
written off
55
55
Foreign exchange
and other movements
-1
-3
-41
-45
Closing balance
817,247
490
41,082
881
10,955
3,275
869,284
4,646
1 At the end of December 2019, the Gross carrying amounts included loans and advances to
central banks (EUR 51.2 billion), loans and advances to banks (EUR 35.1 billion), financial assets at FVOCI (EUR 32.2 billion),
securities at amortised cost (EUR 46.1 billion), loans and advances to customers (EUR 612.6
billion) and contingent liabilities (credit replacements)
in scope of IFRS 9 (EUR 115.7 billion) and
excludes receivables related
to securities in reverse repurchase
transaction (EUR -9.9 billion), cash collateral in respect of derivatives
(EUR -10.2 billion),
a receivable that is offsetted by a liquidity facility (EUR -1.3 billion), de-netting of
cash pool balances (EUR -1.8 billion) and other differences amounting to EUR -0.3 billion.
2 Stage 3 Lifetime credit impaired
includes EUR 1 million Purchased or Originated Credit Impaired
(2018: EUR 2 million).
3 At the end of December 2019, the stock of provisions included provisions
for loans and advances to central banks (EUR 1 million), loans and advances
to banks (EUR 9 million), financial assets at FVOCI (EUR 10 million),
securities at amortised cost (EUR 10 million), provisions for loans and advances to customers (EUR 4,590 million) and provisions
for contingent liabilities (credit replacements)
recorded under Provisions
(EUR 25 million).
4 The table is generated in 2019 for the first time, no comparable schedule for 2018 available.
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The table above provides a reconciliation
by stage of the gross carrying/nominal amount and
allowances for loans and advances to banks and customers, including loan commitments and
financial guarantees. The transfers of financial
instruments represents the impact of stage
transfers upon the gross carrying/nominal amount and associated allowance for
ECL. This includes
the net remeasurement of ECL arising from
stage transfers, for example, moving from a 12-month
(stage 1) to a lifetime (stage 2) ECL measurement basis.
The net remeasurement line represents
the changes in provisions for facilities that remain in the
same stage.
The following table shows the reconciliations from the opening to the closing balance of the loan
loss provisions in 2018.
Changes in loan loss provisions
(*)
2018
Stage 1
Stage 2
Stage 3
Total
Provisions
Provisions
Provisions
Provisions
Opening balance
438
955
3,923
5,316
Transfer
into 12-month ECL (Stage 1)
19
-206
-23
-209
Transfer
into lifetime ECL not credit impaired
(Stage 2)
-62
501
-56
383
Transfer
into lifetime ECL credit impaired
(Stage 3)
-7
-86
707
615
Net remeasurement of loan loss provisions
17
-55
312
274
Changes in models/risk parameters
New financial assets originated or purchased
213
212
Financial assets that have been derecognised
-101
-145
-341
-588
Increase in loan loss provisions
80
9
599
688
Write-offs
-1,043
-1,044
Recoveries of amounts previously
written off
53
53
Foreign exchange
and other movements
-18
-38
-390
-446
Closing balance
501
925
3,141
4,568
The following table provides the following
information:
- Information on financial assets that were modified during the year (i.e. qualified as forborne) while they had a loss
allowance measured at an amount equal to lifetime ECL (i.e.
stage 2).
- Financial assets that were reclassified to stage
1 during the period.
Financial assets modified
(*)
2019
2018
Financial assets modified during the period
Amortised cost before modification
2,662
2,503
Net modification results
164
-50
Financial assets modified since initial recognition
Gross carrying amount at 31 December of financial assets for which loss allowance has
changed to 12-month measurement during the period
689
908
Sensitivity analysis of key sources
of estimation uncertainty (*)
The introduction of IFRS 9, with its inherent complexities and potential impact on the carrying
amounts of our assets and liabilities, represents a key source of estimation uncertainty. In
particular, the Group’s reportable ECL numbers are most sensitive to the forward
-looking
macroeconomic forecasts
used as model inputs, the probability-weights applied to each of the
three scenarios, and the criteria for identifying a significant increase in credit risk. As such, these
crucial components require consultation and management judgement, and are subject to
extensive governance.
Forward
-looking macroeconomics used
as model inputs (*)
As a baseline for IFRS 9, ING Group uses the consensus outlook for economic variables. The Oxford
Economics’ Global Economic Model (OEGEM) is then used to complement the consensus with
consistent projections for variables for which there are
no consensus estimates available (most
notably House Price Index (HPI) and unemployment), and to ensure general consistency of the
scenarios.
The Group’s consensus view of the baseline scenario suggests economic growth will level off over
the initial (three year) forecast period, as the pace of expansion in the main advanced economies
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and emerging markets is expected to wane. For the eurozone, as output
gaps close and monetary
policy begins to normalise, growth is expected to decline. For the US, the near-term outlook is still
positive. The Group continues to monitor the potential escalation of an international trade conflict,
and the likely outcome of any Brexit deal, which, at present remains unclear.
The downside scenario sees a relatively synchronised global downturn with economic growth in
advanced economies falling close to zero, and emerging markets suffering a pronounced
slowdown. The upside scenario sees economic growth returning to rates
not seen since the
financial crisis and
a return to pre-crisis unemployment rates.
The relevance and selection of macro-economic variables is defined by the ECL models under credit
risk model governance. The scenarios are review
ed and challenged by two panels. The first panel
consists of economic experts from Global Markets Research and Risk and Modelling specialists,
while the second panel consists of relevant senior managers.
Probability weights applied
to each of the three sce
narios (*)
The alternative scenarios are technically based on the forecast errors
of the OEGEM. To
understand
the baseline level of uncertainty around any forecast, Oxford
Economics keeps track of all its
forecast errors
of the past 20 years. The distribution of forecast errors for GDP, unemployment,
house prices and share prices is applied to the baseline forecast creating a broad
range of
alternative outcomes. In addition, to understand the balance of risks facing the economy in an
unbiased way, Oxford Economics runs a survey with respondents from
around the world and
across a broad range
of industries. In this survey the respondents put forward their views of key
risks. Following the survey results,
the distribution of forecast errors (that is being used for
determining the scenarios) may be skewed.
For the downside scenario, ING has chosen for the 90th percentile of that distribution because this
corresponds with how within risk management earnings at risk is defined
within the Group. The
upside scenario is represented by the 10th percentile of the distribution. The distribution of the
scenarios, taking into account the applicable percentile of the distribution, results in the upside and
downside scenario being weighted at 20% each. Consequently, the base case scenario has a 60%
probability weighting. Please note that, given their technical nature, the downside scenario and
upside scenario are not explicitly based on a specific narrative.
Based on the above two sources of estimation uncertainty, analysis on the sensitivity of key
forward-looking macroeconomic inputs used in the ECL collective-assessment modelling process
and the probability-weights applied to each of the three scenarios is presented below.
The
countries included in the analysis are the Group’s most significant geographic regions, in terms of
both gross contribution to reportable ECL, and sensitivity of ECL to forward
-looking
macroeconomics. Accordingly, the Group
considers these portfolios to present the most significant
risk of resulting in a material adjustment to the carrying amount of financial
assets within the next
financial year. The Group also observes that, in general, the Wholesale business is more sensitive to
the impact of forward-looking macroeconomic scenarios.
Real GPD, unemployment rate and HPI (in that order) are
considered the variables with the largest
impact on the LLP.
Exposure class based the largest impact is observed in Corporates,
followed by
Retail Mortgages, SMEs and Retail non-SMEs. This is supported by statistical analysis. These
forward-looking macroeconomics
(among others) are used in the calculation of the Group’s un-
weighted ECLs, to which are applied the probability-weightings as disclosed, to arrive at the
reportable ECL for collectively-assessed assets. While the table does give a high-level indication of
the sensitivity of the outputs to the different scenarios, it does not provide insight on the
interdependencies and correlations between different macroeconomic
variable inputs.
Furthermore, in addition to forward
-looking macroeconomics, there are a number of other model
inputs and processes which contribute to the calculation of un-weighted ECLs. Any sensitivity
analysis which relies on this data should consider these complexities.
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Sensitivity analysis
1,2,3
(*)
2020
2021
2022
Un-weighted
ECL (Eur mln)
Probability-
weighing
Reportable ECL
(Eur mln)
4
Netherlands
Upside scenario
Real GDP
2.3
3.5
3.2
370
20%
428
Unemployment
2.8
2.4
2.3
HPI
14.1
11.3
2.9
Baseline Scenario
Real GDP
1.4
1.5
1.6
416
60%
Unemployment
3.6
3.9
4.2
HPI
3.3
2.9
2.8
Downside scenario
Real GDP
-0.7
-0.9
0.5
520
20%
Unemployment
5.0
6.3
7.1
HPI
-7.5
-7.0
2.7
Germany
Upside scenario
Real GDP
2.6
2.8
1.8
458
20%
502
Unemployment
2.4
1.7
1.4
HPI
9.7
7.0
6.4
Baseline Scenario
Real GDP
0.8
1.1
1.3
495
60%
Unemployment
3.2
3.2
3.3
HPI
6.1
3.5
2.9
Downside scenario
Real GDP
-1.2
-1.7
0.5
567
20%
Unemployment
4.3
4.8
5.2
HPI
2.5
-0.3
-1.1
Belgium
Upside scenario
Real GDP
2.3
2.6
2.0
323
20%
357
Unemployment
5.5
5.4
5.3
HPI
5.1
4.2
4.3
Baseline Scenario
Real GDP
1.1
1.2
1.3
350
60%
Unemployment
5.8
5.9
6.1
HPI
3.5
3.4
3.4
Downside scenario
Real GDP
-0.4
-0.2
1.0
411
20%
Unemployment
7.5
8.4
8.4
HPI
1.5
2.6
2.4
United States
Upside scenario
Real GDP
2.6
4.1
3.8
74
20%
144
Unemployment
2.6
1.7
1.5
HPI
5.0
8.0
8.1
Baseline Scenario
Real GDP
1.8
1.8
1.9
127
60%
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Unemployment
3.7
3.7
3.8
HPI
2.6
2.6
2.8
Downside scenario
Real GDP
-0.6
-0.5
0.3
267
20%
Unemployment
5.2
6.5
7.1
HPI
0.1
-3.1
-3.4
1 Real GDP, in % year-on-year change
2 Unemployment in % of total labour force
3 House Price Index (HPI) in % year-on-year
4 Sensitivity does not include the effect of
manual adjustments, which are not material
Criteria for identifying a significant increase
in credit risk (*)
All assets and off-balance sheet items are in scope of IFRS 9 impairment and which are subject to
collective ECL assessment are allocated a 12-month ECL if deemed to belong in Stage 1, or a
lifetime ECL if deemed to belong in Stages 2 and 3. An asset belongs in Stage 2 if it is considered to
have experienced a significant increase in credit risk since initial origination or purchase. The stage
allocation process involves an asset’s derived scenario weighted average
PD being assessed against
a set of PD threshold bandings, which determines the appropriate staging and ECL. Stage 2 is
triggered when either a threshold for absolute change in lifetime PD or relative change in lifetime
PD is hit. The thresholds for the absolute change in lifetime PD vary between 75bps for Retail
portfolios, 100bp for Wholesale and 250bps for SMEs, based on the characteristics of the specific
portfolio. The threshold for the relative change in LT
PD are inversely correlated with the PD at
origination; the higher the PD at origination, the lower the threshold. Despite this, the relative
threshold is punitive for Investment grade
assets while the absolute threshold primarily affects
Speculative grade assets.
The Group reports total ECL collective-assessment of EUR 1,291 million
(2018: EUR 1,391 million).
The setting of PD threshold bandings requires management judgement, and is a key source of
estimation uncertainty. To demonstrate
the sensitivity of the ECL to these PD thresholds bandings,
analysis was run on all collectively-assessed assets, which assumed all assets were below the
threshold, and apportioned a 12 month ECL. On the same asset base, analysis was run which
assumed all performing assets were above the threshold, and apportioned a lifetime ECL. This gave
rise to a hypothetical collective-assessment ECLs of EUR 866 million (2018: EUR 888 million) and
EUR 2,665 million (2018: EUR 3,333 million) respectively. Please note that in this analysis all other
ECL risk parameters (except for the stage) were
kept equal.
It should be noted that the lifetime PD thresholds are not the only drivers of stage allocation. An
asset can change stages by virtue of being in arrears, on a Watch List, being forborne etc. Refer to
section 1.6.8 of Note 1 ‘Accounting Policies’ for an exhaustive list. Furthermore, this analysis is
rudimentary in that other parameters would change when an asset changes stages.
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Market
risk
Introduction
Market risk is the risk that movements in market variables, such as interest rates, equity prices,
foreign exchange rates, credit
spreads and real estate prices negatively impact the bank’s earnings,
capital, market value or liquidity position. Market risk either arises through positions in banking
books or trading books. The banking book positions are intended to be held for the long-term (or
until maturity) or for the purpose of hedging other banking book positions. The trading book
positions are typically
held with the intention of short-term trading or in order to hedge other
positions in the trading book. This means that financial
instruments in the trading books should be
free of trade restrictions. Policies
and processes are in place to monitor the inclusion of positions in
either the trading or banking book as well as to monitor the transfer of risk between the trading
and banking books.
ING recognises the importance of sound market risk management and bases its market risk
management framework on the approach to identify, assess, control and manage market risks.
The approach consists of a cycle of five recurring activities: risk identification,
risk assessment, risk
control, risk monitoring and risk reporting.
(*)
◾
Risk identification is
a joint effort of the first
and second lines of defence out of the three lines of
the defence. The goal of risk identification is to detect
potential new risks and any changes in
known risks. See the Risk Governance paragraph
under the Group risk Management section for
more on our “three lines of defence” governance
model;
◾
Identified risks are assessed and measured by means of various risk metrics to determine the
importance of the risk to ING and subsequently to identify the control measures needed;
◾
Risk control measures used by ING include policies, procedures,
minimum standards, limit
frameworks, buffers and stress tests;
◾
Risk monitoring occurs to check if the implemented risk controls are executed, complied with
across the organisation, and are
effective; and
◾
Market risk management results and findings are reported to the necessary governing
departments and approval bodies.
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.
Supervision of market risk falls under the responsibility of the MBB and is delegated to the ALCO
function, where ALCO Bank is the highest approval
authority and sets the market risk appetite.
ALCO Bank monitors ING’s adherence to the risk appetite for market risk and sets additional limits
where appropriate. These limits are
cascaded through the organisation through lower
level ALCOs.
This ALCO structure facilitates top-down risk management, limit setting, and the monitoring and
control of market risk.
The monitoring and control of market risk is the responsibility of the Financial Risk (FR) department
and Financial Institutions – Financial Markets (FI-FM) Risk. FR and FI-FM Risk are the designated
departments of the second line of defence that report to the CRO function and are responsible for
the design and execution of the bank’s market risk and counterparty credit risk management
functions in support of the ALCO function. FR focuses on the market risks in the banking books,
whereas FI-FM Risk is responsible for counterparty credit risk and market risks resulting
from the
Financial Markets trading books. FR and FI-FM Risk are responsible for determining adequate policies
and procedures for actively managing market risk in the banking and trading books and for
monitoring ING’s compliance with these guidelines.
FR and FI-FM Risk also maintain a limit framework in line with ING’s Risk Appetite Framework.
The
businesses are responsible for adhering to limits that are ultimately approved
by the ALCO Bank.
Limit excesses are reported to senior management on a timely basis and the business is required
to take appropriate actions to reduce the risk position. To
adhere to the established limit
framework, ING implements hedging and risk mitigation strategies that range from
the use of
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traditional market instruments, such as interest rate swaps, to more
sophisticated hedging
strategies to address a combination of risk factors arising at the portfolio level.
The organisational structure facilitates top-down risk management by recognising that risk taking
and risk management to a large extent occur at the regional/local level. Bottom-up reporting from
regional/local units to head office
units allows each management level to fully assess the market
risks relevant at the respective levels.
Several committees govern
communication between the parties involved in market risk
management. These committees have a functional reporting line to ALCO Bank, which derives its
global discretion from the ING Group Decision Structure and as such is the highest level ING Bank
body with the exception of the Management Board Banking (MBB). The Market Risk Model
Committee (MRMC) is the dedicated authority within ING for the approval of all trading
and banking
risk models, methodologies and parameters related to market risk. The Trading
Pricing Model
Committee (TPMC) approves pricing models for trading
and banking books. Financial Risk and FI-FM
Risk departments provide systematic risk reporting to the EB and MBB, the senior executive
management of the CRO function and the senior executive management of related business
functions.
The FI-FM Risk Management Framework
governs the boundary between trading books and banking
books. It defines the activities
ING considers to be trading according to a regulatory
definition and
for own funds requirement purposes. The trading
activity is systematically reviewed and positions
are assessed against the mandates jointly by the first and
second lines of defence. As specified in
the framework, the transfer of risk or the transfer
of positions between banking and trading books
is in principle not allowed but in exceptional cases when a re-designation is deemed necessary, the
re-designation should be approved by senior management.
The following market risk paragraphs elaborate
on the various elements of the risk management
framework for:
◾
Market risk economic capital (trading and banking books);
◾
Market risks in banking books; and
◾
Market risks in trading books.
Market risk economic capital
(trading and banking books)
Economic capital for market risk is the economic capital necessary to withstand unexpected value
movements due to changes in market variables and model risk.
Economic capital for market risk is calculated for exposures both in trading
portfolios and banking
portfolios and includes interest rate risk, credit spread
risk, equity price risk, foreign exchange rate
risk, real estate risk, model risks and pension risk. Economic capital for market risk is calculated
using internally developed methodologies with a 99.9% confidence
level and a horizon of one year.
For the trading books and the linear interest
rate risk and equity investments in the banking books,
the Value at Risk (VaR)
is taken as a starting point for the economic capital calculations for market
risk. The VaR is measured
at a 99% confidence level, a one day holding period.
To
arrive at the economic capital for market risk, a simulation based model is used which includes
scaling to the required confidence level and holding period. In determining this scaling factor, other
factors are also taken into account like the occurrence of large
market movements (events).
Embedded options, e.g. the prepayment option and offered rate option in mortgages in the
banking books, result in non-linear interest rate
risk in the banking books. The embedded options
are economically hedged using a delta-hedging methodology, leaving the mortgage portfolio
exposed to convexity risk, volatility risk and model risk. For the calculation of economic capital for
this non-linear interest rate risk, ING performs a Monte Carlo simulation.
Real estate price risk includes the market risks in both the real estate investment and the
development portfolio of the ING Wholesale Banking business line. The economic capital for real
estate price risk is calculated by stressing the underlying market variables.
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While aggregating the different economic capital market risk figures for the different portfolios,
diversification benefits
(based on stressed correlations) are taken into account as it is not expected
that all extreme market movements will appear at the same moment.
Market risk in banking books (*)
ING makes a distinction between the trading and banking (non-trading) books. Positions in banking
books originate from the market risks inherent in commercial products that are
sold to clients,
Group Treasury
exposures, and from the investment of our 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.
Risk transfer
(*)
An important element of the management of market risks in the banking book
is the risk transfer
process. In this process the interest
rate, FX, funding and liquidity risks are transferred
from the
commercial books through matched funding to Group Treasury,
where it is centrally managed. The
scheme below presents the transfer and management process of market risks in the banking
books:
(*)
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Risk measurement (*)
The main concepts and metrics used for measuring market risk in the banking book are described
below per risk type.
Interest rate
risk in banking book (*)
Interest rate risk in the banking book is defined as the exposure of a bank’s earnings, capital, and
market value to adverse movements in interest rates
originated from positions in the banking book.
Governance (*)
The management of interest rate risk follows the Interest Rate
Risk in the Banking Book (IRRBB)
framework as approved
by ALCO Bank. This framework
describes roles, responsibilities, risk metrics,
the policies and procedures related
to interest rate risk management. Furthermore
ALCO Bank sets
the risk appetite for interest rate risk, which is then translated into limits for the interest
rate risk
metrics.
ING’s approach to interest rate
risk management, as set forth in this framework, is the
centralisation of risks from commercial books (that capture
the products sold to clients) to globally
managed interest rate risk books. This enables a clear demarcation between commercial
business
results and results on unhedged interest
rate positions.
ING distinguishes between three types of activities that generate interest rate
risk in the banking
book:
◾
Investment of own funds (by Group Treasury);
◾
Commercial business (e.g. Retail
business); and
◾
The strategic interest rate
position (Group Treasury).
Below the three activities are described in more detail:
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Group Treasury
is responsible for managing the investment of own funds (core capital), more
information can be found in the Capital Management section. Capital is invested for longer periods
to keep earnings stable.
The commercial activities can result in linear interest rate
risk, for example, when re-pricing tenors
of assets differ from those of liabilities. Also, interest rate risk can arise from customer behaviour
depending on the nature of the underlying product characteristics. Customer behaviour risk is
defined as the
potential future value loss due to deviations in the actual behaviour of clients versus
the modelled behaviour towards the embedded options in commercial products. General sources
of
customer behaviour risk include the state of the economy, competition, changes in regulation,
legislation and tax regime, and developments in the housing market. Since these risk factors
cannot be (fully) mitigated, ING holds capital to be able to absorb possible losses as a result of
changed customer behaviour.
From
an interest rate risk perspective, commercial activities can typically be divided into three main
product types: savings and demand deposits, mortgages, and loans.
◾
Savings and demand deposits are generally invested with the goal to hedge their value and
minimize the sensitivity of the margin to market interest rates. Interest
rate risk can arise when
there is a lag between savings rate
adjustments and the adjustments experienced through
market rates or when market rate changes cannot be passed on to clients. Interest rate
risk is
modelled based on the stability of the deposit and the pass through rate. This takes into account
different elements, such as pricing strategies, volume developments and the level and shape of
the yield curve. Savings volumes are typically assumed not to be sensitive to interest rate
shocks;
◾
Interest rate risk for mortgages arises through prepayment
behaviour.
In modelling this risk,
interest rate dependent pre
-payments are considered. Next to the dependence on interest
rates,
modelled prepayment may include other effects such as loan to value, seasonality and the reset
date of the loan. In addition, the interest sensitivity of embedded offered rate options is
considered;
and
◾
Wholesale Banking loans typically do not experience interest rate prepayment behavior as they
are hedged from an interest
rate risk perspective and therefore do not contain significant fixed
rate convexity risk.
Customer behaviour in relation to mortgages, loans, savings and demand deposits is modelled,
based on extensive research. Per
business unit and product type, exposures are typically
segmented into different portfolios based on expected client behaviour. For each of the segments,
model parameters for example for the pass through rate
and customer behaviour are determined
based on historical data and expert opinion. Models are back tested and updated when deemed
necessary. Model parameters and the resulting risk measures are
approved by (local) ALCO.
Linear interest rate risk is transferred
from the commercial business to the treasury book (Group
Treasury),
if necessary, using estimations of customer behaviour. The originating commercial
business is ultimately responsible for estimating customer behaviour, leaving convexity risk and
(unexpected) customer behaviour risk with the commercial business. Risk measurement and the
risk transfer process take place
on a monthly basis, but more often if deemed necessary, for
instance in volatile markets.
The commercial business manages the convexity risk that is the result of products that contain
embedded options, like mortgages. Here the convexity risk is defined as the optionality
effects in
the value due to interest rate changes, excluding the first-order effects. In some cases, convexity
risk is transferred from
the commercial books to treasury books using cap/floor contracts.
Group Treasury
manages the strategic interest rate
position including capital investments. The
main objective is to maximise the economic value of the book and to generate adequate and stable
annual earnings within the risk appetite boundaries set by ALCO Bank.
In the following sections, the interest rate risk exposures in the banking books are
presented. ING
uses risk measures based on both an earnings and a value perspective. Net Interest Income (NII)-
at-Risk is used to provide the earnings perspective and the Net Present Value (NPV)-at-Risk and
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Basis Point Value
(BPV) figures provide the value perspective. Please note that corrective
management actions are not taken into account in these figures although price adjustments are
included in the earnings risk measure.
During 2019, the following refinements to the risk measurement for Interest Rate Risk in the
Banking Book were made:
◾
Review of the risk appetite for Interest Rate
Risk for the Banking Book;
◾
Annual review of the interest rates
scenarios used for calculating NII-a-Risk and NPV-at-Risk; and;
◾
Savings model updates for market developments.
Net Interest Income (NII) at
Risk (*)
NII-at-Risk measures the impact of changing interest rates on (before tax) net interest
income of
the banking book with a time horizon of one year.
This excludes credit spread sensitivity and longer
term earnings impact. The NII-at-Risk figures
in the tables below reflect a parallel interest rate
shock with a time horizon of one year.
Next to parallel scenarios, IRRBB monitoring and
management includes the impact of non-parallel scenarios and the impact over a longer horizon.
The NII-at-Risk asymmetry between the downward and upward
ramped scenarios (gradual shock ≈
+/-100bps) is primarily caused by the convexity risk in the mortgage and savings portfolio due to
the embedded options and pricing constraints.
NII-at-Risk banking books per business
- year 1
(*)
2019
2018
Ramped, unfloored
Ramped, unfloored
parallel
▼
parallel
▲
parallel
▼
parallel
▲
By business
Wholesale Banking
–12
12
–204
239
Retail Banking Benelux
–91
40
–49
22
Retail Challengers & Growth Markets
–3
–3
165
–186
Corporate Line Banking
–30
30
–30
30
Total
–136
79
–119
106
The NII-at-Risk is mainly influenced
by the sensitivity of savings to interest rate movements due to pass through rate
differences between savings rates and investment yields, but is partially offset by the sensitivity of
mortgages. The investment
of own funds only impacts the earnings sensitivity marginally, as only a relatively small part has to
be (re)invested within the
1-year horizon.
NII-at-Risk banking book per currency - year 1
(*)
2019
2018
Ramped, unfloored
Ramped, unfloored
parallel
▼
parallel
▲
parallel
▼
parallel
▲
By currency
Euro
-134
65
–81
60
US Dollar
25
-24
20
–20
Other
-27
39
–57
65
Total
-136
79
–119
106
Year
-on-year variance analysis (*)
The change in NII-at-Risk is mainly visible for Retail Banking Benelux and Retail Challengers &
Growth Markets. This is driven by the savings model updates for market developments in ING
Belgium, ING Germany, ING Netherlands, ING Spain and ING Poland. The annual update of the
interest rate scenarios also led to a limited increase in the NII-a-Risk for year 1.
Net Present Value
(NPV) at Risk (*)
NPV-at-Risk measures the impact of changing interest rates on value.
The NPV-at-Risk is defined as
the outcome of an instantaneous increase and decrease in interest rates
from applying currency
specific scenarios. The
NPV-at-Risk asymmetry between the downward
and upward shock is
primarily caused by convexity risk in the mortgage and savings portfolio. The NPV-at-Risk figures
are also calculated using the updated interest rate
scenarios.
The full value impact cannot be directly linked to the financial
position or profit or loss account, as
fair value movements in banking books are not necessarily reported through
the profit or loss
account or through Other Comprehensive
Income (OCI). The value mutations are expected to
materialise over time in the profit and loss account if interest rates develop according
to forward
rates throughout the remaining maturity of the portfolio.
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NPV-at-Risk banking books per business
(*)
2019
2018
unfloored
unfloored
parallel
▼
parallel
▲
parallel
▼
parallel
▲
By business
Wholesale Banking
182
400
–55
134
Retail Banking Benelux
-1,431
268
–1,344
–269
Retail Challengers & Growth Markets
-259
-452
–521
–54
Corporate Line Banking
0
0
–38
35
Total
-1,508
216
–1,958
–153
The asymmetry between the NPV-at-Risk for a downward
and an upward shock scenario is
primarily caused by the convexity risk, which arises from (embedded) optionality in the savings and
mortgage portfolio.
Year
-on-year variance analysis
(*)
The change in NPV-at-Risk for Retail Banking Benelux was driven by updates in the savings model
to reflect the most recent market developments in The Netherlands and Belgium. The internal view
on capital replication of the own funds long-term investments is included in the NPV-at-Risk figures.
Only a mismatch from the target investment profile results in NPV-at-Risk.
IBOR Transition
(*)
Interbank offered rates, such as Euribor and Libor, are widely used as benchmarks to set interest
rates across a broad
range of financial products and contracts. The financial
markets are going
through a significant reform and financial institutions
are obligated to implement a replacement of
these major interest rate reference
rates. In line with recommendations from the Financial Stability
Board, a fundamental review and reform
of the major interest rates benchmarks has been
undertaken. For the Eurozone,
this led to a reform of the EURIBOR benchmark rate and
development of €STR as the recommended new nearly risk free rate
to replace EONIA. For LIBOR
benchmarks the reform will include replacing interest rate
benchmarks with alternative, nearly risk-
free rates. This process
is at different stages, and is progressing at different speeds, across
several
major currencies.
ING is currently making the necessary preparations for the potential cessation and transition of
IBORs in the years to come, where we take 2022 as the potential first date that
this could
materialise. Due to the many uncertainties the overall IBOR transition still faces, at this stage the
potential impact of this major event on ING’s credit risk profile, business model and
funding profiles
is not entirely clear.
We would
like to underline however that ING is aware of the significant impact
of this transition and is therefore
putting all efforts into making sure that it is properly prepared for
this transition in a timely manner.
For this purpose, ING has established a global program across
all
areas of the bank to coordinate ING’s transition
activities and to assess the potential risks and
impacts of any transition. It is a multi-year global program that encompasses various workstreams
and departments including the client facing teams, Legal, Finance, Operations and IT.
The following interest rate
benchmarks are in scope of ING’s IBOR transition program: GBP LIBOR,
USD LIBOR, EUR LIBOR, EURIBOR, EONIA, CHF LIBOR and JPY LIBOR.
ING is pro-actively reaching out to industry participants, counterparties and clients to create
awareness and support on the upcoming transition.
Given that IBOR reform may have various accounting implications, the International Accounting
Standards Board (IASB) has commenced a two phase project.
Phase 1 addresses those issues that
affect financial
reporting before the replacement of an existing benchmark and Phase 2 focuses on
issues that may affect financial
reporting when the existing benchmark rate is reformed or
replaced. In 2019, ING early adopted the amendments to IFRS issued by the IASB as part of Phase 1
(refer to section 1.6.5 of Note 1 of the financial statements).
Refer to Note 39 ‘Derivatives and
hedge accounting’ for the disclosure requirements
relating to the application of the amendments
as part of Phase 1. Phase 2 of the project is still ongoing and focusses on, amongst others,
accounting for changes to contracts due to the IBOR reform and impact on hedge accounting. ING
continues to monitor the progress of Phase 2 of the project and will assess the impact as more
information becomes available.
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Foreign exchange
(FX) risk in banking books (*)
FX exposures in banking books result from core
banking business activities (business units doing
business in currencies other than their base currency), foreign currency investments
in subsidiaries
(including realised net profit and loss), and strategic equity stakes in foreign currencies. The policy
regarding these exposures is briefly explained below.
Governance – Core
banking business (*)
Every business unit hedges the FX risk resulting from core
banking business activities into its base
currency.
Consequently, assets and liabilities are matched in terms of currency.
Governance – FX translation
result (*)
ING’s strategy is to keep the target CET1 ratio within a certain range when FX rates
fluctuate,
whilst
limiting the volatility in the profit and loss account. Therefore, hedge accounting is applied to the
largest extent possible. Taking
this into account, the CET1 ratio hedge can be achieved by
deliberately taking foreign currency
positions equal to certain target positions, such that the target
CET1 capital and risk-weighted assets are equally sensitive in relative
terms to changing FX rates.
For a selection of emerging market currencies ING decided not to enter into foreign currency
hedges as allowed under the policy.
Risk profile – FX translation
result (*)
The following table presents the currency exposures
in the banking books for the most important
currencies for the FX translation result.
Positive figures indicate long positions in the respective
currency. As a result of the strategy
to hedge the CET1 ratio a net foreign currency exposure
exists.
In order to measure the sensitivity of the target CET1 ratio
against FX rate fluctuations, the
Historical Value at Risk is used based on historical series of last year’s FX rates. It measures
the drop
in the CET1 ratio from the target
based on historical FX rates. Based on these time series and with a
probability of 10%, the drop in the CET1 ratio would
be 0.09%..
Net banking currency exposures banking books
(*)
Foreign
Investments
Hedges
Net exposures
2019
2018
2019
2018
2019
2018
US Dollar
8,031
5,794
-11
–1
8,020
5,793
Pound Sterling
-22
614
-22
614
Polish Zloty
2,522
2,563
-278
–526
2,244
2,036
Australian Dollar
3,565
3,569
-2,033
–2,398
1,532
1,171
Turkish Lira
1,337
1,219
1,337
1,219
Chinese Yuan
2,255
2,208
2,255
2,208
Indian Rupee
917
917
Russian Rouble
540
460
-85
–101
455
359
Other currency
4,742
4,462
-1,834
–2,057
2,907
2,405
Total
22,969
21,806
-4,242
–5,084
18,727
16,722
The USD net exposure increased due to optimization of the capitalization and funding of the NY
entity. In 2019, we reviewed and updated our methodology for specific CET1 deductibles. This
drives the move in GBP net exposure and applies to the calculation of the FX Translation
figures in
the above table hence has no impact on the reported CET1 figure itself. ING sold its stake in Kotak
Mahindra in February 2019 and therefore
no longer has exposure on Indian Rupee.
Equity price risk in banking
books
(*)
Governance (*)
ING maintains a strategic portfolio with substantial equity exposure in its banking books. Local
offices
are responsible for the management of the equity investment positions. Financial Risk is
responsible for monitoring the regulatory capital for equity investments on a monthly basis and
acts independently from ING’s / Local management when monitoring these positions.
Risk Profile
(*)
Equity price risk arises from the possibility that an equity security’s price will fluctuate,
affecting the
value of the equity security itself as well as other instruments whose value react similarly to the
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particular security, a defined
basket of securities, or a securities index. ING’s equity exposure mainly
consists of the investments in associates and joint ventures of EUR 1,790 million (2018: EUR 1,203
million) and equity securities held at fair value through other comprehensive income (FVOCI) of EUR
2,306 million (2018: EUR 3,228 million). The value of equity securities held at FVOCI is directly linked
to equity security prices with increases/decreases
being recognized in the revaluation
reserve.
Investments in associates and joint ventures are
measured in accordance with the equity method
of accounting and the balance sheet value is therefore
not directly linked to equity security prices.
Year
-on-year variance analysis (*)
The revaluation reserve
relating to equity securities at FVOCI moved from EUR 1,914 million per
year end 2018 to EUR 1,580 million per year end 2019. In 2019, the securities
at FVOCI decreased
by EUR 334 million following the full disposal of Kotak in the same year.
Revaluation reserve equity securities at fair value through other comprehensive
income
1
(*)
2019
2018
Positive re-measurement
1,582
1,923
Negative re-measurement
-2
–8
Total
1,580
1,914
Real Estate price
risk in banking books(*)
Real Estate price risk arises from the possibility that Real Estate
prices fluctuate. This affects
both
the value of Real Estate assets and the earnings related to Real
Estate activities.
Governance (*)
Real Estate is a run-off business consisting of Real Estate Development and Real Estate
Investment
Management activities which are being wound down by sale of assets, strict execution of contract
maturity, or through portfolio sales.
Market risk in trading books
(*)
Within the trading portfolios, positions are maintained in the financial markets. These positions
are
often a result of transactions with clients and may benefit
from short-term price movements. In
2019, ING continued its strategy of undertaking trading activities to develop its
client-driven
franchise and deliver a differentiating experience by offering
multiple market and trading products.
Governance (*)
The Financial Markets Risk Committee (FMRC) is the market risk committee that, within the risk
appetite set by ALCO Bank, sets market risk limits both on an aggregated level and on a desk level,
and approves new products. FI-FM Risk advises both FMRC and ALCO
Bank on the market risk
appetite of trading activities.
With respect to the trading portfolios, FI-FM Risk focuses on the management of market risks of
Wholesale Banking (mainly Financial Markets) as this is the only business line within ING where
trading activities take place. Trading
activities include facilitation of client business and market
making. FI-FM Risk is responsible for the development and implementation of trading risk policies
and risk measurement methodologies, and for reporting and monitoring risk exposures against
approved trading
limits. FI-FM Risk also reviews trading mandates and limits, and performs the
gatekeeper role in the product review process.
The management of market risk in trading portfolios
is performed at various organisational levels. The FI-FM Risk Management Framework
defines
policies and procedures for the overall
management of trading books. Trading
activity is
systematically reviewed and positions against the mandates are assessed jointly by the first and
second lines of defence.
Risk measurement (*)
ING uses a comprehensive set of methodologies and techniques to measure market risk in trading
books: Value at Risk (VaR)
and Stressed Value
at Risk (SVaR),
Incremental Risk Charge (IRC), and
Event Risk (stress testing). Systematic validation processes
are in place to validate the accuracy
and internal consistency of data and parameters used for the internal models and modelling
processes.
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Value
at Risk (*)
FI-FM Risk uses the historical simulation VaR methodology (Hvar) as its primary risk measure.
The
HVaR for
market risk quantifies,
with a one-sided confidence
level of 99%, the maximum overnight
loss that could occur in the trading portfolio of ING due to changes in risk factors (e.g. interest rates,
equity prices, foreign exchange rates, credit
spreads, implied volatilities) if positions remain
unchanged for a time period of one day. Next to general market movements in these risk factors,
HVaR also takes into account market data movements for
specific moves in e.g. the underlying
issuer of securities. A single model that diversifies
general and specific risk is used. In general, a full
revaluation approach is applied, and for a limited number of linear trading positions and risk factors
in commodity and equity risk classes a sensitivity-based approach is applied. The potential impact
of historical market movements on today’s portfolio is estimated, based on equally weighted
observed market movements of the previous year (260 days). When simulating potential
movements in risk factors, depending on the risk factor type, either an absolute or a relative shift is
used. The data used in the computations is updated daily. ING uses HVaR with a one-day horizon
for internal risk measurement, management control, and backtesting, and HVaR
with a ten-day
horizon for determining regulatory capital. To
compute HVaR with a ten-day horizon the one day
risk factor shifts are scaled by the square root of ten and then used as an input for the revaluation.
The same model is used for all legal entities within ING with market risk exposure in the trading
portfolio.
Limitations (*)
HVaR has some limitations: HVaR
uses historical data to forecast future price behaviour, but future
price behaviour could differ substantially from past behaviour.
Moreover, the use of a one-day
holding period (or ten days for regulatory capital calculations) assumes that all positions in the
portfolio can be liquidated or hedged in one day. In periods of illiquidity or market events, this
assumption may not hold. Also, the use of a 99% confidence
level means that HVaR
does not take
into account any losses that occur beyond this confidence
level.
Backtesting (*)
Backtesting is a technique for the ongoing monitoring of the plausibility of the HVaR model in use.
Although HVaR models estimate potential future trading
results, estimates are based on historical
market data. In a backtest, the actual daily trading result (excluding fees and commissions) is
compared with the one-day HVaR.
In addition to using actual results for backtesting, ING also uses
hypothetical results, which exclude the effects of intraday trading, fees, and commissions. When
an actual or a hypothetical loss exceeds the HVaR, an ‘outlier’ occurs. Based on ING’s one-sided
confidence level of 99%, an outlier is expected once in every 100 business days. In
2019, there were
five actual outliers
i.e. occurrences
of actual loss and four hypothetical outliers i.e. occurrences of
hypothetical loss, when the daily trading loss exceeded the daily consolidated HVaR of ING. The
outliers were driven by interest rates
market moves mainly related to quantitative easing. ING
reports the backtesting results on a quarterly basis to the ECB.
Stressed HVaR
(*)
The Stressed HVaR
(SVaR)
is intended to replicate the HVaR
calculation that would be generated on
the bank’s current portfolio with inputs calibrated to the historical data from a continuous 12-
month period of significant
financial stress relevant to the bank’s portfolio. To
calculate SVaR,
ING
uses the same model that is used for 1DHVaR, with a ten-day horizon. The data for historical stress
period used currently includes the height of the credit crisis around the fall of Lehman Brothers,
and this choice is reviewed regularly.
The historical data period is chosen so that it gives the worst
scenario loss estimates for the current portfolio. The same SVaR
model is used for management
purposes and for regulatory purposes. The same SVaR
model is used for all legal entities within ING
with market risk exposure in the trading portfolio.
Incremental Risk Charge
(*)
The IRC for ING is an estimate of the default and migration risks for unsecuritised credit products in
the trading book, over a one-year capital horizon, with a 99.9% confidence level. The same IRC
model is used for all legal entities within ING with market risk exposure in the trading portfolio.
Unsecuritised trading positions of ING, which are subject to specific
interest rate risk included in the
internal model approach for market risk regulatory capital, are
in scope of the IRC model. By model
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choice, equity is excluded from the model. For the calculation of IRC, ING performs a Monte-Carlo
simulation based on a Gaussian copula model. The asset correlations used in the Gaussian copula
model are determined using the IRB correlation formula. The rating
change is simulated for all
issuers over the different liquidity horizons (i.e. time required
to liquidate the position or hedge all
significant risks) within
one year.
Movements across different rating
categories and probabilities of
default are governed by a credit
-rating transition matrix. An external transition matrix is obtained
from Standard & Poor’s (S&P). The financial impact is then determined for the simulated migration
to default, or for the simulated migration to a different rating
category, based on LGD or credit
spread changes, respectively.
The liquidity horizon has been set to the regulatory minimum of three months for all positions in
scope. ING reviews
the liquidity horizons regularly based on a structured assessment of the time it
takes to liquidate the positions in the trading portfolio.
ING periodically assesses the compliance of the IRC model with regulatory requirements by
performing gap analyses, substantiating the modelling choices, and quantifying the impact
of
alternative approaches.
Stress Testing
and Event Risk (*)
Stress Testing
and Event Risk are valuable
risk management tools. In addition to the bank-wide
stress test framework as described in the stress
testing section, FI-FM Risk performs structured
stressed scenario tests under the Event Risk framework
to monitor market risks under extreme
market conditions. Event Risk is calculated because HVaR
in general does not produce an estimate
of the potential losses that can occur as a result of extreme market movements, i.e.
beyond the
confidence level. Event Risk evaluates the bank’s financial stability under severe but plausible stress
scenarios and assists in decision-making aimed at maintaining a financially
healthy going-concern
institution after a severe event occurs. Event
Risk is based on historical as well as hypothetical
extreme scenarios. The result is an estimate of the profit and loss caused by a potential event and
its world-wide impact for ING. The Event Risk number for ING trading activity is generated on a
weekly basis. Like for HVaR, risk appetite for
Event Risk is limited by ALCO Bank.
ING’s Event Risk policy is based on a large set of possible stress scenarios per risk type. In stress
scenarios, shocks are applied to prices (credit spreads,
interest rates, equity, commodities, and fx
rates) and volatilities. Depending on the type of the stress test, additional scenario assumptions
can be made, for example on correlations, dividends, or recovery
rates. For example,
for equity
products both a crisis scenario (prices decrease) as well as a bull scenario (prices increase)
are
assumed. Scenarios are calculated based on events happening independently, jointly by region, or
in all countries simultaneously. This way, for each risk type, a large set of scenarios is calculated.
The worst scenarios per market are combined across markets by assessing both independent
events per market, and the worst events happening in all markets at the same time.
Risk measurement - Other trading
controls
HVaR and Event
Risk limits are the most important limits to control the trading portfolios.
Additionally, limits have been set on SVaR
and IRC. Furthermore, ING uses a variety of other
controls to supplement these limits. Position and sensitivity limits are used to prevent
large
concentrations in specific issuers, sectors,
or countries. Moreover, other risk limits are
set with
respect to the activities in complex derivatives trading. The market risk of these products is
controlled by product specific limits and constraints.
Risk profile
The following chart shows the development of the overnight HVaR
under a 99% confidence level
and a one-day horizon versus actual and hypothetical daily trading profits and losses.
In calculation
of the hypothetical daily profit and loss, the trading position is kept constant and only the market
movement is taken into account. The overnight HVaR
is presented for the ING trading portfolio from
2014 to 2019.
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1
CVA risk is not included in VaR.
.
The risk figures in the backtesting graph above and in the table below relate to all trading books for
which the internal model approach is applied, i.e. all trading books, including Credit Exposure
Management books.
1d VaR for
Internal Model Approach trading portfolios
Minimum
Maximum
Average
Year end
amounts in millions of
euros
2019
2018
2019
2018
2019
2018
2019
2018
Interest rate
1
3
3
13
7
6
5
12
4
Equity and commodity
1
1
7
10
2
3
1
7
Foreign exchange
1
1
11
10
2
4
1
9
Credit spread
4
3
7
6
6
4
5
6
Diversification
-6
–8
-6
–13
Total
VaR
6
5
15
16
10
9
13
13
1 For calculation of HVaR per risk class the full valuation is performed according
to HVaR methodology using a set of scenario
changes for the risk factors for the particular risk class, while
risk factors for all other risk classes are kept unchanged.
2 The total HVaR for the columns Minimum and Maximum cannot be calculated by taking the sum of the individual
components since the minimum/maximum observations for both the individual markets as well as for total HVaR may occur
on different dates. Therefore, diversification is not calculated for the minimum and maximum categories.
3
CVA risk is not included in VaR.
Average
1D/10D HVaR,
10D SVaR
and IRC over 2019 are
in line with the average
over
2018. The average
for foreign
exchange decreased
compared to 2018
while credit
spread increased
compared to 2018,
both driven by portfolio changes. The VaR
at the
period end of 2019 and 2018 was EUR
13 million, however
the asset class
decomposition changed significantly. The risk moved from
foreign exchange
and
equity and commodity towards
interest rate
asset class
EU MR4: Consolidated trading HVaR
1
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EU MR3: Internal Model Approach values for trading portfolios
amounts in millions of euros
2019
2018
VaR (10 day 99%)
1 Maximum value
42
46
2 Average
value
27
25
3 Minimum value
16
15
4 Period end
33
40
Stressed VaR (10 day 99%)
5 Maximum value
126
139
6 Average
value
72
73
7 Minimum value
47
41
8 Period end
76
124
Incremental Risk Charge (99.9%)
9 Maximum value
169
107
10 Average
value
76
62
11 Minimum value
42
40
12 Period end
64
58
Comprehensive Risk capital charge
(99.9%)
13 Maximum value
n/a
n/a
14 Average
value
n/a
n/a
15 Minimum value
n/a
n/a
16 Period end
n/a
n/a
Regulatory Capital
According to the Capital Requirements
Regulation (CRR/CRD IV), regulatory capital (own funds
requirements) for market risk can be calculated using the standardised approach
or an internal
model approach. ING received regulatory
approval to use an internal model to determine the
regulatory capital for the market risk in all trading books of ING. Market risk capital of trading books
is calculated according to the CRR, using internal HVaR,
SVaR,
and IRC models, where diversification
is taken into account. Capital for foreign exchange
risk from the banking books and for Collective
Investment Undertakings (CIUs) exposures in trading books are calculated
using Standardised
Approach with fixed risk weights. ING does not have a correlation trading portfolio or any other
securitisations in the trading book.
Standardised Approach
EU MR1: Market risk under Standardised Approach
2019
2018
amounts in EUR millions
RWA
Capital
requirement
s
RWA
Capital
requirement
s
Outright products
1 Interest rate risk (general
and specific)
14
1
2 Equity risk (general and specific)
3 Foreign exchange risk
1,131
90
4 Commodity risk
Options
5 Simplified approach
6 Delta-plus method
7 Scenario approach
8 Securitization (specific risk)
9
14
1
1,131
90
The MRWA under Standardised
Approach decreased significantly compared to 4Q2018. At the
beginning of 2019 an important FX position in the banking book was closed causing the FX
exposure to decrease below the 2% own funds threshold. According
to Art. 351 CRR, in such a case,
the calculation of Market Risk regulatory capital is not required. As of 3Q2019, CIU exposures
in
trading books are capitalised in Market risk under Standardised Approach under
interest rate
specific risk and
foreign exchange risk categories.
Internal Model Approach
Market risk Regulatory Capital increased during the 2019 compared to 2018. The increase
is driven
by an increase in IRC, while VaR
and SVaR
slightly decreased. IRC capital increased as a result
of
changes in the portfolio in combination with credit spread movements.
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EU MR2-A: Market risk under Internal Model Approach
2019
2018
amounts in EUR millions
RWA
Capital
requirement
s
RWA
Capital
requirement
s
1
1,261
101
1,394
112
(a) Previous day's VaR
(Article 365(1) (VaRt-1))
404
32
529
42
(b) Average
of the daily VaR (Article 365(1)) on each of the
preceding sixty business days
(VaRavg)
x multiplication factor ((mc) in accordance with
Article 366)
1,261
101
1,394
112
2
3,011
241
3,217
257
(a) Latest SVaR
(Article 365(2) (sVaRt-1))
902
72
1,486
119
(b) Average
of the SVaR (Article 365(2) during the preceding
sixty business days (sVaRavg)
x
multiplication factor (ms) (Article 366)
3,011
241
3,217
257
3
1,278
102
767
61
(a) Most recent IRC value (incremental
default and migration
risks section 3 calculated in
accordance with Section 3 articles 370/371)
799
64
727
58
(b) Average
of the IRC number over the preceding 12 weeks
1,278
102
767
61
4
Comprehensive Risk Measure
–
CRM
and c)
(a) Most recent risk number for the correlation
trading
portfolio (article 377)
(b) Average
of the risk number for the correlation trading
portfolio over the preceding 12-weeks
(c) 8 % of the own funds requirement in SA
on most recent risk
number for the correlation
trading portfolio (Article 338(4))
5
5,550
444
5,378
430
Sensitivities (*)
As part of the risk monitoring framework, FI-FM Risk actively monitors the daily changes of
sensitivities of the trading portfolios. Sensitivities measure the impact of movements in individual
market risk factors (foreign exchange rates, interest
rates, credit spreads,
equity, and commodity
prices) on profit and loss results of the trading positions and portfolios.
The following tables show the five largest trading positions in terms of sensitivities to foreign
exchange, interest rate
and credit spread risk factor movements. These largest exposures
also
reflect concentrations of risk in FX risk per currency, IR risk per currency, and Credit Spread risk per
country and rating and sector.
Due to the nature of the trading portfolios, positions in the portfolios
can change significantly from day to day, and sensitivities of the portfolios
can change daily
accordingly.
Most important foreign exchange year-end trading positions
(*)
amounts in EUR millions
2019
2018
Foreign exchange
Foreign exchange
US Dollar
116
US Dollar
–957
Chinese Yuan Renminbi
-21
Chinese Yuan Renminbi
–18
South Korean Won
20
Swiss Franc
–14
Brazilian Real
-15
Polish Zloty
14
Japanese Yen
-10
South Korean Won
14
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Most important interest rate and credit spread sensitivities at year-end (*)
amounts in EUR thousands
2019
2018
Interest Rate (BPV)
Interest Rate (BPV)
Euro
-740
Euro
–214
US Dollar
-325
US Dollar
189
Russian Ruble
-105
Great-Britain Pound
–112
Great-Britain Pound
-68
Taiwan
New Dollar
96
Australian Dollar
-31
Polish Zloty
54
Credit Spread (CSO1)
Credit Spread (CSO1)
United States
360
Germany
345
Germany
163
United States
330
France
117
Russian Federation
177
Russian Federation
73
Netherlands
164
United Kingdom
72
France
151
1
Basis Point Value (BPV) measures the impact on value of a 1 basis point increase in interest rates. The figures include
commodity risk in banking books.
2
Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase in credit spreads. Exposures to
supranational institutions are not assigned
to a specific country.
Credit spread sensitivities per risk class and sector at year-end
(*)
2019
2018
amounts in EUR thousands
Corporate
Financial
Institutions
Corporate
Financial
Institutions
Credit Spread (CSO1)
Risk classes
1 (AAA)
1
-1
–6
90
2–4 (AA)
-15
-63
3
–24
5–7 (A)
143
32
117
78
8–10 (BBB)
273
1
245
–2
11–13 (BB)
148
9
85
6
14–16 (B)
51
1
37
13
17–22 (CCC and NPL)
26
0
18
Not rated
0
0
1
Total
626
-21
500
161
1
1 Credit Spread Sensitivity (CS01) measures the impact on
value of a 1 basis point increase in credit spreads.
Funding
and liquidity
risk
(*)
Introduction (*)
Funding and liquidity (F&L) risk is the risk that ING Group or one of its subsidiaries cannot meet its
financial liabilities
when they are due at reasonable cost and in a timely manner.
ING incorporates
funding and liquidity management in its business strategy and applies a funding and liquidity risk
framework in order to manage such risks within pre
-defined boundaries.
A high-level overview of the F&L framework
is provided in the next figure.
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(*)
Governance (*)
Funding & liquidity risk management within ING falls under the supervision of the ALCO Bank
function which approves the funding and liquidity risk appetite that is subsequently cascaded
throughout the organisation. In addition, ALCO Bank has delegated responsibilities concerning the
ICLAAP processes and documents as per the ICLAAP Framework
of ING Group towards
the Internal
Capital & Liquidity Adequacy Assessment Process (ICLAAP) Committee. Therefore,
it focuses on
technical liquidity documents and oversees business processes and deliverables concerning ILAAP.
The EB and MBB, staff departments from the CRO and CFO domain as well as Group Treasury
have
oversight of and are responsible for
managing funding and liquidity risk.
ING’s liquidity risk framework is based on the three lines of defence concept whereby
risk principles
are implemented, monitored and controlled in conjunction with both first and second line of
defence functions.
Group Treasury
and business lines are the first line of defence functions.
Group Treasury’s
main
responsibility is to manage ING’s (regulatory) liquidity and funding position by executing ING’s
funding plan, maintaining access to both the short and the long term professional funding markets
and managing the liquidity buffer. Business lines are responsible
for managing the funding and
liquidity positions from the originated business. A large part of this is replicated with Group
Treasury.
The second line of defence Financial Risk function is responsible for developing and maintaining
ING’s policies, standards and guidelines on F&L risk management as well as for setting the F&L risk
appetite. Furthermore, the Financial Risk function measures funding & liquidity risks, executes
stress testing, provides management
information and controls the liquidity and funding
requirements on commercial
products. The Finance function is responsible for management and
regulatory reporting related to funding and liquidity risk management.
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Funding and liquidity management strateg
y
and objectives (*)
The main objective of ING’s funding and liquidity risk management is to maintain
sufficient
liquidity
to fund the commercial activities of ING both in normal and stressed market circumstances across
various geographies, currencies and tenors. This requires
a diversified funding structure considering
relevant opportunities and constraints.
ING’s funding consists mainly of retail and corporate deposits contributing 51% and 21% of the
total funding respectively. These funding sources provide a relatively
stable funding base. The
remainder of the required
funding is attracted primarily through a combination of long-term and
short-term professional funding. Group Treasury
manages the professional funding in line with the
F&L risk appetite to ensure a sufficiently
diversified and stable funding base.
ING Bank Funding Mix
1
(*)
2019
2018
Funding type
Customer deposits (retail)
51%
50%
Customer deposits (corporate)
21%
21%
Interbank
5%
5%
Lending/repurchase
agreement
5%
7%
CD/CP
5%
6%
Long-term debt
11%
11%
Subordinated debt
2%
2%
Total
100%
100%
1
Liabilities excluding trading securities and IFRS equity
The Loan-to-deposit ratio remained
stable at the level of 1.06.
ING’s long-term professional funding is well diversified across maturities and currencies. The main
part of it is EUR and USD denominated which is in line with the currency composition of customer
lending:
ING Group long-term debt maturity profile by currency
1
(*)
2020
2021
2022
2023
2024
2025
Beyond
2025
Total
Currency
EUR
9
9
8
5
1
4
26
62
USD
3
2
4
4
1
-
8
22
Other
1
2
1
1
1
-
2
10
Total
13
14
13
10
3
4
37
94
1 Nominal amounts in EUR billion.
Funding and liquidity adequacy and
risk appetite (*)
ING distinguishes several key drivers of future
liquidity and funding needs:
◾
Refinancing needs resulting from maturing debt and asset growth;
◾
Current and future regulatory
requirements;;
◾
Risk appetite statements set by ING’s funding and liquidity risk function;;
◾
The outcomes of various stress tests;
◾
Ability to distribute and transfer liquidity.
Taking
into consideration the abovementioned factors, ING Group assesses its current and future
liquidity adequacy and, if deemed necessary, takes steps to further improve ING’s liquidity position
and to ensure sufficient counterbalancing
capacity. That is achieved through the quarterly update
of the Liquidity adequacy statement and the execution of the ILAAP process.
ING’s Funding and Liquidity framework aims to ensure
sufficient
liquidity under normal, adverse
and stressed market circumstances. ING assesses its F&L adequacy through three lenses: (i) Stress,
(ii) Sustainability and (iii) Regulatory.
(i) Through the Stress lens ING evaluates its ability to withstand a period of prolonged F&L stress
(idiosyncratic, market-wide or a combination of the two) which is characterised by customer
deposit outflows and/or deterioration of funding markets access;
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ii) Through the Sustainability lens ING assesses the extent to which its customers, professional
counterparties and investors are comfortable extending funding in tenors, currencies and
instruments necessary to sustainably fund ING under a going-concern situation;
(iii) Through the Regulatory lens ING ascertains that it is in a position to meet both current and
future regulatory
requirements.
For each lens, ING has established a related set of risk appetite statements which define ING’s risk
appetite commensurate with the principles of liquidity adequacy. These risk appetite statements
are summarised in the next graph.
(*)
The F&L risk appetite statements are translated into a number of metrics with appropriate
boundaries and instruments which are used to measure and manage ING’s funding and liquidity
risk.
The risk appetite with respect to the stress lens is set to ensure there is sufficient counterbalancing
capacity under various internally defined stress scenarios. Regarding the sustainability perspective,
an internally defined
Stable funding to loans (SFL) ratio (supplemented by other metrics) is used to
ensure a diversified funding base and to prevent overreliance
on professional funding. Finally, the
Liquidity Coverage Ratio
(LCR) and the Net Stable Funding Ratio (NSFR) regulatory
metrics are
monitored in terms of both ING’s risk appetite and regulatory requirements.
The LCR compares the volume
of available high quality liquid assets (HQLA) to net outflows
(outflows-
inflows) over a 30-day stress scenario defined
by the regulator.
ING’s liquidity buffer is
part of the counterbalancing capacity which serves as a liquidity cushion under normal and
stressed conditions.
The liquidity buffer consists mainly of Level 1 assets which are represented
by government and
central bank assets and are of the highest liquidity quality. Only assets that are freely available
(not pledged under existing contracts) for liquidity purposes are included in the buffer. The size and
composition of the Liquidity buffer are driven by ING’s risk appetite as well as by regulatory
requirements.
The macroeconomic and market environment are also important considerations in ING’s funding
and liquidity framework.
The macroeconomic environment comprises various exogenous factors over which ING has no
control but which may have a material impact on ING’s F&L position. The main macroeconomic
factors analysed on a regular basis include:
◾
Global and local economic performance: e.g. shifts in GDP, inflation rate, unemployment rates
and public deficit/surplus;
◾
Changing geopolitical trends;
◾
Monetary policy with special focus on the impact of the eventual reversal of unconventional
monetary measures employed by central banks in recent years; and
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◾
Regulatory requirements:
e.g. understanding the changing regulatory landscape as well as the
impact of ING’s actions on existing regulatory boundaries.
The strategic ambitions of ING, together with the design and execution of the funding plan, are
assessed under both current and projected market conditions. Key emphasis is placed on
understanding overall market trends and developments, credit
rating changes and peer
comparison.
Liquidity Stress Testing
(*)
Funding and liquidity stress testing forms part of the overall
F&L framework. It allows ING to
examine the effects of exceptional but plausible future events on ING’s liquidity position and
provides insight into which entities, business lines or portfolios are vulnerable to which types of risk
and under which scenarios.
The stress testing framework encompasses the funding and liquidity risks of the consolidated
balance sheet of ING Group including all entities, business lines as well as on and off-balance sheet
positions. The Net liquidity position and Time-to-survive are the two main stress testing output
metrics. Both metrics are impacted differently under specific
F&L stress scenarios with related
parameterisation.
The stress testing framework considers idiosyncratic,
market-wide and combined (idiosyncratic and
market-wide) stress scenarios. Moreover, it differentiates between
stress events that develop in a
gradual and in a fast manner.
The generic design of the framework, which is based on empirical
evidence supplemented by expert judgment, can easily be applied to a specific
scenario. For
example, it can be used as input for firm-wide stress testing and reverse stress testing.
The outcomes of the stress testing are taken into account in all the key aspects of ING’s F&L risk
framework and F&L risk management:
◾
risk appetite framework (through risk appetite statements);
◾
risk identification and
assessment;
◾
monitoring of the liquidity position;
◾
contingency funding plan; and
◾
early warning indicators.
The Funding and liquidity stress testing framework
is also subject to regular internal validation.
In line with ECB regulation, ING’s liquidity position is stress tested on a monthly basis using
particular scenarios that form part of the F&L risk appetite statement. In addition, the results of all
internal stress scenarios are monitored and assessed on a regular
basis. They also serve as input in
the decision on additional contingency measures.
Contingent F&L risks are addressed in the contingency funding plan whose focus is on early
warning indicators as well as organisation and planning of liquidity management in times of stress.
The contingency funding measures are developed in conjunction with the ING recovery
plan and
are tested on a regular basis.
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Non-f
inancial
risk
Introduction
Non-financial risk
is defined as
the risk of financial
loss, legal or regulatory sanctions, or
reputational damage due to inadequate or failing internal processes, people and systems; a failure
to comply with laws, regulations and standards; or external events. The Non-Financial
Risk (NFR)
function encompasses Operational Risk Management (ORM), Information Risk Management (IRM),
the Independent Validation Unit (IVU) and Corporate
Security & Investigations (CSI).
Governance
The head of Corporate ORM, Corporate
IRM, IVU, CSI, Professional Practice Unit and Strategy, Central
Services & Digitalisation Unit report to the global head of NFR, who directly reports to the bank
CRO.. The global head of Non-Financial Risk is responsible for developing the framework
of non-
financial risk policies
and standards within ING, and for monitoring the quality of non-financial risk
management in the ING entities.
Non-Financial risk measurement
In line with the Advanced Measurement Approach (AMA),
the bank has in place a model to define
the required level
of own funds for operational risk (operational risk capital). This model predicts
potential operational risk losses (annually aggregated) by combining a forward-looking and a
backward-looking view on operational risk events. The business has a leading role
in assessing
scenario severities, with the ORM function validating and challenging the results.
ING uses its AMA model for regulatory capital calculation purposes and reports the regulatory
capital numbers on a quarterly basis. The bank is currently not using any insurance or risk transfer
mechanisms for the mitigation of risk in the context of the AMA capital calculation.
Risk categories
ING categorises NFR risks in a number of areas:
◾
Information (Technology)
damage due to breaches of confidentiality, integrity or availability within
business processes or
information or lack of information quality;
◾
Continuity risk is the risk of financial loss,
regulatory sanctions or reputational damage due to
business disruptions (loss of people, processes, systems, data, premises);
◾
Control and processing risk
damage due to ineffective organisational structures and governance procedures (including
unclear roles and responsibilities and inadequate reporting structure), failed (transaction)
processing (input, execution, output) or failing process management; monitoring and
enforcement of risk mitigating measures; and risk culture;
◾
Internal fraud risk
deliberate abuse of procedures,
systems, assets, products and/or services of ING by employees
(incl. temporary workers, third party contractors, internships and consultants) who intend to
deceitfully or unlawfully benefit themselves or others;
◾
External fraud risk
deliberate abuse of procedures,
systems, assets, products and/or services of ING by external
parties (clients, potential clients or other third parties, including vendors and outside agencies)
who intend to deceitfully or unlawfully benefit themselves or others;
◾
Unauthorised activity risk
due to employees performing outside the normal course of their business, intentionally giving
unauthorised approvals or overstepping their authority;
◾
Personal and physical security risk
damage due to criminal and environmental threats that might endanger the security or safety of
ING personnel at work, people in ING locations, ING assets or assets entrusted to ING, people at
ING event locations, or might have an impact on ING organisation's confidentiality, integrity or
availability; and
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◾
Employment practice risk
due to acts that are inconsistent with employment, health and/or safety laws, regulations or
agreements, from payment of personal injury claims, or from diversity/discrimination
events.
Data Governance
and Data Quality
ING recognises that information and underlying data are assets that are key (together with people,
processes and IT systems) to further develop its digital profile. Cooperation and mutual agreement
on global data management roles and responsibilities in ING are critical success factors to meet
this objective. As such ING has embraced multiple data management and governance initiatives
triggered by internal and external stakeholders (e.g. Principles for Effective Risk Data Aggregation
and Risk Reporting). These principles are embedded in risk data management and enshrined within
the Data Governance framework. The framework
outlines roles and responsibilities relevant
for the
risk lifecycle and data quality assurance.
Main developments in 2019
Cybercrime and
Fraud
◾
Controls and monitoring continue to be embedded in the organisation as part of the overall
internal control framework
and are continuously re-assessed against existing and new threats.
The identification and
monitoring of new threat actors and campaigns relevant to ING also
informs this process as does the closer alignment between IT security and fraud teams. In
addition, ING continues to strengthen its global cybercrime and fraud resilience through
extensive collaboration with financial industry peers, law enforcement authorities, government
(e.g. National Cyber Security Centre)
and internet service providers (ISPs).
◾
Concerns over the potential impact of insider threats continues to increase with specific
information relating to external instances or trends in the financial industry remaining limited,
albeit collaboration
within the financial
sector is improving.
The increasing use of third party vendors for services and the implementation of PSD2 are likely
to present ongoing fraud management and IT security challenges; both in the short-
and
medium-term as criminal actors target financial
and broader PII data outside the traditional
banking environment.
◾
Dealing with current and emerging fraud threats
effectively requires continuous improvement of
fraud management capabilities such as real-time transaction and response capabilities and
better alignment and standardisation of cross border fraud
management across ING and related
platforms as well as exchanging data cross border.
With legislation such as EBA PSDII and the
continuing emphasis on duty of care, financial institutions are becoming more and more
responsible for losses incurred by clients, and taking on more of the burden
of reclaiming those
losses.
Enterprise Risk Management
In 2019, a professional practice unit (PPU) has been set up to establish an Enterprise Risk
Management (“ERM”) Framework
gatekeeper for policy design. ERM is designed to be an
overarching
risk management framework (RMF) pulling together common design principles and
roles & responsibilities for all risk types (Financial, Non-financial, and Strategic). The purpose and
benefits of the ERM
Framework
facilitates clear and easy communication and improving the visible
and transparent link to ING’s Strategy, business activities and processes. The ERM Framework
is
being implemented to ensure standardisation of all risk frameworks and, once finalised, it will apply
to all businesses lines and entities on global and local level.
User Access Management (UAM)
UAM is one of the focus areas of ING and an important element in our control framework to
mitigate the risk of unauthorized and / or inappropriate access to systems, processes and the data
and information contained therein. Consequently, the UAM processes, controls
and practices are
periodically reviewed, tested, adapted and improved
by a dedicated UAM team to address ongoing
developments in and outside ING. In 2019, ING continued to mature, with attention to
standardization, harmonisation of processes via standardized workflows and further automation of
UAM controls, which will continue in 2020.
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GDPR
As per 25 May 2018, the European General Data Protection Regulation
(GDPR) became effective.
GDPR affords greater protection to individuals and requires
more control on data and transparency
regarding the use of data by companies. In 2019, ING continued its central programme,
initiated in
2016, in a continuing effort to mature our data protection standards in line with GDPR standards.
Outsourcing Risk
In 2019, a renewed Sourcing Policy
became effective, outlining the inherent critical and high risks
that can materialise during the sourcing life-cycle. In addition, a Sourcing Guideline was issued to
support updated requirements, issued by EBA in 1Q 2019. Support Control Framework
(SCF)
Sourcing defines the controls that have to be implemented and tested to effectively mitigate the
risks. The scope of sourcing encompasses outsourcing to external providers as well as intra
-group
sourcing.
BCBS239
In January 2013 the Basel Committee on Banking Supervision published the principles for effective
risk data aggregation and risk reporting (BCBS 239), which is adopted by the ECB and became
effective for all G-Sib’s as of
January 2016.
ING initiated a central program
which is continued in
2019 to improve the risk data aggregation and reporting capa
bilities.
Compliance
risk
Introduction
Compliance risk is defined as the risk of impairment of ING’s
integrity, leading to damage to ING’s
reputation, legal or regulatory sanctions, or financial loss, due to a failure (or perceived failure) to
comply with applicable laws, regulations and standards and the ING Orange Code
.
Governance
The Compliance Risk Management function is organised via countries and business lines. The heads
of Financial Crime Compliance, Regulatory & Conduct Compliance, Strategy
& Transformation
Office
at the head office,
as well as the heads of compliance in the Netherlands and Belux and the
business lines Challenge & Growth and Wholesale Banking report to the chief compliance officer
(CCO), who is the global head of Compliance Risk Management. This is an independent function that
is amongst others responsible for developing and establishing bank-wide policies and minimum
standards for managing compliance risks. The CCO assists the Supervisory Board, Executive
Board
and Management Board Banking in managing ING’s compliance risks and control framework. The
CCO is a permanent participant of the Risk Committee of the Supervisory Board. The CCO regularly
meets the chairman of the Risk Committee of the SB.
Risk categories
ING categorises compliance risk into four conduct-related integrity risk areas:
◾
Client/third party conduct refers to the compliance risks arising from the relationship with or
generated by the conduct of our customers and/or business partners, like money laundering
or
terrorist financing. Those risks are generally defined
within ING as financial
economic crimes.
Furthermore, client conduct refers to the compliance risks relating
to FATCA,
CRS, CTI and US
withholding tax and information reporting regulations;
◾
Personal conduct refers to the compliance risks arising from the conduct of ING employees. The
scope includes amongst others personal conduct related conflicts
of interest, bribery and
corruption, protection of personal data;
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◾
Financial services conduct refers to the compliance risks arising from or generated by the
conduct of ING when developing product offerings, marketing and/or selling products and
services to its clients as well as customer interest and protection;
and
Organisational conduct refers to the compliance risks arising from the way the bank is
organising itself to develop its activities. This category covers among others the licences
required to perform its regulated
banking activities, the operating effectiveness of its
information barriers, organisation conduct conflicts
of interest, anti-competitive conduct,
record retention
.
Controls aiming to mitigate the compliance risks associated with the above-mentioned risk areas
are designed and applied to the day-to-day processes in the bank. The effectiveness of the controls
is tested and monitored periodically, and senior management is responsible for ensuring that
processes are compliant with applicable laws and regulations, ING’s internal policies, and the
Orange Code.
In cases where an employee of ING suspects an actual or potential irregularity or misconduct
within ING that leads or could lead to a violation of the Orange Code, any ING policy and/or any
applicable law, regulation or code, this can be reported anonymously in line with the Whistle-
blower Policy, via internal or external channels as well as through normal reporting channels.
Strengthening the global compliance
function
ING has introduced measures to strengthen the Compliance
Risk Management function. These
measures are being implemented as part of a multi-year, global compliance strategy and
transformation programme
The programme encompasses the whole compliance function and
aims at enhancing global steering and oversight by the compliance function.
Know your customer (KYC)
ING is committed to the preservation of its reputation and integrity through compliance with
applicable laws, regulations and ethical standards in each of the markets in which it operates. All
employees are expected to adhere to these laws, regulations and ethical standards, and
management is responsible for ensuring such compliance. Compliance is therefore
an essential
ingredient of good corporate governance.
As gatekeepers of the financial
system we have
obligations to safeguard trust in that system and prevent misuse.
For example a recent
study
found almost €13 billion worth of criminal money is laundered in the Netherlands each year –
around 1.6 percent of the GDP.
However, money laundering is not contained within a single
country or jurisdiction, it is a global challenge that impacts
the entire financial system. ING, like all
other participants in the financial
services industry, has an important role to play in helping to
combat financial economic crime. We contribute knowledge and capacity to various public-private
partnerships fighting
financial crime. We believe we can be even more effective in safeguarding the
financial system
if we join forces and work with other banks and with national and European
authorities and law enforcement to identify and manage the financial
economic crime risks better,
taking all relevant laws and regulations into account.
Improving the way we manage compliance
risk, especially when it comes to preventing criminals from misusing the financial system, is a key
priority for ING.
KYC policy framework
The know your customer (KYC) policy and related control standards
(‘KYC policy framework’) sets
the minimum requirements and control objectives for all ING entities to guard against involvement
in financial crime activity.
The KYC policy framework reflects relevant national and international
laws, regulations and industry standards related to financial economic crime (money laundering,
terrorist financing), export trade controls, proliferation financing, sanctions (economic, financial
and
trade), countries designated by ING as ultra high risk countries (UHRC), CTI, FATCA,
CRS, and (parts
of)
ESR. The KYC policy framework is mandatory and applies to all ING entities, majority-owned ING
business, businesses under management control, staff departments, product lines and
to all
customer engagements and transactions. The KYC Policy Framework
reflects relevant national and
international laws, regulations and industry standards related to business partners and overarching
requirements with regards
to record retention,
training and awareness. The management of ING
entities also includes local procedures aimed at enabling them to comply with local laws and
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regulations and the KYC Policy
Framework.
Where local laws and regulations are
more stringent,
these more stringent local laws and regulations are
applied.
As a result of frequent evaluation
of the businesses from economic, strategic and risk perspective
ING continues to believe that for business reasons doing business involving certain specified
countries should be discontinued. In that respect, ING has a policy not to enter into new
relationships with clients from these countries and processes remain
in place to discontinue
existing relationships involving these countries. At present these countries are
Cuba, Iran, North
Korea, Sudan and Syria.
In addition to addressing financial economic crime-related requirements, the KYC policy framework
also reflects KYC-related requirements of the FATCA/CRS
policy, as well
as certain elements of the
Environmental Social Risk policy.
KYC enhancement programme
In 2017, ING began implementation of its KYC enhancement programme across all customer
segments and in all ING business units. The KYC enhancement programme consists of, among
other things:
◾
Enhancing selected customer due diligence files
to improve customer documentation, customer
data and identity verification;
◾
Working on structural solutions to become sustainably better in the execution of our KYC policies,
tooling, monitoring, governance and knowledge and behaviour; and
◾
Assessing selected past transactions and follows the applicable reporting process should any
unusual transactions be identified.
In September 2018, ING announced that it had reached a settlement agreement with the Dutch
Public Prosecutor related to an investigation that found serious shortcomings in the execution of
customer due diligence and transaction monitoring requirements related to fighting financial
economic crime, and announced steps to further enhance its management of compliance risks and
embed stronger awareness across
the whole organisation as part of the KYC enhancement
programme.
In 2019, we continued the implementation of the KYC enhancement programme, and had more
than 4,000 FTEs working on KYC-related activities globally. In March 2019, ING in Italy took steps to
improve its KYC
processes and compliance risks in line with the global KYC enhancement
programme after the Italian central bank identified shortcomings in anti-money laundering
processes. This was based on an inspection conducted from October 2018 to January 2019. In
consultation with the Banca d’Italia, ING agreed to refrain
from taking on new customers in Italy
while further discussions on the enhancement plans took place. ING continued to fully serve
existing clients in Italy while working to address the shortcomings and resolve the issues identified.
Please refer to Note 46 ‘Legal proceedings’
to the consolidated financial
statements for more
information.
In 2019, as part of our commitment to enhance the way we manage compliance risks and embed
stronger awareness across
the whole organisation, we also took the following steps across our five
KYC pillars:
◾
Policies and risk
: This pillar focuses on the development and roll out of a global KYC policy, a
global KYC risk appetite statements and KYC risk assessments on customers, capability structure
and maturity assessments.
o
In 2019, we updated the new KYC policy, which integrated all existing policies related to anti-
money laundering, financial
economic crime and customer due diligence. It came into effect
in July. (See section ‘KYC policy framework’ above).
o
The global KYC policy may be stricter than local requirements, in which case the global risk
appetite statement is used as the starting point to execute a uniform risk assessment and to
determine the local KYC-related risk appetite.
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o
As part of our due diligence process we updated the environmental and social risk (ESR)
framework, which helps us make transparent choices about who and what we finance. All
customers undergo an initial ESR check as part of the onboarding process. (See
‘Environmental and social risk framework’ in the credit
risk chapter for more information)
o
We implemented a systematic integrated risk approach
(SIRA) in all business lines globally.
Driven by data, the SIRA provides guidance on KYC integrity risks and helps determine which
customers to accept/continue and the type and frequency of monitoring. It takes into
account elements such as where the customer is located and the type of product and sector
they are active in. The KYC integrity risks are reviewed
each year.
.
◾
Tooling
: This pillar aims to improve processes
and tooling around customer due diligence,
screening and monitoring. This entails rolling out a bank-wide KYC digital service and fulfilling
client acceptance and maintenance life cycle on one global digital platform. In addition, all
required screening
components (name screening, pre-transaction screening, adverse media
screening) are incorporated
into the client acceptance due diligence process. Once a customer is
onboarded, ongoing screening and monitoring of transactions can then be activated. Steps taken
in 2019 included:
o
Developed new customer due diligence case management modules for Private Banking
clients in Luxembourg, and mid-corporates
in Poland, which is to be rolled out in other
countries with similar client segments.
o
The target adverse media screening tool was rolled
out in most locations
o
Innovating to automate and improve KYC
processes. In 2019, we developed a ‘smurfing’ tool,
which uses artificial
intelligence to detect instances of smurfing
when large fraudulent
transactions are broken up into smaller transactions that will not be flagged by conventional
monitoring systems. And we are developing a virtual alerts handler that uses artificial
intelligence to reduce the number of false positives, freeing up KYC
staff to concentrate on
those alerts that do require attention.
o
In September 2019, an anomaly detection tool went live to monitor the payment flow
of
ING’s correspondent banking clients. Developed by ING, the tool uses advanced analytics to
detect changes in behaviour that could indicate money laundering or other financial
economic crime. The approach for innovations is per country and business line and based on
success will be scaled up and rolled out in other locations.
◾
Monitoring and screening
: This pillar entails translating risk assessment outcomes into
scenarios
and alert definitions
that can be applied in transaction monitoring. This includes the design and
definitions
of the applicable financial
economic crime and client activity monitoring scenarios
tailored to the entity yet based on a global set, building alert definitions
(including data feeds)
and validating and testing the approach from risks to alerts.
o
In 2019, we introduced the new standard transaction monitoring tooling in the first countries.
This includes risk-based scenarios, with follow-up for handling alerts and reporting suspicious
activity.
o
In May 2019, the first
version of the global transaction monitoring (TM) control guidance
came into effect. It outlines the adoption
of a uniform TM methodology framework to
mitigate financial
economic crime risks.
o
In September 2019, ING partnered with four other Dutch banks to explore options to jointly
monitor payment transactions. Transaction Monitoring Netherlands (TMNL) is part of a
broader cooperation with the private sector, government agencies, regulators and law
enforcement to harmonise efforts to fight
financial crime
and strengthen the resilience of the
financial system as
a whole, both on a national and European level. We
also work with the
Dutch central bank and are a member of the public-private partnership council of the Dutch
Financial Expertise Centre (FEC-RAAD PPS).
o
The increased focus on KYC and our efforts to streamline our operations led to an increased
number of accounts being closed. This includes inactive accounts and accounts of customers
who do not respond adequately to our requests for information. We
are also re-evaluating
certain client and business relationships.
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◾
Governance
: Under this pillar we are setting up a global KYC governance to ensure
decision
making on standards, operations, customer acceptance and continuous improvements.
This
started with the appointment of a global head of KYC at the end of 2018 and a global Centre of
Expertise, as well as a Delivery Tribe, who together with the business lines and the second line of
defence (Risk and Compliance functions) are responsible for implementing KYC across
the
organisation.
o
In 2019, local KYC Committees were
established in the countries/regions and business lines to
manage and steer all KYC-related activities. These committees are overseen by the global
KYC Committee, which drives improveme
nts and ensures alignment between KYC-related
projects and activities. It also monitors all KYC-related costs, helps prioritise activities and
steers decisions on KYC-related issues and developments.
o
Client Integrity Risk Committees (CIRCs) were set up in the retail
business lines and Wholesale
Banking to steer decisions around client acceptance and exits, based on compliance criteria
and risk appetite. The committee members represent both the first and second lines of
defence to ensure proper decision-making is adhered to.
◾
Knowledge and behaviour
: This pillar focuses on increasing knowledge about KYC, providing
training and carrying out behavioural risk assessments to detect high-risk behaviours intervening
where necessary.
o
Internal communication in 2019 reiterated the importance of non-financial risk and
compliance.
o
We set up a global KYC Academy to coordinate
a global learning curriculum and provide
expert training for specialist KYC staff and new joiners as well as awareness training for all
ING employees.
o
The first behavioural risk assessments in KYC were carried out in the Netherlands, the
Philippines and the US by ING’s team of behavioural experts. The outcomes were discussed
by senior management at ING’s leadership days in March,
as well as with the management
teams of the countries involved and in Wholesale Banking with the intention of changing
behaviours to enhance KYC, starting from the top.
Following on from that, workstreams
were set up with senior managers and a number of
interventions were initiated with the aim of changing high-risk behavioural patterns. Another
behavioural risk assessment was conducted at ING in Belgium in the fourth quarter of 2019.
We
will start a dialogue in 2020 to dive into the outcomes and root causes of the behavioural patterns
observed.
Regulatory developments
Compliance with applicable laws and regulations is resource
-intensive. Banks continue to be faced
with new and increasingly onerous regulatory
requirements. Generally, we
expect the scope and
extent of regulations in the jurisdictions in which we operate to continue to increase.
Regulation is becoming more extensive and complex. An example is the implementation of DAC6
which like FATCA
and CRS requires financial institutions to report detailed client-related information
to the competent authorities. Customer due diligence (CDD), (sanctions) screening and transaction
monitoring impose requirements on financial institutions to maintain appropriate policies,
procedures and controls
to detect, prevent and report to the competent authorities on e.g. money
laundering and terrorist financing.
The increasing regulatory scrutiny drives the need to continuous change in the various processes,
procedures and IT systems. In some situations the applicable laws and regulations, at local and/or
at global level, seem to be conflicting with each
other, which imposes a significant
challenge on
banks as part of the implementation of requirements. In addition, the timeline for implementation
of those new/changed requirements
is sometimes very short, which is challenging in general, yet
especially in IT development. Obviously ING will continuously work on embedding the processes
and procedures reflecting the applicable requirements in our IT systems and data sources, driving a
business environment which is compliant by desire and design, and will execute ongoing training
and awareness to develop its people to have the right knowledge and skills.
That also accounts for risks deriving from new technologies. As an innovative bank, ING
continuously monitors regulatory developments to make risk assessments and define the
banks
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risk appetite. Regulations on distributed ledger technology and business developments in this area
are as rapid and impactful as the accompanying risks.
5th AML Directive
In addition, the 5th AML Directive will be implemented in the Netherlands. The 5th AML Directive
was originally adopted by the EU Council in June 2018, with the aim of addressing means of
terrorist financing, increasing transparency to combat money laundering and helping to
strengthen the fight against tax avoidance. The most important aspects
of the 5th AML Directive
involve the (anti money-laundering) risks relating to the use of virtual currencies, the improvement
of information exchange between supervising authorities, and the introduction of beneficial
ownership registers for corporate
and other legal entities.
ING expects to revise the KYC policy framework to reflect the requirements
of the 5th AML Directive.
Prior to the adoption of the 5th AML Directive, European supervisory authorities (ESAs) had
previously issued their final guidelines on risk factors, which
came into force in June 2018. These
guidelines promote a common understanding of the risk-based approach to anti-money
laundering/combatting terrorist financing (AML/CFT) and set out how it should be applied in the
context of the 4th AML Directive. These guidelines are currently
in the process of being updated, in
order to support firms’ AML/CFT compliance efforts
and enhance the ability of the EU’s financial
sector to effectively deter and detect
money laundering/terrorist financing. The ESAs
published a
consultation version of the updated guidelines on 5 February 2020. The final updated guidelines
are
expected to come into force in the course of 2020. Furthermore, in
September 2017, the ESAs
issued their final guidelines
to prevent the abuse of funds transfers for
terrorist financing and
money laundering purposes. These guidelines came into force in June 2018.
Financial Account Tax
Compliance Act (FATCA)
Under provisions of US tax law commonly referred
to as FATCA,
non-US financial institutions
are
required to provide
certain information on their US account holders and/or certain US investors to
the US Internal Revenue Service (IRS). A 30 percent withholding tax will be imposed on
‘withholdable payments’ made to non-compliant non-US financial
institutions. As part of the
actions taken to comply with FATCA
and other US 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.
Many countries, including the Netherlands, have entered into agreements (intergovernmental
agreements or IGAs) with the US to facilitate the type of information reporting required under
FATCA.
While the existence of IGAs will not eliminate the risk of the withholding tax described
above, these agreements are expected to reduce
that risk for financial institutions
and investors in
countries that have entered into IGAs. IGAs often require financial institutions in those countries to
report information on their US account holders to the taxing authorities of those countries, who
then pass the information to the IRS.
If the Group cannot rely on IGA or satisfy the requirements,
certain payments to the Group may be
subject to withholding under FATCA.
Certain payments may also be subject to other US withholding
tax regulations. The possibility of such withholding and the need for account holders and investors
to provide certain information may adversely affect the sales of certain of the Group’s products. In
addition, compliance with the terms of such IGAs and with FATCA,
any regulations or other
guidance promulgated thereunder, or any legislation promulgated under an IGA, and offering
products that generate ‘withholdable payments’, may substantially increase the Group’s
compliance costs.
Common Reporting Standard (CRS)
Similarly, the Organisation for Economic Cooperation
and Development (‘OECD’) has developed a
Common Reporting Standard (‘CRS’) and model competent authority agreement to enable the
multilateral and automatic exchange of financial account information. CRS requires financial
institutions to identify and report the tax residency and account details of non-resident customers
to the relevant authorities in CRS-compliant jurisdictions. As of 19 September 2019, 109
jurisdictions (‘signatory countries’), including the Netherlands,
have signed a multilateral
competent authority agreement to automatically exchange information pursuant to CRS. The
majority of countries where ING has a presence have committed to CRS. The EU has made CRS
mandatory for all its member states. The first
information exchange by the Netherlands (as for
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approximately half of the signatory countries) was executed in 2017. Most other signatory
countries commenced their information exchange in 2018 and some in 2019.
The OECD has also introduced two additional new measures to tackle global tax avoidance/evasion:
◾
Mandatory Disclosure Rules for Addressing CRS Avoidance
Arrangements and Opaque Offshore
Structures
◾
Preventing Abuse of Residence by Investment
(RBI) and Citizenship by Investment (CBI) Schemes
to Circumvent the CRS.
These measures are in the process
of being implemented in local laws. With regard to the
mandatory disclosure rules for EU jurisdictions, this was done via the amendment to Directive
2011/16 (DAC6). See below.
DAC6 (EU2018/822, an amendment to EU Directive 2011/16)
DAC6 imposes mandatory disclosure requirements
for taxpayers and intermediaries involving the
reporting of cross-border arrangements affecting at least one EU member state that fall within one
of a number of ‘hallmarks’. These hallmarks are broad categories setting out particular
characteristics identified as potentially
indicative of aggressive tax avoidance.
The reporting
obligations apply to ‘intermediaries’ (financial
institutions like ING may fall under this term) or, in
some circumstances, the taxpayer itself. There
will be a mandatory automatic exchange of
information on such reportable cross-border schemes via the Common Communication Network
(CCN) between the member states which will be set-up by the EU. Although DAC6 is not effective
until 1 July 2020, taxpayers and intermediaries have been required to monitor cross-border
arrangements since 25 June 2018.
MiFID II
Integrity and transparency in financial markets are essential for public and investor confidence. The
revised Markets in Financial Instruments Directive European
legislation (MiFID II/MiFIR) came into
effect in January 2018 and had a major
impact on ING and the markets in which it operates. A
central programme
continued in 2019 to support ING’s commitment to further embed the revised
legislation throughout the organisation.
The requirements set out in MiFID II/MiFIR are manifold and impact a large part of our organisation
and day-to-day business. In order to ensure compliance with these rules, standard controls
were
rolled out throughout the ING EU entities. In addition, a framework measuring MiFID compliance risk
was implemented in order to stay abreast of any compliance issues that need addressing.
Regulatory guidance around MiFID II/MiFIR continues to evolve and key requirements
are currently
under review.
As a result, ING will ensure that the organisation has continuous access to central
guidance giving a clear steer on expected conduct and processes. A network of experts has been
set up to ensure timely implementation of any regulatory changes.
In 2019 we continued to develop our approach to learning on compliance and risk culture
(and e.g.
established the KYC Academy).
Supporting staff to deliver a sound and consistent risk culture is a
focus for our learning. We emphasise a standard and streamlined
approach that facilitates
consistent messaging and learning across the bank, as appropriate.
More focus is being given to
role of specific training in ensuring staff continue to extend knowledge, skills and
behaviours for
their particular roles and responsibilities.
Model
risk
Introduction
Model risk is the risk that the financial
or reputational position of ING is negatively impacted as a
consequence of the use of models. Model risk can arise from errors in the development,
implementation, use or interpretation of models, or from incomplete or wrong data etc., leading to
inaccurate, noncompliant or misinterpreted model outputs.
A model is defined
as a quantitative method, system, or approach that applies statistical,
economic, financial,
or mathematical theories, techniques, and assumptions to process input data
into quantitative estimates.
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A candidate model is considered a model when:
◾
the outcome is used for a decision: by the customer, community, business / colleagues, and / or
other internal or external stakeholders such as regulators or shareholders, and
◾
the model is repeatedly used without a manual change of the design, and
◾
the outcome is an estimation, not the 100 percent measured truth; and
◾
it processes the data input with a quantitative method or approach that applies statistical,
economic, financial,
or mathematical theories, techniques and / or assumptions.
Models governance
The growing complexity and number of models created and utilised every year for decision-making
makes it important to manage and control the associated model risk accordingly. Within ING this
overarching
responsibility for this risk type lies within Model Risk Management. The department, in
addition to its traditional function of model validation, is also responsible for
global model risk
oversight. It sets and maintains a model risk management framework containing: (1) the
governance, (2) the model risk appetite, (3) model risk management policies and standards and (4)
the global model inventory tool. It is also responsible for monitoring and reporting the global model
risk exposures of ING.
The Model Risk Management Committee (MoRMC) has been established to align the overall model
strategy and the model risk appetite, and approve model policies, procedures
and methodologies.
Mandated by the MBB and chaired by the CRO of ING, the MoRMC meets monthly.
Model lines of defence
ING’s model risk and control structure is based on the three model lines of defence (MLoD)
approach. This approach aims to provide
a sound governance framework for model risk
management by defining
and implementing three different management layers with distinct roles
and oversight responsibilities.
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In terms of composition and main activities:
◾
The 1st LoD is composed of the model owners (mainly the business), data management and
model development, accountable for, among others, the development, implementation and use
of the models as well as monitoring the effectiveness of the models;
◾
The 2nd LoD is composed of model validation and model risk management, which owns the
model risk management framework and the
risk appetite; and
◾
The 3rd LoD
is the internal audit, reviewing the quality of execution in all lines of defence and
providing independent
assurance.
An important difference with the financial
and non-financial
risk lines of defence is that models can
also be owned by risk (normally a 2nd LoD), e.g. for bank wide stress
testing, or by the audit service
(normally a 3rd LoD), e.g.
to support their audits. In that case both domains (risk or audit service)
become 1st model line of defence.
Model Risk Appetite (MoRAS)
The model risk appetite is designed to control the level of model risk ING is willing to accept in
pursuit of its strategic objectives. It is derived from the concepts of boundaries and instruments as
described in the Risk Appetite Framework. Model RAS and related
boundaries and instruments will
be set in 2020 and going forward will be reviewed
on an annual basis. RAS requires approval
from
the MBB/EB and ratification from SB.
Model risk management
Since models are by definition simplifications
of reality, model risk is inherent in the use of models
and therefore model risk must be identified and managed. Model risk management
includes the
identification, assessment,
control (acceptance or mitigation) and monitoring (and reporting) of the
risks caused by applying models.
Model management is executed through the model life cycle with two types of components, which
are (i) the stages that each individual model goes through, from initiation to final decommissioning
and (ii) the overarching
components to manage ING’s model risk of all models: continuous model
inventory and reporting.
Model lifecycle
The next figure provides a schematic overview of the model lifecycle, where orange represents
the
1st model LoD, blue the 2nd and grey the 3rd.
It is composed of a set of processes starting after a
model is identified.
The objectives of the different processes
are outlined below.
Initiation or change
: The initiation of the development of a new model or change of an existing
model can be triggered by different factors. These may be (i) internal, such as the introduction of a
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new product that cannot be handled by the existing models, a change in ING’s organisation,
financial or commercial strategy or findings
and issues by an auditor, validator or based on
monitoring; or (ii) external, such as innovation/new technology that becomes available (for
example the Fintech models), new or upcoming supervisory regulations or ongoing technical
developments.
Data collection
requirements for model development. The process
includes the definition
of the data needed,
assessment of data availability and quality, assumptions and limitations, as well as the gathering
of the data needed for the analyses, impact study and testing during the model development
process.
Model development
is a structured process that leads to a model that is ready for validation and
subsequent use.
Depending on the development approach these first stages can be separate or integrated. An
example of the latter is data science based application development.
Pre-approval
validation
use, before the new or changed model is submitted for use approval.
To
ensure objectivity and
effective challenge, the model validator is independent from other model parties such as
the model
developer, model owner or model approver.
Model validation applies equally to in-house developed
and third-party models.
The objective of the
model approval
for formal consent by the internal approver before
being deployed and used. The
recommendations and validation report prepared
by the model validator are key inputs for
approval for use.
During the
implementation
environment.
In the
model use
for.
The model can only be used after formal validation and approval for use of the model.
The objective of model
performance monitoring
intended, also after possible changes in the commercial, organisational or legal environment.
Model performance monitoring begins when model use has started and continues until the model
has officially
been decommissioned.
Periodic validation
: During the life time of a model the ongoing validity of the models must be
safeguarded. This is done by periodical independent (re)validation that assesses whether the model
is still valid for its intended use. There are
two types of validation: (1) periodic, such as annual,
which is mandatory for regulatory models, or (2) ad hoc, for example triggered by changes in the
model, the business or financial
instruments etc. The actual frequency of periodic validation
depends on the model risk, model type and applicable regulation.
A model that is / will no longer be used must be decommissioned.
Decommissioning
model. It can, for example, be triggered because (1) the product, organisation or risk the model is
made for has changed considerably or no longer exists, (2) the model is outdated, underperforming
or better alternatives are available, (3i) the model became obsolete due to standardisation or (4)
the external approver withdraws its approval
for the model.
Continuous model inventory and reporting
: Keeping an inventory of all models and their status
during their lifecycle is a continuous process. It supports management and control of the models in
scope, both per individual model and the overarching management of all ING’s models. Periodic
model risk reporting provides the relevant
internal and external stakeholders with an overview of
the models in use and the associated model risk given the defined
model risk appetite..
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Business
Risk
Introduction
Business Risk for ING has been defined
as the exposure to value loss due to fluctuations in
volumes/margins as well as expenses. It is the risk inherent to strategy
decisions and internal
efficiency.
Business risk capital is calculated via the variance-covariance methodology for expense
risk, covering the risk that expenses will deviate from the expected expenses over the horizon of the
relevant activities. This risk primarily relates to inability of adjusting expenses when that is needed.
Expense risk only concerns non-financial expenses (e.g. staff and
IT expenses); financial
expenses
are not in scope.
Governance and risk management
ING applies an explicit Risk Appetite Statement regarding business risk, focusing on earnings
stability and diversification of the business
mix. Avoiding putting all eggs in one basket reduces the
risk that volumes and/or margins will suddenly drop
due to unexpected changes in the business
environment for certain markets and products. Furthermore, the underlying risk types (expense risk
and volume-margin risk) are mitigated and managed differently. Expense risk is monitored and
managed via the financial
performance of the bank and the local units, whereby the reported
expense numbers are compared on a quarterly basis with the projected cost/income ratio.
Deviations from this ambition are monitored as part of the financial projections that are discussed
continuously within different parts of the organisation.
SELECTED
STATISTICAL
INFORMATION
ON BANKING
OPERATIONS
Reference is made to Note 1 ‘ Accounting Policies’
of the Consolidated financial statements for
information on Changes in accounting principles, estimates and presentation of the consolidated
financial statements
and related notes.
The information in this section sets forth selected statistical
information regarding the Group’s
operations.
Information for 2019, 2018 and 2017 is set forth under IFRS-IASB. Unless otherwise indicated,
average balances, when used, are calculated from
monthly data and the distinction between
domestic and foreign is based on the location of the office
where the assets and liabilities are
booked, as opposed to the domicile of the customer. However,
the Company believes that the
presentation of these amounts based upon the domicile of the customer would not result in
material differences in the amounts presented in this section.
Year ended 31 December
2019
2018
2017
Return on equity
7.8%
9.9%
11.4%
Return on assets
0.4%
0.5%
0.6%
Equity to assets
5.7%
5.5%
5.7%
Net interest margin
1.5%
1.5%
1.5%
AVERAGE
BALANCES AND INTEREST RATES
The following tables show the Group’s operations, average interest
-earning assets and average
interest-bearing liabilities, together with average rates, for
the periods indicated. The interest
income, interest expense and average yield figures do not reflect interest income and expense on
derivatives and other interest income and expense not considered to be directly related
to interest-
bearing assets and liabilities. These items are reflected in the corresponding interest income,
interest expense and net interest income figures in the consolidated financial statements. A
reconciliation of the interest income, interest
expense and net interest income figures to the
corresponding line items in the consolidated financial statements is provided hereunder.
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ASSETS
Interest-earning assets
2019
2018
2017
Average
balance
Interest
income
Averag
e yield
%
Average
balance
Interest
income
Average
yield %
Average
balance
Interest
income
Average
yield %
(EUR millions)
(EUR millions)
(EUR millions)
Time deposits with banks
1
domestic
8,213
95
1.2
3,395
41
1.2
16,234
89
0.6
foreign
34,583
912
2.6
40,970
1,016
2.5
39,807
536
1.4
Loans and advances
1
domestic
190,143
5,679
3.0
187,440
5,893
3.1
204,229
6,109
3.0
foreign
461,833
13,973
3.0
445,512
13,539
3.0
417,708
12,280
2.9
Interest-earning securities
2
domestic
29,892
347
1.2
29,454
336
1.1
28,856
400
1.4
foreign
50,156
917
1.8
50,699
1,055
2.1
61,035
1,341
2.2
Other interest-earning assets
domestic
30,659
56
0.2
36,898
34
0.1
22,526
24
0.1
foreign
24,978
66
0.3
30,224
80
0.3
30,215
75
0.2
Total
830,456
22,047
2.7
824,594
21,994
2.7
820,610
20,854
2.5
Non-interest earning assets
54,459
59,345
34,286
Derivatives assets
25,322
27,432
33,572
Total
assets
910,238
911,370
888,468
Percentage of assets
applicable to foreign
operations
70.0%
70.2%
67.5%
Interest income on
derivatives
5,499
5,556
22,498
Other
617
579
644
Total
interest income
28,163
28,129
43,996
(1) Securities purchased with agreements to resell are reflected in the categories Time deposits with banks, and Loans and
advances.
(2) Substantially all interest-earning securities held by the banking operations of the Company are taxable securities.
LIABILITIES
Interest-bearing liabilities
2019
2018
2017
Average
balance
Interest
expense
Average
yield
Average
balance
Interest
expense
Average
yield
Average
balance
Interest
expense
Average
yield
(EUR millions)
%
(EUR millions)
%
(EUR millions)
%
Time deposits from banks
domestic
17,673
28
0.2
17,805
22
0.1
17,219
25
0.1
foreign
14,270
200
1.4
15,262
210
1.4
15,169
234
1.5
Demand deposits
domestic
66,667
498
0.7
60,679
289
0.5
59,207
164
0.3
foreign
108,193
32
0.0
95,977
29
0.0
83,878
21
0.0
Time deposits
(1)
domestic
14,019
336
2.4
21,746
391
1.8
26,315
239
0.9
foreign
14,114
300
2.1
14,607
259
1.8
15,766
255
1.6
Savings deposits
domestic
93,911
114
0.1
92,203
121
0.1
92,818
246
0.3
foreign
266,470
1,301
0.5
261,398
1,257
0.5
263,340
1,502
0.6
Short term debt
domestic
22,559
180
0.8
18,253
96
0.5
6,958
47
0.7
foreign
17,928
405
2.3
31,521
553
1.8
23,479
260
1.1
Long term debt
domestic
72,012
1,700
2.4
55,080
1,525
2.8
60,915
1,520
2.5
foreign
14,110
317
2.2
12,765
345
2.7
14,424
435
3.0
Subordinated liabilities
domestic
15,304
664
4.3
16,444
721
4.4
16,635
395
2.4
foreign
77
3
4.3
81
3
4.1
150
6
4.1
Other interest
‑
bearing
liabilities
domestic
1,508
146
9.7
4,227
100
2.4
16,375
106
0.7
foreign
10,162
140
1.4
16,310
192
1.2
64,595
756
1.2
Total
748,979
6,363
0.8
734,359
6,113
0.8
777,243
6,211
0.8
Non-interest bearing
liabilities
86,107
102,449
35,447
Derivatives liabilities
24,376
25,927
33,297
Total
Liabilities
859,461
862,735
845,987
Group Capital
50,777
48,635
42,481
Total
liabilities and capital
910,238
911,370
888,468
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LIABILITIES
Interest-bearing liabilities
2019
2018
2017
Average
balance
Interest
expense
Average
yield
Average
balance
Interest
expense
Average
yield
Average
balance
Interest
expense
Average
yield
(EUR millions)
%
(EUR millions)
%
(EUR millions)
%
Percentage of liabilities
applicable to foreign
operations
63.5%
65.2%
62.3%
Other interest expense:
Interest expenses on
derivatives
5,925
6,212
23,064
other
2,064
1,844
1,074
Total
interest expense
14,353
14,169
30,349
Total
net interest result
13,811
13,960
13,647
(1) These captions do not include deposits from banks.
ANALYSIS
OF CHANGES IN NET INTEREST INCOME
The following table allocates changes in the Group’s operations’ interest income and expense and
net interest result between
changes in average balances and rates for the periods indicated.
Changes due to a combination of volume and rate have been allocated to changes in average
volume. The net changes in interest income, interest expense and net interest
result, as calculated
in this table, have been reconciled to the changes in interest income, interest expense and net
interest result in the consolidated financial statements. See introduction to “Average
Balances and
Interest Rates” for a discussion of the differences between interest
income, interest expense and
net interest result as calculated
in the following table and as set forth in the consolidated financial
statements.
2019 over 2018
2018 over 2017
Increase (decrease)
due to changes in
Increase (decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
(EUR millions)
(EUR millions)
Interest-earning assets
Time deposits to banks
domestic
58
–4
54
–71
22
–48
foreign
–158
55
–103
16
462
478
Loans and advances
domestic
97
–311
–214
–504
289
–216
foreign
520
–85
435
818
442
1,259
Interest-earning securities
Domestic
5
7
12
8
–73
–65
foreign
–11
–127
–138
–227
–59
–286
Other interest-earning assets
domestic
–6
28
22
15
–5
11
foreign
–14
–1
–15
–
5
5
Interest income
domestic
154
–280
–126
–552
233
–319
foreign
336
–157
179
606
850
1,457
Total
490
–437
53
55
1,083
1,138
Other interest income
1
–19
–17,007
Total
interest income
34
–15,869
(1)
Since 2018,
ING Group changed its separate presentation of interest (income and expenses) for trading derivatives, trading
securities and trading loans / deposits (mainly repo’s) to presenting the full fair value movements in ‘Valuation results and
net trading income’.
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The following table shows the interest spread and net interest
margin for the past two years.
2019
2018
Average
rate
Average
rate
%
%
Interest spread
Domestic
1.2
1.3
Foreign
2.2
2.1
Total
1.8
1.8
Net interest margin
Domestic
1.0
1.2
Foreign
2.3
2.2
Total
1.9
1.9
2019 over 2018
2018 over 2017
Increase (decrease)
due to changes in
Increase (decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
(EUR millions)
(EUR millions)
Interest-bearing liabilities
Time deposits from banks
domestic
–0
7
7
1
–5
–4
foreign
–14
4
–9
1
–26
–24
Demand deposits
domestic
29
180
209
4
122
126
foreign
4
–1
3
3
5
8
Time deposits
domestic
–139
84
–55
–42
193
151
foreign
–9
49
40
–19
23
4
Savings deposits
domestic
2
–10
–8
–1
–124
–125
foreign
25
18
44
–11
–234
–245
Short term debt
domestic
23
62
85
76
–27
49
foreign
–238
91
–148
89
203
292
Long term debt
domestic
469
–294
175
–146
150
5
foreign
36
–64
–28
–50
–40
–90
Subordinated liabilities
domestic
–50
–8
–58
–5
331
326
foreign
–0
0
0
–3
–0
–3
Other interest-bearing liabilities
domestic
–64
110
46
–79
72
–6
foreign
–72
20
–52
–565
1
–564
Interest expense
domestic
269
131
400
–191
712
521
foreign
–268
118
–150
–554
–67
–622
Total
1
249
250
–745
645
–100
Other interest expense
1
–67
–16,082
Total
interest expense
183
–16,182
Net interest
domestic
–115
–411
–526
–361
–479
–840
foreign
604
–275
329
1,160
918
2,078
Net interest
488
–686
–197
800
439
1,239
Other net interest result
48
–925
Net interest result
–149
314
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(1)
Since 2018, ING Group changed its separate presentation of interest (income and expenses) for trading derivatives, trading
securities and trading loans / deposits (mainly repo’s) to presenting the full fair value movements in ‘Valuation results and
net trading income’.
INVESTMENTS OF THE GROUP’S BANKING OPERATIONS
The following table shows the balance sheet value under IFRS-IASB of the investments of the
Group’s banking operations (excluding debt securities held in the trading portfolio).
Year ended 31 December
2019
2018
2017
Debt securities at fair value through other comprehensive
income
30,483
25,616
n/a
Debt securities at amortised cost
46,108
47,276
n/a
Debt securities at fair value through profit or loss
3,067
3,218
1,739
Debt securities available for sale
n/a
n/a
65,747
Debt securities held to maturity
n/a
n/a
9,343
Shares and convertible debentures
2,464
3,438
2
3,983
Land and buildings
1
803
834
839
Total
82,926
80,382
81,651
(1)
Including commuted ground rents
(2)
The prior period has been updated to improve consistency and comparability.
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Year ended 31 December
2019
2018
2017
(EUR millions)
Debt securities at fair value through other comprehensive income
Dutch government
1,831
1,444
n/a
German government
2,836
2,278
n/a
Belgian government
1,997
2,059
n/a
Other governments
13,729
11,847
n/a
Central banks
43
n/a
Banks and financial institutions
5,164
5,321
n/a
Other corporate debt securities
486
484
n/a
U.S. Treasury
and other U.S. Government agencies
3,190
1,061
n/a
Other debt securities
1,206
1,123
n/a
Total
debt securities at fair value through other comprehensive
income
30,483
25,616
n/a
Debt securities at amortised cost
Dutch government
6,155
6,484
n/a
German government
4,863
4,959
n/a
Belgian government
1,975
2,285
n/a
Other governments
13,004
12,771
n/a
Central banks
712
1,455
n/a
Banks and financial institutions
11,478
11,906
n/a
Other corporate debt securities
305
974
n/a
U.S. Treasury
and other U.S. Government agencies
6,419
4,959
n/a
Other debt securities
1,199
1,483
n/a
Total
debt securities at amortised cost
46,108
47,276
n/a
Year ended 31 December
2019
2018
2017
(EUR millions)
Debt securities available for sale
Dutch government
n/a
n/a
7,053
German government
n/a
n/a
10,682
Belgian government
n/a
n/a
4,892
Other governments
n/a
n/a
19,804
Central banks
n/a
n/a
1,216
Banks and financial institutions
n/a
n/a
15,356
Other corporate debt securities
n/a
n/a
1,493
U.S. Treasury
and other U.S. Government agencies
n/a
n/a
3,034
Other debt securities
n/a
n/a
2,217
Total
debt securities available for sale
n/a
n/a
65,747
Debt securities held to maturity
Dutch government
n/a
n/a
1,087
German government
n/a
n/a
238
Belgian government
n/a
n/a
628
Other governments
n/a
n/a
2,240
Central banks
n/a
n/a
310
Banks and financial institutions
n/a
n/a
908
Other corporate debt securities
n/a
n/a
209
U.S. Treasury
and other U.S. Government agencies
n/a
n/a
3,507
Other debt securities
n/a
n/a
216
Total
debt securities held to maturity
n/a
n/a
9,343
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Banking investment strategy
ING’s investment strategy for its investment portfolio related to the banking activities is formulated
by the Asset and Liability Committee (“ALCO”).
The exposures of the investments to market rate
movements are managed by modifying the asset and liability mix, either directly or through the
use of derivative financial products including interest rate swaps, futures, forwards
and purchased
option positions such as interest rate caps, floors and collars. See “Item 11. Quantitative and
Qualitative Disclosure of Market Risk”.
Portfolio maturity
Year ended 31 December 2019
1 year or
less
Between
1 and 5
years
Between 5
and 10
years
Over 10
years
Total
Fair value through other comprehensive
income
Dutch government
16
1,400
416
–0
1,831
German government
63
1,973
801
2,836
Belgian government
202
1,165
630
1,997
Other governments
685
6,620
6,410
15
13,729
Central banks
43
43
Banks and financial institutions
334
2,867
1,963
–0
5,164
Other corporate debt securities
176
182
128
486
U.S. Treasury
and other U.S. Government
agencies
18
229
2,133
810
3,190
Other debt securities
1
91
659
455
1,206
Fair value through other comprehensive
income
1,537
14,528
13,139
1,280
30,483
Yield
(1)
2.8
2.8
1.6
2.2
(1)
Since substantially all investment securities held by the banking operations of the Company are taxable securities, the
yields are on tax-equivalent basis.
Year ended 31 December 2019
1 year or
less
Between
1 and 5
years
Between
5 and 10
years
Over 10
years
Total
Securities at amortised cost
Dutch government
1,426
4,729
6,155
German government
692
4,131
40
4,863
Belgian government
110
139
1,726
1,975
Other governments
2,319
4,753
5,498
433
13,004
Central banks
712
–
–
712
Banks and financial institutions
2,524
6,634
2,320
11,478
Other corporate debt securities
35
236
33
305
U.S. Treasury
and other U.S. Government
agencies
32
3,391
1,551
1,445
6,419
Other debt securities
2
543
459
195
1,199
Total
Securities at amortised cost
7,851
24,556
11,628
2,074
46,108
Yield
(1)
3.1
1.9
1.3
3.5
(1)
Since substantially all investment securities held by the banking operations of the Company are taxable securities, the
yields are on a tax-equivalent basis.
On 31 December 2019, ING Group also held the following securities for the banking operations that
exceeded 10 % of shareholders’ equity:
2019
Book value
Market
value
(EUR millions)
German government
11,527
11,796
Dutch government
9,403
9,538
US Treasury
and other US governments
10,651
10,745
Polish government
7,450
7,442
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Additional Information
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Financial Statements
2019 ING Group Annual Report on Form 20-F
246
LOAN PORTFOLIO
Loans and advances
to banks and customers
Loans and advances to banks include all receivables
from credit institutions, except for cash,
current accounts and deposits with other banks (including central banks). Loans and advances
to
customers includes lending facilities to corporate and private customers encompass among others,
loans, overdrafts and finance lease receivables.
The following table sets forth the gross loans and advances to banks and customers as of 31
December 2019, 2018, 2017, 2016 and 2015 under IFRS-IASB.
IFRS-IASB
Year ended December 31
2019
2018
2017
2016
2015
By domestic offices:
Loans guaranteed
by public authorities
25,340
24,547
26,975
27,746
30,912
Loans secured
by mortgages
117,199
117,848
119,514
123,378
124,771
Loans to or guaranteed
by credit institutions
13,847
8,163
8,157
10,582
16,343
Other private lending
3,482
3,304
3,162
3,236
5,636
Other corporate lending
39,645
37,213
38,208
39,669
197,069
Total
domestic offices
199,514
191,074
196,016
204,611
374,731
By foreign offices:
Loans guaranteed
by public authorities
16,849
17,257
19,397
18,634
18,214
Loans secured
by mortgages
231,327
219,530
204,451
195,328
179,938
Loans to or guaranteed
by credit institutions
25,069
25,364
22,641
19,427
17,688
Other private lending
24,768
21,563
20,074
18,723
17,041
Asset backed securities excluding MBS
–
–
2,209
3,380
4,937
Other corporate lending
150,233
149,787
140,455
134,092
119,161
Total
foreign offices
448,246
433,500
409,227
389,585
356,979
Total
gross loans and advances to banks and
customers
647,759
624,575
605,243
594,196
731,710
Maturities and sensitivity of loans to
changes in interest rates
The following table analyses loans and advances to banks and customers by time remaining until
maturity as of 31 December 2019.
1 year
or less
1 year
to 5 years
After
5 years
Total
(EUR millions)
By domestic offices:
Loans guaranteed
by public authorities
2,311
1,897
21,132
25,340
Loans secured
by mortgages
5,811
16,091
95,298
117,199
Loans guaranteed
by credit institutions
12,705
1,060
82
13,847
Other private lending
1,591
905
987
3,482
Other corporate lending
22,253
13,215
4,177
39,645
Total
domestic offices
44,670
33,167
121,676
199,514
By foreign offices:
Loans guaranteed
by public authorities
3,507
6,440
6,902
16,849
Loans secured
by mortgages
23,577
57,244
150,506
231,327
Loans guaranteed
by credit institutions
18,725
3,658
2,686
25,069
Other private lending
6,439
12,826
5,504
24,768
Other corporate lending
55,966
72,772
21,495
150,233
Total
foreign offices
108,213
152,940
187,093
448,246
Total
gross loans and advances to banks and customers
152,883
186,107
308,769
647,759
The following table analyzes loans and advances to banks and customers by interest rate
sensitivity by maturity as of 31 December 2019.
1 Year or
less
Over 1 Year
Total
Non-interest earning
3,584
1,032
4,617
Fixed interest rates
61,570
87,181
148,751
Floating or adjustable interest rates
(1)
87,729
406,662
494,391
Total
152,883
494,876
647,759
(1)
Loans that have an interest rate that remains
fixed for more than one year and which can then be changed are classified
as “adjustable interest rates”
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Financial Statements
2019 ING Group Annual Report on Form 20-F
247
Loan concentration
The following industry concentrations were
in excess of 10% of total loans as of 31 December,
2019:
Total
outstanding
Private Individuals
38.9%
Risk elements
Loans Past Due 90 days
and Still Accruing Interest
Loans past due 90 days and still accruing interest are
loans that are contractually past due 90 days
or more as to principal or interest on which we continue to recognize
interest income on an accrual
basis in accordance with IFRS-IASB. Once an impairment loss is recognized for a loan, interest
income is recognized using the rate of interest
used to discount the future cash flows for the
purpose of measuring the impairment loss.
The following table sets forth the gross balance of the loans past due 90 days and still accruing
interest for the years ended 31 December 2019, 2018, 2017, 2016 and 2015 under IFRS-IASB.
IFRS-IASB
Year ended 31 December
(EUR millions)
2019
2018
2017
2016
2015
Domestic
2,272
2,948
4,343
5,292
7,523
Foreign
3,126
2,427
3,861
3,338
4,055
Total
loans past due 90 days and still accruing
interest
5,398
5,375
8,204
8,630
11,578
As of 31 December 2019, EUR5,398 million of the loans past due 90 days and still accruing interest
have a loan loss provision. ING’s loan portfolio is under constant review.
Loans with past due
financial obligations
of more than 90 days are reclassified as non-performing.
For commercial
lending portfolios, there generally are reasons for
declaring a loan non-performing
prior to being 90 days past due.
These reasons include, but are not limited to, ING’s assessment of the customer’s perceived
inability to meet its financial
obligations, or the customer filing
for bankruptcy or bankruptcy
protection.
The total loans classified as
non performing, including those loans classified
as past due 90 days
and still accruing interest, amounts to EUR 11,477 million as of 31 December 2019.
For information on credit restructuring reference
is made to “Additional
information – ING Group
Risk Management”.
Troubled
Debt Restructurings
Troubled
debt restructurings are loans that we have restructured due to deterioration
in the
borrower’s financial position and in relation to which, for economic or legal reasons related to the
borrower’s deteriorated
financial
position, we have granted a concession to the borrower
that we
would not have otherwise granted.
The following table sets forth the gross outstanding balances of the troubled debt restructurings as
of December 31 2019, 2018, 2017, 2016 and 2015 under IFRS-IASB.
IFRS-IASB
Year ended 31 December
2019
2018
2017
2016
2015
(EUR millions)
Troubled
debt restructurings:
Domestic
869
672
675
325
86
Foreign
946
779
330
277
376
Total
troubled debt restructurings
1,815
1,451
1,005
602
462
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Additional Information
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Financial Statements
2019 ING Group Annual Report on Form 20-F
248
Relationship Between Forbearance
and Troubled
Debt Restructurings (TDR)
Both forbearance and TDR refer to a situation in which a debtor is facing financial difficulties
and
the creditor grants concessions in respect of the terms of the loans, but the application of the
respective guidance, specifically the entry criteria under
both standards, results in differences
between the total amount of reported forborne loans and the amount of forborne loans which are
considered TDR.
This difference is due to ING’s determination of forbearance being based on the criteria in the
European Implementing Technical
Standards on Supervisory reporting on forbearance and non-
performing exposures under article 99(4) of Regulation (EU) No 575/2013 (the “EU Standard”), while
ING’s determination of Troubled
Debt Restructurings (TDR) is based on FASB codification (ASC) 310-
40 “Troubled
Debt Restructurings by Creditors” (the “TDR Standard”).
Under the EU Standard, all concessions that ING makes in respect of a loan given to a debtor in
financial difficulty
will result in a loan being considered forborne, including modification of payment
terms (such as interest deferrals or extensions of maturity) as well
as concessions that do not have
any impact on cash flows, such as
when ING waives covenant or other non-payment-related loan
terms. As a result, the “Total
Forborne Loans” in the table below represents
all loans where ING has
made borrower concessions, regardless
of the impact of such concessions on the timing or
likelihood of repayment.
Under the TDR Standard, however, loans may only be classified as TDR if the creditor has granted a
concession and as a result of such concession does not expect to collect all amounts due, including
both interest and principal. For these purposes, the TDR Standard also provides
that concessions
that result in a delay in payment that is only considered “insignificant” will not result in the loan
being considered TDR. This means that the loans reported by ING as TDR will not include loans for
which covenant or other non-payment terms have been modified, as
well as loans for which
payment-related concessions would, in ING’s judgment, result in only insignificant delays in
repayment. Examples of concessions which result in only insignificant delays in payment would
include temporary payment holidays for retail mortgage clients, or standstill arrangements with
corporate borrowers.
As ING will ordinarily receive compensation in connection with such
concessions (generally through additional interest income), these concessions would typically not
result in a significant NPV loss or would result in a delay in payment that we would consider to be
insignificant taking into account the remaining duration of the loan. Debt forgiveness, either
through principal or interest reductions, is generally not granted
by ING, but to the extent granted
would likely result in the loan being classified as TDR.
As a result of the application of these two standards,
ING reports a significantly larger amount of
loans in the forborne category than in the TDR category. The following table (in EUR millions) sets
forth total forborne loans and loans that are TDR as of December 31, 2019, 2018 and 2017, as well
as a reconciliation indicating the categories of forborne loans under the EU Standard which do not
meet the criteria of the TDR Standard.
2019
2018
2017
Total
Forborne Loans (EU Standard)
9,492
10,094
11,819
Wholesale Banking:
Concessions not reducing cash flows (e.g., covenant
waiver)
–1,018
–1,429
–2,359
Concessions that do not result
in significant delay in payment (1)
–2,536
–2,244
–2,817
Retail Banking:
Concessions that do not result
in significant delay of payment
–4,029
–4,696
–5,317
Other
–94
–274
–321
Total
Loans that are Troubled
Debt Restructurings (TDR Standard)
1,815
1,451
1,005
(1) This category includes concessions where the NPV loss is less than 1%.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
249
Interest Income on Troubled
Debt Restructurings
The following table sets forth the gross interest income that would have been recorded
during the
year ended 31 December 2019 on troubled debt restructurings had such loans been current in
accordance with their original contractual terms and interest
income on such loans that was
actually included in interest income during the year ended 31 December 2019.
Year ended 31 December 2019
(EUR millions)
Domestic
Offices
Foreign
Offices
Total
Interest income that would have
been recognized under the
original contractual terms
17
40
58
Interest income recognized
in the profit and loss account
10
17
27
Potential Problem
Loans
Potential problem loans are loans that are
not classified
as loans past due 90 days and still
accruing interest or troubled debt restructurings and amounted to EUR 4,845 million as of 31
December 2019. Of this total, EUR 1,865 million relates to domestic loans and EUR 2,980 million
relates to foreign loans. These loans are
considered potential problem loans as there is known
information about possible credit problems causing us to have serious doubts as to the ability of
the borrower to comply with the present loan repayment terms and which may result
in classifying
the loans as loans past due 90 days and still accruing interest or as troubled debt restructurings.
Cross-border
outstandings
Cross-border outstandings are
defined
as loans (including accrued interest), acceptances, interest-
earning deposits with other banks, other interest-earning investments and any other monetary
assets that are denominated in euro or other non-local currency. To
the extent that material local
currency outstandings are not hedged or are not funded by local currency
borrowings, such
amounts are included in cross-border outstandings.
Commitments such as irrevocable
letters of credit are not considered as cross
border outstanding.
Total
outstandings are in line with Dutch Central Bank requirements.
On 31 December 2019, there
were no outstandings exceeding 1% of total assets in any country where current
conditions give
rise to liquidity problems which are expected to have a material impact on the timely repayment of
interest or principal.
The following tables analyze cross-border outstandings as of the end of 31 December 2019, 2018
and 2017 stating the name of the country and the aggregate amount of cross-border outstandings
to borrowers in each foreign country where
such outstandings exceed 1% of total assets, by the
following categories.
Year ended 31 December 2019
Government
Banks &
other
financial
institutions
Commercial
& industrial
Other
Total
Cross-
border
Commitmen
ts
(EUR millions)
United States of America
9,890
5,994
70,325
1,707
87,917
25,965
United Kingdom
1,811
18,552
14,665
3,496
38,525
7,314
France
1,318
15,824
17,720
991
35,854
8,670
Ireland
55
1,628
19,168
211
21,061
1,720
Luxembourg
949
7,165
6,595
1,286
15,996
3,303
Germany
2,400
5,216
3,985
3,869
15,470
11,974
Switzerland
1,192
717
11,501
1,989
15,399
2,060
Singapore
0
1,322
12,343
1,119
14,783
795
Cayman Islands
10,657
645
143
11,445
479
China
54
4,924
1,180
4,563
10,721
331
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Financial Statements
2019 ING Group Annual Report on Form 20-F
250
Year ended 31 December 2018
Government
Banks &
other
financial
institutions
Commercial
& industrial
Other
Total
Cross-
border
Commitmen
ts
(EUR millions)
United States of America
6,054
5,759
71,956
2,407
86,176
19,819
United Kingdom
1,420
14,756
13,213
2,376
31,766
6,415
France
1,851
11,535
16,017
979
30,383
2,360
Ireland
1,819
19,506
142
21,467
1,008
Switzerland
220
3,087
13,406
1,886
18,598
2,272
Germany
2,965
3,837
3,800
3,935
14,537
12,142
Luxembourg
863
2,969
8,026
1,369
13,227
3,901
Singapore
1,163
9,823
769
11,755
774
China
31
4,920
1,848
3,969
10,768
733
Belgium
997
1,805
7,054
845
10,702
13,954
Year ended 31 December 2017
Government
Banks &
other
financial
institutions
Commercial
& industrial
Other
Total
Cross-
border
Commitmen
ts
(EUR millions)
United States
6,665
7,165
65,444
2,727
82,001
16,621
France
2,564
24,353
15,333
1,230
43,479
7,840
United Kingdom
1,263
13,493
14,373
2,574
31,702
6,442
Switzerland
4
7,594
10,800
2,700
21,098
2,521
Ireland
574
19,686
161
20,421
927
Germany
4,404
5,873
3,897
3,267
17,441
12,585
Belgium
439
2,612
12,496
812
16,359
14,484
China
85
7,849
2,248
5,490
15,671
320
Singapore
1,601
9,175
550
11,326
618
Luxembourg
508
2,151
6,910
1,598
11,167
3,445
Turkey
1,274
3,710
5,312
234
10,530
1,139
Hong Kong
4,512
4,134
575
9,221
300
The following table Discloses cross-border outstandin’s as of the end of 31 December 2019, 2018
and 2017 stating the name of the country and the aggregate amount of cross-border outstandings
to borrowers in each foreign country where
such outstandings are between 0.75 percent and 1.0
percent of total assets.
Year ended
2019
(EUR millions)
Belgium
8,277
Hong Kong
8,232
Canada
8,169
Japan
7,674
Turkey
6,630
Year ended
2018
(EUR millions)
Cayman Islands
8,516
Turkey
7,831
Spain
7,523
Hong Kong
7,083
Japan
6,792
Year ended
2017
(EUR millions)
Japan
8,332
Canada
6,116
Cayman Islands
6,062
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Additional Information
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Financial Statements
2019 ING Group Annual Report on Form 20-F
251
Summary of Loan Loss
Experience
For further explanation on loan loss provision reference
is made to Note 1 ‘Accounting Policies’ and
Additional info – Risk Management.
The following table presents the movements in allocation of the provision for loan losses on loans
accounted for as loans and advances to banks and customers for 2019, 2018, 2017, 2016 and 2015
under IFRS-IASB.
IFRS-IASB
Calendar period
2019
2018
(1)
2017
2016
2015
(EUR millions)
Balance on 1 January
4,568
4,521
5,308
5,786
5,995
Effect of changes in accounting policy
795
Write-offs:
Domestic:
Loans guaranteed
by public authorities
–69
–207
Loans secured
by mortgages
–127
–127
–231
–323
–436
Loans to or guaranteed
by credit institutions
–5
Other private lending
–72
–177
–48
–93
–121
Other corporate lending
–264
–105
–409
–234
–447
Foreign:
Loans secured
by mortgages
–48
–70
–66
–129
–154
Loans to or guaranteed
by credit institutions
–1
Other private lending
–144
–141
–188
–233
–303
Other corporate lending
–375
–354
–331
–275
–257
Total
write-offs
–1,030
–1,044
–1,278
–1,494
–1,718
Recoveries:
Domestic:
Loans guaranteed
by public authorities
Loans secured
by mortgages
13
15
24
14
23
Other private lending
10
11
15
15
16
Other corporate lending
7
14
19
6
–5
Foreign:
Loans secured
by mortgages
2
2
3
3
4
Other private lending
11
4
7
8
37
Other corporate lending
12
7
–8
48
16
Total
recoveries
55
53
60
94
91
Net write-offs
–975
–992
–1,218
–1,400
–1,627
Additions and other adjustments (included in value Adjustments
1,052
244
538
922
1,418
Balance on 31 December
4,645
4,568
4,628
5,308
5,786
Ratio of net charge
‑
offs to average loans and advances to banks
and customers
0.14%
0.15%
0.20%
0.23%
0.28%
(1) As from 1 January 2018 changes in loan loss provision presents IFRS 9 expected credit losses (excluding IAS 37 provisions
for non-credit replacement positions). The IAS 39 comparative 2017 amount includes IAS 37 provision for all off balance
positions
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Financial Statements
2019 ING Group Annual Report on Form 20-F
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Additions to the provision for loan losses presented in the table above were
influenced by
developments in general economic conditions as well as certain individual exposures. The following
table shows the allocation of the provision for loan losses on loans accounted for as loans and
advances to banks and to customers, to financial
assets at at fair value through other
comprehensive income and amortised cost and contingent liabilities for 2019, 2018, 2017, 2016
and 2015 under IFRS-IASB.
IFRS-IASB
Year ended December 31
2019
2018(2)
2017
2016
2015
EUR
%(1)
EUR
%(1)
EUR
%(1)
EUR
%(1)
EUR
%(1)
(EUR millions)
Domestic:
Loans guaranteed
by
public
authorities
4
4
4
5
5
Loans secured
by mortgages
472
18
421
19
347
20
550
21
819
22
Loans to or guaranteed
by credit
institutions
6
2
5
1
2
1
2
2
2
Other private lending
72
1
119
1
118
1
122
1
177
1
Other corporate lending
657
6
959
6
1,268
6
1,738
6
1,904
7
Total
domestic
1,207
31
1,504
31
1,735
32
2,412
34
2,900
37
Foreign:
Loans guaranteed
by public
authorities
3
3
7
3
3
3
7
3
2
3
Loans secured
by mortgages
599
36
700
35
526
34
638
32
717
30
Loans to or guaranteed
by credit
institutions
4
4
8
4
7
4
12
3
15
3
Other private lending
820
4
763
3
746
3
620
3
712
3
Mortgage backed securities
9
2
1
2
1
Other corporate lending
1,992
23
1,563
24
1,602
23
1,617
23
1,438
22
Total
foreign
3,418
69
3,041
69
2,893
67
2,896
66
2,886
63
Total
4,625
100
4,545
100
4,628
100
5,308
100
5,786
100
LLP financial assets at FVOCI
10
11
LLP Securities at AC
10
11
Total
provisions
4,645
4,568
(1) The percentages represent the loans in each category as a percentage of the total loan portfolio for loans and advances to
banks and customers.
(
2) As from 1 January 2018 changes in loan loss provision presents IFRS 9 expected credit losses (excluding IAS 37 provisions
for non-credit replacement positions). The IAS 39 comparative 2017 amount includes IAS 37 provision for all off balance
positions.
DEPOSITS
For information on deposits reference
is made to Note 13 ‘Deposits from banks’ and Note 14 ‘
Customer deposits’ of the consolidated financial
statements.
For the years ended 31 December 2019, 2018 and 2017 the aggregate amount of deposits by
foreign depositors in domestic offices
was EUR 27,649 million EUR 27,586 million and EUR 43,572
million, respectively.
Outstanding of time certificates
of deposit and other time deposits > EUR 20.000
On 31 December 2019, the amount of domestic time certificates
of deposit and other time
deposits,
exceeding EUR 20,000, issued by domestic offices
by time remaining until maturity was:
Time certificates of
deposit
Other time deposits
(EUR
millions)
%
(EUR
millions)
%
3 months or less
3,912
39.5
7,487
29.5
6 months or less but over 3 months
1,298
13.1
11,093
43.6
12 months or less but over 6 months
4,702
47.4
913
3.6
Over 12 months
5,921
23.3
Total
9,912
25,414
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2019 ING Group Annual Report on Form 20-F
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The following table shows the amount outstanding for time certificates
of deposit and other time
deposits exceeding EUR 20,000 issued by foreign offices on
December 31 2019.
(EUR
millions)
Time certificates of deposit
4,000
Other time deposits
23,279
Total
27,278
Short-term Borrowings
Short-term borrowings are borrowings with an original maturity of one year or less. Commercial
paper and securities sold under repurchase agreements are
the only significant
categories of short-
term borrowings within our banking operations.
The following table sets forth certain information relating to the categories of our short-term
borrowings.
IFRS-IASB
Year ended 31 December
2019
2018
2017
(EUR millions, except % data)
Commercial paper:
Balance at the end of the year
27,581
33,471
20,506
Monthly average balance outstanding during the year
28,751
34,647
17,600
Maximum balance outstanding at any period end during the year
36,692
39,556
20,748
Weighted average
interest rate during the year
1.36%
1.37%
1.19%
Weighted average
interest rate on balance at the end of the year
1.42%
1.42%
1.02%
Securities sold under repurchase agreements:
Balance at the end of the year
43,255
52,481
41,672
Monthly average balance outstanding during the year
57,501
76,953
65,465
Maximum balance outstanding at any period end during the year
64,334
92,796
89,225
Weighted average
interest rate during the year
2.42%
1.63%
0.98%
Weighted average
interest rate on balance at the end of the year
3.22%
2.38%
1.54%
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 1
Contents
Consolidated statement of financial position
F – 4
F – 5
Consolidated statement of comprehensive income
F – 7
F – 8
F – 11
Notes to the consolidated financial
statements
F – 13
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 2
Report of independent registered
public accounting firm
To
the Shareholders and the Supervisory Board
ING Groep N.V.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial
position of ING Groep N.V.
and subsidiaries (‘the Company’) as of December 31, 2019 and 2018,
the related consolidated
statements of profit or loss, comprehensive income, changes in equity, and cash flows for each of
the years in the three year period ended December 31, 2019,
and the related notes and specific
disclosures described in Note 1 of the consolidated financial
statements as being part of the
consolidated financial statements (collectively: ‘the consolidated financial
statements’). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2019 and 2018, and
the results of its operations and its
cash flows for each of the years in the three year period ended
December 31, 2019, in conformity
with International Financial Reporting Standards as issued by
the International Accounting
Standards Board.
We also have audited, in accordance with the standards of the Public Company
Accounting
Oversight Board (United States) (‘PCAOB’), the Company’s internal control over financial
reporting
as of December 31, 2019, based on criteria established in
Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission, and our
report dated March 2, 2020 expressed an unqualified opinion on
the effectiveness of the Company’s
internal control over financial reporting.
Changes in Accounting Principle
As discussed in Note 1 to the consolidated financial statements,
the Company has changed its
method of accounting in 2019 due to the adoption of International
Financial Reporting Standard 16,
‘Leases’. The Company early adopted the amendments to IAS
39 ‘Financial Instruments:
Recognition and Measurement’ and IFRS 7 ‘Financial Instruments:
Disclosures’ in relation to the
Interest Rate Benchmark Reform as issued by the IASB in
September 2019. The Company changed
its method of accounting for financial instruments in 2018 due to
the adoption of International
Financial Reporting Standard 9, ‘Financial Instruments’.
Basis for Opinion
These consolidated financial statements are the responsibility
of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our
audits. We are a public accounting firm registered with the PCAOB and are required
to be
independent with respect to the Company in accordance with
the U.S. federal securities laws and
the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated
financial statements are free of material misstatement, whether
due to error or fraud. Our audits
included performing procedures to assess the risks of material
misstatement of the consolidated
financial statements, whether due to error or fraud, and performing
procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and
disclosures in the consolidated financial statements. Our audits also
included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that our audits provide
a reasonable basis for our opinion.
Critical Audit Matter
The Critical Audit Matter communicated below is a matter arising from
the current period audit of the
consolidated financial statements that was communicated or required
to be communicated to the
Audit Committee and that: (1) relates to accounts or disclosures
that are material to the consolidated
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 3
financial statements and (2) involved our especially challenging,
subjective, or complex judgement.
The communication of a Critical Audit Matter does not alter in
any way our opinion on the
consolidated financial statements, taken as a whole, and we
are not, by communicating the Critical
Audit Matter below, providing a separate opinion on the Critical Audit Matter or on the accounts or
disclosures to which it relates.
Assessment of Expected Credit Losses on loans and advances
to customers and banks.
As discussed in the Credit Risk section on pages 172-207, and in Note
7 and Note 3 to the
consolidated financial statements, the loans and advances to
customers and loans and advances to
banks amounts are EUR 608 billion and EUR 35 billion, respectively, as at December 31, 2019.
These loans and advances are measured at amortised cost, less
a provision for Expected Credit
Losses (‘ECL’) of EUR 4.6 billion. Considerable judgement is exercised in determining the amount of
ECL for loans and advances to customers and banks assessed
on both a collective and an
individual basis.
We identified the assessment of ECL on loans and advances to customers and banks
as a Critical
Audit Matter because there was a high degree of estimation uncertainty
as a result of complexity of
the models, inputs, assumptions and judgements in measuring
the ECL. Specifically, assessment of
the probability of default (‘PD’), the loss given default (‘LGD’), and
the exposure at default (‘EAD’),
including expected future recovery cash flows, the use of the macro-economic
assumptions in the
ECL, and the criteria for identifying significant increase in credit risk
(‘SICR’) required significant and
complex auditor judgement and knowledge and experience in the industry.
The primary procedures we performed to address this Critical Audit Matter, included the following:
-
customers and banks, including controls related to governance
and monitoring of the ECL, review
of the relevant loan inputs used in the collective provisioning
models, determination of risk ratings,
and the estimated future recovery cash flows of individual loan provisions.
Furthermore, we tested
certain internal controls with respect to the assessment of the PD,
LGD, and EAD assumptions in
credit risk models used to calculate the collective ECL, including
the development of macro-
economic scenarios, SICR criteria, and review of model outputs.
-
●
parameters in models used by the Company to calculate
the collective provisions;
●
increase in credit risk.
-
with specialised skills and knowledge, we assessed the methodologies,
cash flows and collateral
values used in expected future recovery cash flow assessments of provisions
for impaired loans,
including the Company’s judgements made.
-
assessment of the Company’s methodology in determining the macro-economic
scenarios used
in the ECL calculation.
/s/ KPMG Accountants N.V.
We have served as the Company’s auditor since 2016.
Amstelveen, the Netherlands
March 2, 2020
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 4
Consolidated
statement of financial
position
As at 31 December
in EUR million
2019
1
2018
2019
1
2018
Assets
Liabilities
Cash and balances with central banks
53,202
49,987
Deposits from banks
34,826
37,330
Loans and advances to banks
35,136
30,422
Customer deposits
574,355
555,729
Financial assets at fair value through profit or loss
Financial liabilities at fair value through profit or loss
– Trading
assets
49,254
50,152
– Trading
liabilities
28,042
31,215
– Non-trading derivatives
2,257
2,664
– Non-trading derivatives
2,215
2,299
– Designated as at fair value through profit or loss
3,076
2,887
– Designated as at fair value through profit or loss
47,684
59,179
– Mandatorily at fair value through profit or loss
41,600
64,783
Current tax liabilities
554
822
Financial assets at fair value through other comprehensive
income
34,468
31,223
Deferred tax liabilities
322
180
Securities at amortised cost
46,108
47,276
Provisions
688
1,011
Loans and advances to customers
608,029
589,653
Other liabilities
12,829
13,510
Investments in associates and joint ventures
1,790
1,203
Debt securities in issue
118,528
119,751
Property and equipment
3,172
1,659
Subordinated loans
16,588
13,724
Intangible assets
1,916
1,839
Total
liabilities
836,631
834,751
Current tax assets
251
202
Deferred tax assets
1,242
958
Equity
Other assets
7,018
8,433
Share capital and share premium
17,117
17,088
Assets held for Sale
1,262
Other reserves
4,013
3,621
Retained earnings
29,866
28,339
Shareholders’ equity (parent)
50,996
49,049
Non-controlling interests
893
803
Total
equity
51,889
49,851
Total
assets
888,520
884,603
Total
liabilities and equity
888,520
884,603
1
The amounts for the period ended December 2019
have been prepared in accordance with IFRS 16. The right-of-use-assets are presented under line-item 'Property and Equipment' and the lease liability is included in line-item 'Other liabilities'. Prior period
amounts have not been restated.
References relate
to the accompanying notes. These are an integral part of the Consolidated financial statements.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 5
Consolidated
statement of profit or loss
for the years ended 31 December
in EUR million
2019
1
2018
1
2017
1
2019
1
2018
1
2017
1
Continuing operations
Interest income using effective interest rate
method
25,056
25,249
n/a
Addition to loan loss provisions
7
1,120
656
676
Other interest income
3,107
2,880
n/a
Staff expenses
27
5,755
5,420
5,202
Total
interest income
28,163
28,129
43,996
Other operating expenses
28
4,598
5,262
4,627
Total
expenses
11,472
11,338
10,505
Interest expense using effective interest rate
method
–11,268
–11,171
n/a
Other interest expense
–3,084
–2,997
n/a
Result before tax
from continuing operations
5,653
6,986
8,085
Total
interest expense
–14,353
–14,169
–30,349
Taxation
37
1,652
2,116
2,539
Net interest income
21
13,811
13,960
13,647
Net result from continuing operations
4,001
4,869
5,546
Fee and commission income
4,439
4,240
3,865
Net result (before
non-controlling interests)
4,001
4,869
5,546
Fee and commission expense
–1,571
–1,442
–1,155
Net result attributable to Non-controlling
interests
99
108
82
Net fee and commission income
22
2,868
2,798
2,710
Net result attributable to Equityholders of the parent
3,903
4,761
5,464
Valuation results
and net trading income
23
–159
1,227
1,512
1 The amounts for the period ended 31 December 2019 and 2018 have been prepared
in accordance with IFRS 9. The
adoption of IFRS 9 led to new presentation requirements.
2017 period amounts have not been restated.
2018 amounts in other interest income and other interest
expense have been updated to improve
consistency and
comparability.
Investment income
24
188
183
192
Share of result from
associates and joint ventures
8
48
143
178
Result on disposal of group companies
25
117
–123
1
Other income
26
252
136
350
Total
income
17,125
18,324
18,590
Reference relate
to the accompanying notes. These are an integral part of the Consolidated
financial statements.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 6
Consolidated
statement of profit or loss – continued
in EUR
2019
2018
2017
Earnings per ordinary share
29
Basic earnings per ordinary share
1.00
1.22
1.41
Diluted earnings per ordinary share
1.00
1.22
1.41
Earnings per ordinary share from
continuing operations
29
Basic earnings per ordinary share from
continuing operations
1.00
1.22
1.41
Diluted earnings per ordinary share from
continuing operations
1.00
1.22
1.41
Dividend per ordinary share
30
0.69
0.68
0.67
References relate
to the accompanying notes. These are an integral part of the Consolidated
financial statements.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 7
Consolidated
statement of comprehensive
income
for the years ended 31 December
in EUR million
2019
1
2018
1
2017
1
Net result (before non-controlling
interests)
4,001
4,869
5,546
Other comprehensive income
Items that will not be reclassified to the statement of profit or loss:
Realised and unrealised revaluations
property in own use
58
1
26
Remeasurement of the net defined benefit asset/liability
36
58
6
–29
Net change in fair value of equity instruments at FVOCI
139
–461
n/a
Change in fair value of own credit
risk of financial liabilities at FVPL
–116
199
n/a
Items that may subsequently be reclassified to the statement of profit or
loss:
Unrealised revaluations
AFS investments and other revaluations
n/a
n/a
–283
Realised gains/losses on AFS investments reclassified to the statement of
profit or loss
n/a
n/a
–92
Net change in fair value of debt instruments at FVOCI
–42
–177
n/a
Realised gains/losses on debt instruments at FVOCI reclassified to the
statement of profit or loss
–34
–56
n/a
Changes in cash flow hedge reserve
640
382
–525
Exchange rate differences
–29
–396
–864
Share of other comprehensive income of associates
and joint ventures and
other income
–
14
–5
Total
comprehensive income
4,674
4,381
3,774
Comprehensive income attributable to:
Non-controlling interests
142
132
109
Equity holders of the parent
4,532
4,250
3,665
4,674
4,381
3,774
1 The amounts for the period ended 31 December 2019 and 2018 have been prepared in accordance with IFRS 9. The adoption
of IFRS 9 led to new presentation requirements. 2017 period amounts have not been restated.
References relate
to the accompanying notes. These are an integral part of the Consolidated
financial statements.
For the disclosure on the income tax effects on each component of the other comprehensive
income reference is made to Note 37 ‘Taxation’.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 8
Consolidated
statement of changes in equity
For the years ended 31 December
in EUR million
Share
capital and
share
premium
Other
reserves
Retained
earnings
Share-
holders'
equity
(parent)
Non-
controlling
interests
Total
equity
Balance as at 31 December 2018
17,088
3,621
28,339
49,049
803
49,851
Net change in fair value of equity instruments at fair value through
other comprehensive income
–335
472
137
1
139
Net change in fair value of debt instruments at fair value through
other comprehensive income
–43
–43
1
–42
Realised gains/losses on debt instruments at fair value through other comprehensive
income reclassified to the statement of profit or loss
–33
–33
–1
–34
Changes in cash flow hedge reserve
604
604
36
640
Realised and unrealised revaluations
property in own use
49
9
58
–0
58
Remeasurement of the net defined benefit asset/liability
36
58
58
–
58
Exchange rate differences and
other
–36
–36
7
–29
Share of other comprehensive income of associates
and joint ventures and other income
69
–69
–
–
–
Change in fair value of own credit
risk of financial liabilities at fair value through profit or loss
–123
6
–116
–
–116
Total
amount recognised directly in other comprehensive
income net of tax
–
211
418
629
44
673
Net result
–
180
3,723
3,903
99
4,001
Total
comprehensive income net of tax
–
391
4,141
4,532
142
4,674
Dividends
30
–
–
–2,650
–2,650
–29
–2,679
Changes in treasury shares
–
1
–
1
–
1
Employee stock option and share plans
28
–
13
41
0
41
Changes in the composition of the group and other changes
–
–
23
23
–23
–0
Balance as at 31 December 2019
17,117
4,013
29,866
50,996
893
51,889
References relate
to the accompanying notes. These are an integral part of the Consolidated financial statements.
Changes in individual Reserve components are presented in Note 20 ‘Equity’.
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2019 ING Group Annual Report on Form 20-F
F - 9
Consolidated
statement of changes in equity - continued
in EUR million
Share
capital and
share
premium
Other
reserves
Retained
earnings
Share-
holders'
equity
(parent)
Non-
controlling
interests
Total
equity
Balance as at 31 December 2017
17,045
4,362
27,022
48,429
715
49,144
Effect of change in accounting policy due to implementation of IFRS 9
–604
–390
–993
–14
–1,008
Balance as at 1 January 2018
17,045
3,759
26,632
47,435
700
48,136
Net change in fair value of equity instruments at fair value through
other comprehensive income
–518
56
–461
0
–461
Net change in fair value of debt instruments at fair value through
other comprehensive income
–177
–177
0
–177
Realised gains/losses on debt instruments at fair value through other comprehensive
income reclassified to the statement of profit or loss
–54
–54
–2
–56
Changes in cash flow hedge reserve
342
–
342
41
382
Realised and unrealised revaluations
property in own use
–2
3
1
–0
1
Remeasurement of the net defined benefit asset/liability
36
6
6
–
6
Exchange rate differences and
other
–380
–380
–16
–396
Share of other comprehensive income of associates
and joint ventures and other income
283
–270
14
14
Change in fair value of own credit
risk of financial liabilities at fair value through profit or loss
199
199
199
Total
amount recognised directly in other comprehensive
income net of tax
–301
–211
–512
24
–488
Net result
160
4,601
4,761
108
4,869
Total
comprehensive income net of tax
–141
4,391
4,250
132
4,381
Dividends
30
–2,607
–2,607
–61
–2,668
Changes in treasury shares
4
4
4
Employee stock option and share plans
44
19
63
0
63
Changes in the composition of the group and other changes
1
–96
–96
31
–65
Balance as at 31 December 2018
17,088
3,621
28,339
49,049
803
49,851
1 Includes an amount for the initial recognition of the redemption liability
related to the acquisition of Payvision Holding B.V.
and Makelaarsland B.V.
that reduces the Retained earnings of the Group.
Future re
measurements of the redemption liability are
recognised in the statement of profit or loss.
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2019 ING Group Annual Report on Form 20-F
F - 10
Consolidated
statement of changes in equity - continued
in EUR million
Share
capital and
share
premium
Other
reserves
Retained
earnings
Share-
holders'
equity
(parent)
Non-
controlling
interests
Total
equity
Balance as at 1 January 2017
16,989
5,897
24,371
47,257
606
47,863
Unrealised revaluations
available-for sale investments and other revaluations
–293
–293
10
–283
Realised gains/losses transferred
to the statement of profit or loss
–90
–90
–2
–92
Changes in cash flow hedge reserve
–514
–514
–11
–525
Unrealised revaluations
property in own use
26
26
26
Remeasurement of the net defined benefit asset/liability
36
–29
–29
–29
Exchange rate differences
–894
–894
30
–864
Share of other comprehensive income of associates
and joint ventures and other income
138
–143
–5
–5
Total
amount recognised directly in other comprehensive
income
–
–1,682
–117
–1,799
27
–1,772
Net result from continuing and
discontinued operations
153
5,311
5,464
82
5,546
Total
comprehensive income net of tax
–1,529
5,194
3,665
109
3,774
Dividends
30
–2,564
–2,564
–2,564
Changes in treasury shares
–6
–6
–6
Employee stock option and share plans
56
21
77
77
Balance as at 31 December 2017
17,045
4,362
27,022
48,429
715
49,144
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2019 ING Group Annual Report on Form 20-F
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Consolidated
statement
of cash flows
for the years ended 31 December
in EUR million
2019
1
2018
1
2017
1
2019
1
2018
1
2017
Cash flows from operating activities
31
Disposals and redemptions:
– Associates and joint ventures
67
116
245
Result before tax
5,653
6,986
8,085
– Available-for-sale investments
n/a
n/a
32,788
Adjusted for:
– Depreciation and amortisation
789
520
520
– Held-to-maturity investments
n/a
n/a
2,675
– Addition to loan loss provisions
1,120
656
676
- Financial assets at fair value through other
comprehensive income
13,390
15,657
n/a
– Other non-cash items in Result before tax
1,213
–1,763
703
- Securities at amortised cost
13,001
18,709
n/a
Taxation
paid
–2,345
–1,602
–1,691
– Property and equipment
81
17
79
Changes in:
–
Net change in Loans and advances to/from
banks,
not available/payable on demand
–3,911
–211
3,194
– Loans sold
744
206
1,815
–
Net change in Trading
assets and Trading
liabilities
–2,568
9,910
–11,187
– Other investments
34
9
–
Loans and advances to customers
–16,687
–31,356
–21,390
Net cash flow from/(used in) investing activities
–2,495
5,451
11,754
–
Customer deposits
18,040
19,709
18,291
–
Other
31
11,752
4,067
–2,454
Cash flows from financing activities
Net cash flow from/(used in) operating activities
13,055
6,915
–5,253
Proceeds from debt securities
90,793
152,543
95,458
Repayments of debt securities
–94,497
–131,170
–96,837
Cash flows from investing activities
Proceeds from issuance of subordinated
loans
3,429
1,859
2,331
Investments and advances:
- Acquisition of subsidiaries, net of cash acquired
–17
–111
Repayments of subordinated loans
–933
–4,646
–2,343
- Associates and joint ventures
–507
–97
–79
Repayments of principal portion of lease liabilities
–271
n/a
n/a
– Available-for-sale investments
n/a
n/a
–21,601
Purchase/sale of treasury
shares
1
4
7
– Held-to-maturity investments
n/a
n/a
–3,609
Dividends paid
–2,679
–2,607
–2,564
- Financial assets at fair value through other
comprehensive income
–16,270
–10,517
n/a
Other financing
2
- Securities at amortised cost
–12,268
–17,985
n/a
Net cash flow from/(used in) financing activities
–4,154
15,983
–3,948
– Property and equipment
–355
–286
–304
Net cash flow
6,406
28,349
2,553
– Other investments
–395
–258
–264
Cash and cash equivalents at beginning of year
33
47,529
18,977
16,164
Effect of exchange rate changes on cash and cash equivalents
95
204
260
Cash and cash equivalents at end of year
33
54,031
47,529
18,977
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 12
1
The amounts for the period ended 31 December 2019 and 2018 have been prepared in accordance with IFRS 9. The
adoption of IFRS 9 led to new presentation requirements.
2017 period amounts have not been restated.
2
The amount for the period ended 31 December 2019 has been prepared in accordance with IFRS 16. Previous period
amounts have not been restated.
As at 31 December 2019, Cash and cash equivalents includes cash and balances with central banks
of EUR 53,202 million (2018: EUR
49,987 million; 2017: EUR 21,989 million). The increase in cash
and balances with central banks reflects ING’s liquidity management. Reference is made to Note 33
‘Cash and cash equivalents’.
References relate
to the accompanying notes. These are an integral part of the Consolidated
financial statements.
The table below presents the Interest and dividend received
and paid.
2019
1
2018
1
2017
1
Interest received
28,957
28,722
45,014
Interest paid
–14,550
–14,948
–31,032
14,407
13,774
13,982
Dividend received
2
219
183
206
Dividend paid
–2,679
–2,607
–2,564
1.
The amounts for the period ended 31 December 2019 and 2018 have been prepared in accordance with IFRS 9, the
adoption of IFRS 9 led to new presentation requirements; 2017 period amounts have not been restated, refer also to note
21 ‘Net interest income’.
2.
Includes dividends received as recognized within Investment Income, from equity securities included in the Financial assets
at fair value through profit or loss, Financial assets at fair value through OCI, and from Investments in associates and joint
ventures. Dividend
paid and received from trading positions have been included.
Interest received,
interest paid and dividends received are
included in operating activities in the
Consolidated statement of cash flow. Dividend paid is included in financing
activities in the
Consolidated statement of cash flow.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 13
Notes to the Consolidated
financial
statements
1
Basis
of preparation
and accounting
policies
1.1
Reporting entity
ING Groep N.V.
is a company domiciled in Amsterdam, the Netherlands. Commercial Register of
Amsterdam, number 33231073. These Consolidated financial statements, as at and
for the year
ended 31 December 2019, comprise ING Groep N.V.
(the Parent company) and its subsidiaries,
together referred to as ING Group.
ING Group
is a global financial institution
with a strong European
base, offering a wide range of retail and wholesale banking services to customers in over 40
countries.
1.2
Authorisation of the Consolidated
financial statements
The ING Group Consolidated financial statements, as at and for the year ended 31 December 2019,
were authorised for issue in accordance
with a resolution of the Executive Board on 2 March
2020.
The Executive Board may decide to amend the financial statements as long as these are not
adopted by the General Meeting of Shareholders. The General Meeting of Shareholders may decide
not to adopt the financial
statements, but may not amend these.
1.3
Basis of preparation
of the Consolidated financial statements
The ING Group Consolidated financial statements have been prepared in accordance
with
International Financial Reporting Standards as issued by the International Accounting Standards
Board for purposes of reporting with the U.S. Securities and Exchange Commission (SEC), including
financial
information contained in this Annual report on Form 20-F.
The term ‘IFRS-IASB’ is used to
refer to International Financial Reporting Standards as issued by the International Accounting
Standards Board, including the decisions ING Group made with regard
to the options available
under IFRS-IASB.
The ING Group Consolidated financial statements have been prepared on a going concern basis.
The consolidated financial
statements are presented in euros and rounded
to the nearest million,
unless stated otherwise. Amounts may not add up due to rounding.
1.3.1
Presentation of Risk
management disclosures
To
improve transparency,
reduce duplication and present related
information in one place, certain
disclosures of the nature and extent of risks related to financial instruments required by IFRS 7 are
now included in the “ING Group Risk management” section of the Annual Report.
These disclosures are an integral part of ING Group
Consolidated financial statements and are
indicated in the ‘Risk management’ section by the symbol (*). Chapters,
paragraphs, graphs
or
tables within the risk management section that are indicated with this symbol
in the respective
headings or table header are considered to be an integral part of the consolidated financial
statements.
1.3.2
Reconciliation between IFRS-EU
and IFRS-IASB
The published 2019 Annual Accounts of ING Group are prepared
in accordance with IFRS-EU. IFRS-
EU refers to International Financial Reporting Standards (‘IFRS’) as adopted by the European
Union
(EU), including the decisions ING Group made with regard to the options available under IFRS as
adopted by the EU. IFRS-EU differs from
IFRS-IASB in respect of certain paragraphs in IAS 39
‘Financial Instruments: Recognition and Measurement’ regarding hedge accounting for portfolio
hedges of interest rate risk.
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2019 ING Group Annual Report on Form 20-F
F - 14
Under IFRS-EU, ING Group applies fair value hedge accounting for portfolio hedges of interest rate
risk (fair value macro hedges) in accordance
with the EU carve-out version of IAS 39. Under the EU
IAS 39 carve-out, hedge accounting may be applied, in respect of fair value macro hedges, to core
deposits and hedge ineffectiveness is only recognised when the revised estimate of the amount of
cash flows in scheduled time buckets falls below the original designated amount
of that bucket and
is not recognised when the revised amount of cash flows in scheduled time buckets is more than
the original designated amount. Under IFRS-IASB, hedge accounting for fair value macro hedges
cannot be applied to core deposits and ineffectiveness arises whenever the revised estimate of the
amount of cash flows in scheduled time buckets is either
more or less than the original designated
amount of that bucket.
This information is prepared by reversing
the hedge accounting impacts that are applied under the
EU ‘carve-out’ version of IAS 39. Financial information under IFRS-IASB accordingly does not take
account of the possibility that had ING Group applied IFRS-IASB as its primary accounting
framework it might have applied alternative hedge strategies where
those alternative hedge
strategies could have qualified for IFRS-IASB compliant hedge accounting. These decisions could
have resulted in different shareholders’ equity and net result
amounts compared to those indicated
in this Annual Report on Form 20-F.
A reconciliation between IFRS-EU and IFRS-IASB is included below.
Both IFRS-EU and IFRS-IASB differ in several areas from accounting principles generally
accepted in
the United States of America (US GAAP).
Reconciliation net result under IFRS-EU and IFRS-IASB
Net result
2019
2018
2017
In accordance with IFRS-EU
4,781
4,703
4,905
Adjustment of the EU IAS 39 carve-out
–1,181
148
817
Tax
effect of the adjustment
1)
303
–90
–258
Effect of adjustment after tax
–878
58
559
In accordance with IFRS-IASB (attributable to the equityholders of the parent)
3,903
4,761
5,464
Non-controlling interests
99
108
82
In accordance with IFRS-IASB Total
net result
4,001
4,869
5,546
1)
Reconciliation shareholders’ equity under IFRS-EU and IFRS-IASB
Total
Equity
2019
2018
2017
In accordance with IFRS-EU
53,769
50,932
50,406
Adjustment of the EU IAS 39 carve-out
–3,658
–2,460
–2,655
Tax
effect of the adjustment
885
577
678
Effect of adjustment after tax
–2,773
–1,883
–1,977
Shareholders’ equity
50,996
49,049
48,429
Non-controlling interests
893
803
715
In accordance with IFRS-IASB Total
Equity
51,889
49,851
49,144
1.4
Changes to accounting policies
ING Group has consistently applied its accounting policies to all periods presented in these
Consolidated financial statements, except for changes due to the introduction of IFRS 16 in 2019
and IFRS 9 in 2018. Comparatives were
not restated when applying these Standards.
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2019 ING Group Annual Report on Form 20-F
F - 15
1.4.1 Changes in IFRS effective in 2019
ING Group changed its accounting policies in 2019 as a result of adopting IFRS 16 ‘Leases’.
The impact of the adoption of IFRS 16 is disclosed in paragraph 1.4.3 ‘Changes to accounting
policies in 2019’ of Note 1.
ING Group early adopted the amendments to IAS 39 ‘Financial Instruments: Recognition and
Measurement’ and IFRS 7 ‘Financial Instruments: Disclosures’ in relation to the Interest
Rate
Benchmark Reform as issued by the IASB in September 2019.
These amendments are early
adopted retrospectively to hedging relationships that existed at the start of the reporting period or
were designated thereafter.
The amendments provide temporary relief from
applying specific
hedge accounting requirements to hedging relationships directly affected by IBOR reform. The
amendments require certain additional disclosures and have no further impact. Refer to paragraph
1.6.5 of Note 1 and to Note 39 ‘Derivatives and hedge accounting’ for more information on the
adoption of these amendments.
The other changes in IFRS that became effective in 2019 did not have a significant
impact on ING
Group’s accounting policies, ING Group’s results
or financial
position:
◾
Annual Improvements to IFRS Standards 2015-2017 Cycle: Amendments to IFRS 3 ‘Business
Combinations’, IFRS 11 ‘Joint Arrangements’, IAS 12 ‘Income Taxes’,
IAS 23 ‘Borrowing Costs’
(issued on 12 December 2017);
◾
Amendments to IAS 19 ‘Employee Benefits’:
Plan Amendment, Curtailment or Settlement (issued
on 7 February 2018);
◾
Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’: Long
-term Interests in
Associates and Joint Ventures
(issued on 12 October 2017); and
◾
IFRIC 23 ‘Uncertainty over Income Tax
Treatments’
(issued on 7 June 2017).
The amendments to IFRS 9 ‘Financial Instruments’: Prepayment Features with Negative
Compensation and Modifications of Financial Liabilities (issued on
12 October 2017) were early
adopted by ING Group in 2018.
Apart from the amendments to IAS 39 and IFRS 7 in relation to Interest Rate Benchmark Reform,
ING Group has not early adopted any other standard, interpretation or amendment in 2019 which
has been issued, but is not yet effective.
1.4.2
Upcoming changes in IFRS after 2019
The following published amendments are not mandatory for 2019 and have not been early
adopted by ING Group. ING Group is still currently
assessing the detailed impact of these
amendments, however the implementation of these amendments is expected to have no
significant impact
on ING Group’s Consolidated financial statements.
The list of upcoming changes to IFRS, which are applicable for ING Group:
Effective in 2020:
◾
Amendments to IFRS 3 ‘Business Combinations’: Definition
of a Business (issued on 22 October
2018);
◾
Amendments to IAS 1 and IAS 8: ‘Definition
of Material’ (issued on 31 October 2018); and
◾
Amendments to References to the Conceptual Framework
in IFRS Standards (issued on 29 March
2018).
Effective in 2022:
◾
Amendments to IAS 1 ‘Presentation of Financial Statements’: Classification of Liabilities as
Current or Non-current (issued on 23 January 2020).
The IASB has also issued IFRS 17 ‘Insurance Contracts’. The original effective date of IFRS 17 was 1
January 2021, but in June 2019 the IASB has published an Exposure Draft proposing 1 January
2022 as the new effective date. ING Group is currently assessing the detailed impact of IFRS 17.
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2019 ING Group Annual Report on Form 20-F
F - 16
1.4.3 Changes to accounting policies in 2019
IFRS 16 ‘Leases’
IFRS 16 ‘Leases’ was issued by the IASB in January 2016. IFRS 16 replaces IAS 17 ‘Leases’, IFRIC 4
‘Determining whether an Arrangement contains a Lease’, SIC-15 ‘Operating Leases
-
Incentives’ and
SIC-27 ‘Evaluating the Substance of Transactions
Involving the Legal Form
of a Lease’. ING Group
has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives
for
the 2018 and 2017 reporting periods, as permitted under the specific
transitional provisions in the
Standard, the so-called ‘modified retrospective approach'. The reclassifications and the
adjustments arising from the new leasing rules are therefore
recognised in the opening statement
of financial position
on 1 January 2019.
IFRS 16 ‘Leases’ – Impact of adoption
Transition
For lessee accounting, the new Standard removes
the distinction between operating and finance
leases. All leases are recognised on the statement of financial position with exemptions for short-
term leases with a lease term of less than 12 months and leases of low-value assets (for example
mobile phones or laptops).
There is no significant impact of the adoption of IFRS
16 on ING Group’s Net Result, Comprehensive
income and Shareholders’ equity on transition. This follows ING Group’s implementation decision
where the value of the right-of-use asset is based on the value of the lease liability, adjusted for
any previously recognised prepaid
and/or accrued lease payments on that lease contract, as is
permitted under the Standard.
On transition to IFRS 16, ING Group recognised lease liabilities of EUR 1,301 million and right-of-use
assets of EUR 1,279 million equal to the lease liability adjusted for any previously recognised
prepaid or accrued lease payments on that lease.
The weighted average incremental borrowing
rate applied to lease liabilities recognised in the
statement of financial
position at the date of initial application is 2.47%.
The following table reconciles the future rental
commitments for operating lease contracts under
IAS 17 to the lease liability under IFRS 16 on transition to IFRS 16 as of 1 January 2019:
1 January
2019
Future rental
commitments for operating lease contract disclosed under IAS 17 as at 31 December
2018
1,378
(Less) discounting effect using ING’s incremental borrowing
rate at 1-1-2019
–108
(Less) recognition
exemption for short-term leases
–16
(Less) recognition
exemption for low value assets
–3
(Less) non-lease components of a contract
–78
Add extension and termination options reasonably certain to be exercised
143
(Less) variable lease payments based on an index or a rate
–15
Lease liability recognised under IFRS 16 at 1 January 2019
1,301
In applying IFRS 16 for the first
time, ING Group has used the following practical expedients
permitted by the Standard:
◾
Reliance on previous assessments whether a contract
is, or contains a lease at the date of initial application;
◾
The use of a single discount rate to a portfolio of leases with reasonably similar
characteristics;
◾
Reliance on previous assessments on whether leases are
onerous;
◾
The accounting for operating leases with a remaining
lease term of less than 12 months as at 1 January 2019 as
short-term leases;
◾
The exclusion of initial direct costs for the measurement
of the right-of-use asset at the date of initial application;
and
◾
The use of hindsight in determining the lease term where the contract contains options to extend
or terminate
the lease.
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2019 ING Group Annual Report on Form 20-F
F - 17
IFRS 16 ‘Leases’ – Accounting policies applied from 1 January 2019
ING Group as the lessee
A lessee is required to recognise
a right-of-use asset representing its right to
use the underlying leased asset and a
corresponding liability representing
its obligation to make lease payments at the date at which the leased asset is
available for use by ING Group.
Each lease payment is allocated between the repayment
of the liability and finance
cost. The finance costs are charged to profit or loss over the lease period so as to produce a constant
periodic rate of
interest on the remaining balance of the liability for
each period. The right-of-use asset is depreciated over the
shorter of the asset’s useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured
on a present value basis. Lease
liabilities include the
net present value of the following lease payments:
◾
Fixed payments (including in-substance fixed payments), less any lease incentives receivable;
◾
Variable lease payments that are
based on an index or a rate;
◾
Amounts expected to be payable by the lessee under residual value guarantees;
◾
The exercise price of a purchase
option if the lessee is reasonably certain to exercise
that option; and
◾
Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest
rate implicit in the lease. If that rate
cannot be readily
determined, the lessee’s incremental borrowing
rate is used, being the rate that the lessee would
have to pay to
borrow the funds necessary to obtain an asset of similar value in a similar economic environment
with similar terms
and conditions. This rate is approximated
by using the risk free rate applicable to the lease term, the currency
of the
lease payment and jurisdiction, with the Fund Transfer
Pricing (FTP) rate as an add-on. The FTP rate is used to
transfer interest rate
risk and funding and liquidity risk positions between the ING Group business and treasury
departments. It is determined by either ING Group or Local
Asset and Liability Committee (ALCO).
Right-of-use assets are measured at cost comprising
the amount of the initial measurement of the lease liability,
any lease payments made at or before the commencement date less any lease incentives
received and any initial
direct costs and restoration
costs.
Payments associated with short-term leases and leases of low-value assets are recognised
on a straight-line basis
as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets
comprise mainly IT-equipment (for example
mobile phones or laptops) and small items of office furniture.
The right-of-use asset is included in the statement of financial position line-item ‘Property and equipment’, the
lease liability is included in the statement of financial position line-item ‘Other liabilities’. Refer to Note 9 ‘Property
and equipment’ and Note 17 ‘Other liabilities’.
Subsequently, the right-of-use asset will amortise using a straight-line method to the income statement over the
life of the lease. The lease liability will subsequently increase for the accrual
of interest and decrease when
payments are made. Any remeasurement
of the lease liability due to a lease modification or other reassessment
result in a corresponding adjustment
to the carrying amount of the right-of-use asset.
ING Group as the lessor
When ING Group acts as a lessor, a distinction should be made between finance leases and operating leases. For ING
Group as a lessor these are mainly finance leases. The present value of the lease payments is recognised
as a
receivable under Loans
and advances to customers or Loans and advances
to banks. The difference between the
gross receivable
and the present value of the receivable
is unearned finance lease income. Lease income is
recognised over the term of the lease using the net investment
method (before tax), which reflects a constant
periodic rate of return.
Operating leases for lessees prior to 1 January 2019 under IAS 17
The comparative figures presented are
accounted for using the previous
Standard, IAS 17 ‘Leases’. Under this
Standard a distinction was made between finance leases and operating leases. A lease was considered
a finance
lease if it transfers substantially all risks and rewards
of the ownership of the asset. All other leases are operating
leases.
Leases entered into
by ING Group as a lessee were primarily operating
leases. The total payments under operating
leases were recognised
in the statement of profit or loss on a straight-line basis over the period of the lease.
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2019 ING Group Annual Report on Form 20-F
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1.5 Significant judgements and critical accounting estimates
and assumptions
The preparation of the consolidated financial statements requires management to make
judgements in the process of applying its accounting policies and to use estimates and
assumptions. The estimates and assumptions affect
the reported amounts of the assets and
liabilities and the amounts of the contingent assets and contingent liabilities at the balance sheet
date, as well as reported income and expenses for the year.
The actual outcome may differ from
these estimates. The process of setting assumptions is subject to internal control procedures and
approvals.
ING Group has identified areas that require management to make significant judgements and
use
critical accounting estimates and assumptions based on the information and financial
data that
may change in future periods. These areas are:
◾
The determination of the fair values of financial
assets and liabilities;
◾
Loan loss provisions; and
◾
Provisions.
For further discussion of the significant judgements and
critical accounting estimates and
assumptions in these areas, reference
is made to the relevant parts in paragraph
1.6 ‘Financial
instruments’, 1.17 ‘Provisions, contingent liabilities and contingent assets’
of Note 1 and the
applicable notes to the Consolidated financial statements.
1.6 Financial instruments
1.6.1
Recognition and derecogniti
on of financial instruments
Recognition of financial assets
Financial assets are recognised in the balance sheet when ING becomes a party to the contractual
provisions of the instrument. For a regular
way purchase or sale of a financial asset, trade date and
settlement
date accounting is applied depending on the classification
of the financial
asset.
Derecognition of financial assets
Financial assets are derecognised when the rights to receive
cash flows from the financial
assets
have expired or where
ING Group has transferred
substantially all risks and rewards of ownership. If
ING Group neither transfers nor retains substantially all the risks and rewards
of ownership of a
financial asset, it derecognises the financial
asset if it no longer has control over the asset. The
difference between the carrying amount of a financial asset that has been extinguished
and the
consideration received
is recognised in profit or loss.
Recognition of financial liabilities
Financial liabilities are recognised on the date that the entity becomes a party to the contractual
provisions of the instrument.
Derecognition of financial liabilities
Financial liabilities are derecognised when the obligation specified in the contract is discharged,
cancelled or expired. The difference between the carrying amount of a financial liability that has
been extinguished and the consideration paid is recognised in profit or loss.
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2019 ING Group Annual Report on Form 20-F
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1.6.2
Classification and measurement of financial instruments
Financial assets
ING Group classifies its financial
assets in the following measurement categories:
◾
those to be measured subsequently at fair value (either through OCI, or through profit or loss);
and
◾
those to be measured at amortised cost (AC).
At initial recognition, ING Group measures
a financial
asset at its fair value plus, in the case of a
financial asset not
at FVPL, transaction costs that are directly attributable to the acquisition of the
financial asset. Transaction costs of financial assets
carried at fair value through profit or loss (FVPL)
are expensed in the statement of profit or loss.
Financial assets - Debt instruments
The classification depends
on the entity’s business model for managing the financial
assets and the
contractual terms of the cash flows at initial recognition.
Business models
Business models are classified as Hold to Collect (HtC), Hold
to Collect and Sell (HtC&S) or Other
depending on how a portfolio of financial
instruments as a whole is managed. ING Group’s business
models are based on the existing management structure of the bank, and refined based on
an
analysis of how businesses are evaluated and reported, how their specific business risks are
managed and on historic and expected future sales. Sales are permissible in a HtC business model
when these are due to an increase in credit risk, take place close to the maturity date (where the
proceeds from the sales approximate
the collection of the remaining contractual cash flows), are
insignificant in value (both individually
and in aggregate) or are infrequent.
Contractual cash flows Solely Payments
of Principal and Interest (SPPI)
The contractual cash flows of a financial
asset are assessed to determine whether they represent
SPPI. Interest includes consideration for the time value of money, credit risk and also considera
tion
for liquidity risk and costs associated with holding the financial
asset for a particular period of time.
In addition, interest can include a profit margin that is consistent with a basic lending arrangement.
Financial assets with embedded derivatives are considered in their entirety when determining
whether their cash flows are SPPI.
In assessing whether the contractual cash flows are SPPI, ING Group considers the contractual
terms of the instrument. This includes assessing whether the financial
asset contains a contractual
term that could change the timing or amount of contractual cash flows such that it would not
meet this condition. In making the assessment, terms such as the following are considered, with an
example of an SPPI failure for each consideration:
◾
prepayment terms. For example a prepayment
of an outstanding principal amount plus a
penalty which is not capped to three or six months of interest;
◾
leverage features,
which increase the variability of the contractual cash flows with the result that
they do not have the economic characteristics of interest. An example is a Libor contract with a
multiplier;
◾
terms that limit ING Group’s claim to cash flows from specified
assets - e.g. non-recourse asset
arrangements. This could be the case if payments of principal and interest are met solely by the
cash flows generated by the underlying asset, for example instances in real estate, shipping and
aviation financing;
and
◾
features that modify consideration of the time value of money. These are contracts
with for
example an interest rate which is reset
every month to a one-year rate. ING Group
performs
either a qualitative or quantitative benchmark test on a financial
asset with a modified
time
value of money element. A qualitative test is performed when it is clear with little or no analysis
whether the contractual cash flows solely represent SPPI.
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2019 ING Group Annual Report on Form 20-F
F - 20
Based on the entity’s business model for managing the financial
assets and the contractual terms
of the cash flows, there are three measurement categories into which ING Group classifies its debt
instruments:
◾
Amortised Cost (AC):
Debt instruments that are held for collection of contractual cash flows under a HtC business
model where those cash flows represent SPPI are measured
at AC. Interest income from these
financial assets is included
in Interest income using the EIR method. Any gain or loss arising on
derecognition is recognised directly in profit or loss. Impairment losses are presented as a
separate line item in the Consolidated statement of profit
or loss.
◾
FVOCI:
Debt instruments that are held for collection of contractual cash flows and for selling the
financial assets under
a HtC&S business model, where the assets’ cash flows represent SPPI, are
measured at FVOCI. Movements in the carrying amount are
recognised in OCI, except for the
recognition of impairment gains or losses, interest revenue
and foreign exchange gains and
losses which are recognised in profit or loss. When the financial asset
is derecognised, the
cumulative gain or loss previously recognised in OCI
is reclassified from equity to profit or loss
and presented in Investment income or Other income, based on the specific characteristics of
the business model. Interest income from these financial assets is included in Interest income
using the EIR method. Impairment losses are presented as a separate line item in the
Consolidated statement of profit or loss.
◾
FVPL:
Debt instruments that do not meet the criteria for AC or FVOCI are measured at FVPL. This
includes debt instruments that are held-for-trading (presented separately
as Trading
assets)
and all other debt instruments that do not meet the criteria for AC or FVOCI (presented
separately as Mandatorily at FVPL). ING Group may in some cases, on initial recognition,
irrevocably designate a financial asset as classified
and measured at FVPL. This is the case
where doing so eliminates or significantly reduces an accounting mismatch that would
otherwise arise on assets measured at AC or FVOCI. Fair
value movements on trading securities,
trading loans and deposits (mainly reverse repo’s)
are presented fully within valuation result
and net trading income, this also includes interest. The interest arising on financial assets
designated as at FVPL is recognised in profit or loss and presented within Interest income or
Interest expense in the period in which it arises. The interest arising on a debt instrument that is
part of a hedge relationship, but not subject to hedge accounting, is recognised in profit or loss
and presented within Interest income or Interest
expense in the period in which it arises.
ING Group reclassifies debt investments when, and only when, its business model for managing
those assets changes. Such changes in business models are expected to be very infrequent. There
have been no reclassifications during the reporting period.
Financial assets - Equity instruments
All equity investments are measured at fair
value. ING Group applies the fair value through
OCI
option to investments which are considered strategic,
consisting of investments that add value to
ING Group’s core banking activities.
There is no subsequent recycling of fair value gains and losses to profit or loss following the
derecognition of investments if elected to be classified and measured as FVOCI. Dividends from
such investments continue to be recognised in profit or loss as Investment income when ING
Group’s right to receive
payments is established. Impairment requirements are not applicable to
equity investments classified and measured as FVOCI.
Other remaining equity investments are measured
at FVPL. All changes in the fair value are
recognised in Valuation
result and Net trading income in the Consolidated statement of profit or
loss.
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2019 ING Group Annual Report on Form 20-F
F - 21
Financial liabilities
Financial liabilities are classified and subsequently measured at AC, except for financial guarantee
contracts, derivatives and liabilities designated at FVPL. Financial liabilities classified
and measured
at FVPL are presented as follows:
◾
the amount of change in the fair value that is attributable to changes in own credit risk of the
liability designated at FVPL is presented in OCI. Upon derecognition this Debit Valuation
Adjustment (DVA)
impact does not recycle from OCI to profit or loss; and
◾
the remaining amount of change in the fair value is presented in profit or loss in ‘Valuation
results and net trading income’. Interest
on financial liabilities
at FVPL is also recognised in the
valuation result, except for items voluntarily
designated as FVPL for which interest is presented
within ‘Other interest income (expense).
A financial guarantee contract is a contract that requires ING Group to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make
payment when
due in accordance with the original or modified terms of a debt instrument. Such a contract is
initially recognised at fair value and is subsequently measured at the higher of (a) the amount
determined in accordance with impairment provisions of IFRS 9 (see section “Impairment of
financial assets”) and
(b) the amount initially recognised less, when appropriate, cumulative
amortisation recognised in accordance with the revenue
recognition principle of IFRS 15.
1.6.3
Fair values of financial assets and
liabilities
All financial assets and
liabilities are recognised initially at fair value.
Subsequently, except for
financial assets and
financial liabilities
measured at amortised cost, all the other financial
assets
and liabilities are measured at fair value.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. It assumes that
market participants would use and take into account the characteristics of the asset or liability
when pricing the asset or liability. Fair values of financial assets and liabilities
are based on
unadjusted quoted market prices where available. Such quoted market prices are primarily
obtained from exchange prices for listed financial instruments. Where an exchange price is not
available, quoted prices in an active market may be obtained from independent market vendors,
brokers, or market makers. In general, positions are valued at the bid price for a long position and
at the offer price for a short position or are valued at the price within the bid-offer spread that is
most representative of fair value
in the circumstances. In some cases where positions are marked
at mid-market prices, a fair value adjustment is calculated.
For certain financial assets and liabilities, quoted market prices are not available. For such
instruments, fair value is determined using valuation techniques. These range from discounting of
cash flows to various valuation models, where relevant
pricing factors including the market price of
underlying reference instruments, market parameters (volatilities, correlations
and credit ratings),
and customer behaviour are taken into account. ING maximises the use of market observable
inputs and minimises the use of unobservable inputs in determining the fair value. It can be
subjective dependent on the significance
of the unobservable input to the overall valuation. All
valuation techniques used are subject to internal review and approval.
Most data used in these
valuation techniques are validated on a daily basis when possible.
When a group of financial assets and liabilities are managed on the basis of their net risk
exposures, the fair value of a group of financial assets and liabilities are measured on a net portfolio
level.
To
include credit risk in fair value, ING applies both Credit and Debit Valuation
Adjustments (CVA,
DVA).
Own issued debt and structured notes that are designated as measured at FVPL are adjusted
for credit risk by means of a DVA.
Additionally, derivatives valued at fair value are adjusted for
credit risk by a CVA.
The CVA
is of a bilateral nature as both the credit risk on the counterparty as
well as the credit risk on ING are included in the adjustment. All input data that is used in the
determination of the CVA is based on market implied data. Additionally, wrong-way risk (when
exposure to a counterparty is increasing and the credit quality of that counterparty deteriorates)
and right-way risk (when exposure to a counterparty is increasing and the credit quality of that
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counterparty improves) are
taken into account in the measurement of the valuation adjustment.
ING applies an additional ‘Funding Valuation
Adjustment’ (FVA) to the uncollateralised
derivatives
based on the market
price of funding liquidity.
Significant judgements and critical accounting estimates and assumptions:
Even if market prices are available, when markets are
less liquid there may be a range of prices for
the same security from different price sources. Selecting the most appropriate price requires
judgement and could result in different estimates of fair value.
Valuation techniques are
subjective in nature and significant judgement
is involved in establishing
fair values for certain financial assets and liabilities. Valuation techniques involve various
assumptions regarding pricing factors. The use of different valuation techniques and assumptions
could produce significantly different estimates of fair value.
Price testing is performed to assess whether the process of valuation has led to an appropriate fair
value of the position and to an appropriate reflection of these valuations in the statement of profit
or loss. Price testing is performed to minimise the potential risks for economic losses due to
incorrect or misused models.
Reference is made to Note 38 ‘Fair
value of assets and liabilities’ and Market risk paragraph in the
‘Risk management’ section of the Annual Report for the basis of the determination
of the fair value
of financial instruments
and related sensitivities.
1.6.4
Credit risk management classification and maximum credit
risk exposure
Credit risk management disclosures are provided
in the Credit risk’ paragraph ‘Credit
risk categories’
of the ‘Risk management’ section in the Annual Report.
The maximum credit risk exposure for items in the statement of financial position is generally the
carrying value for the relevant financial assets. For the off-balance sheet items the maximum credit
exposure is the maximum amount that could be required to be paid. Re
ference is made to Note 45
‘Contingent liabilities and commitments’ for these off-balance sheet items. Collateral received is
not taken into account when determining the maximum credit risk exposure.
The manner in which ING Group manages credit risk and determines credit risk exposures for that
purpose is explained in the Credit risk paragraph ‘Credit
Risk Appetite and Concentration Risk
Framework’
of the ‘Risk management’ section in the Annual Report.
1.6.5
Derivatives and hedge accounting
Derivatives are initially recognised
at fair value on the date on which a derivative contract is
entered into and are subsequently measured at fair value.
Fair values are
obtained from quoted
market prices in active markets, including market transactions and valuation techniques (such as
discounted cash flow models and option pricing models),
as appropriate. All derivatives are
carried
as assets when their fair value is positive and as liabilities when their fair value is negative. Fair
value movements on derivatives are
presented in profit or loss in Valuation result
and net trading
income, except for derivatives in either a formal hedge relationship and so-called economic hedges
that are not in a formal hedge accounting relationship where
a component is presented separately
in interest result in line with ING’s risk management strategy.
Embedded derivatives are separated from
financial liabilities
and other non-financial
contracts and
accounted for as a derivative if, and only if:
a) the economic characteristics and risks of the embedded derivative are not closely related to the
economic characteristics and risks of the host contract;
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b) a separate instrument with the same terms as the embedded derivative would meet the
definition of a derivative; and
c) the combined instrument is not measured at fair value with changes in fair value reported in
profit or loss.
If an embedded derivative is separated, the host contract is accounted for as a similar free-
standing contract.
The method of recognising the resulting fair value
gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being hedged. The Group
designates certain derivatives as hedges of the fair value of recognised assets or liabilities or firm
commitments (fair value hedge), hedges of highly probable future cash flows attributable to a
recognised asset or liability or a forecast transaction (cash flow hedge), or hedges of a net
investment in a foreign operation.
Hedge accounting is used for derivatives designated in this way
provided certain criteria are met.
At the inception of the transaction ING Group documents the relationship between hedging
instruments and hedged items, its risk management objective, together with
the methods selected
to assess hedge effectiveness. The Group also documents its assessment,
both at hedge inception
and on an ongoing basis, of whether the derivatives that are used in hedging transactions are
highly effective in offsetting
changes in fair values or cash flows of the hedged items.
ING Group applies also macro cash flow hedge accounting to hedge the variability in future cash
flows of non-trading assets and liabilities due to the interest rate risk and foreign currency
exchange rate risk. The designated hedged items are floating rated assets or liabilities, such as
floating rate mortgages and corporate loans. The effective portion
of changes in the fair value of
the derivatives are recognised
in the Other Comprehensive Income.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are
recognised in the statement of profit or loss, together with fair value adjustments to the hedged
item attributable to the hedged risk. If the hedge relationship no longer meets the criteria for hedge
accounting, the cumulative adjustment of the hedged item is, in the case of interest bearing
instruments, amortised through the statement of profit or loss
over the remaining term of the
original hedge or recognised directly when the hedged item is derecognised. For non-interest
bearing instruments, the cumulative adjustment of the hedged item is recognised in the statement
of profit or loss only when the hedged item is derecognised.
Cash flow hedges
The effective portion of changes in the
fair value of derivatives that are designated and qualify as
cash flow hedges are recognised in the Other Comprehensive Income.
The gain or loss relating to
the ineffective portion is recognised immediately in the statement of profit
or loss. Amounts
accumulated in the Other Comprehensive Income are
recycled to the statement of profit or loss in
the periods in which the hedged item affects
net result. When a hedging instrument expires or is
sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or
loss existing in the Other Comprehensive Income at that time remains in the Other Comprehensive
Income and is recognised when the forecast transaction is ultimately recognised
in the statement
of profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or
loss that was reported in the Other Comprehensive Income is transferred
immediately to the
statement of profit or loss.
Net investment hedges
Hedges of net investments in foreign operations are
accounted for in a similar way to cash flow
hedges. Any gain or loss on the hedging instrument relating to the effective portion
of the hedge is
recognised in the Other Comprehensive
Income and the gain or loss relating to the ineffective
portion is recognised immediately in the statement of profit or loss. Gains and losses accumulated
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in the Other Comprehensive Income are
included in the statement of profit or loss when the foreign
operation is disposed.
Specific policies applicable from 1 January 2019 for hedges directly affected by IBOR reform
ING Group early adopts the amendments as described in paragraph 1.4.1 ‘Changes in IFRS effective
in 2019’ of Note 1. The amendments provide temporary reliefs which enable hedge accounting to
continue during the period of uncertainty before the replacement of an existing interest rate
benchmark with an alternative nearly risk-free interest rate
(an “RFR”). The following temporary
reliefs are part of the amendment:
●
Highly probable requirement for
cash flow hedges
When determining whether a forecast transaction is highly probable, it is assumed that the
interest rate benchmark on which the hedged cash flows are based is not altered as a result
of
the reform.
●
Prospective
assessment of hedge effectiveness
When performing the prospective assessment it is assumed that the interest rate benchmark on
which the hedged cash flows are based is not altered as a result of the reform.
●
Retrospective assessment of hedge effectiveness
When performing the retrospective assessment hedges are allowed to pass the assessment
even if actual results are outside the 80-125% range,
during the period of uncertainty arising
from the IBOR reform.
●
Designation of a component of an item as a hedged item
For hedges of the benchmark component of interest rate risk affected by the reform, the
separately identifiable requirement only needs to be demonstrated at the inception of such
hedging relationships (including macro hedges).
The amendments are relevant
given that ING Group hedges and applies hedge accounting to
benchmark interest rate exposure part of IBOR reform
.
Hedging instruments and hedged items
continue to be indexed by the IBOR benchmark rates. Therefore,
there is uncertainty over the
timing and the amount of the replacement rate cash flows. ING Group will cease to apply the
amendments when this uncertainty is no longer present or when the hedging relationship is
discontinued.
Non-trading derivatives
that do not qualify for hedge accounting
Derivative instruments that are used by the Group as part of its risk management strategies, but
which do not qualify for hedge accounting under ING Group’s accounting policies, are presented as
non-trading derivatives. Non-trading derivatives
are measured at fair value with changes in the fair
value taken to the statement of profit or loss.
1.6.6
Offsetting of financial assets and financial liabilities
Financial assets and financial
liabilities are offset, and the net amount reported, in the statement of
financial position when
the Group has a current legally enforceable
right to set off the recognised
amounts and intends to either settle on a net basis or to realise the asset and settle the liability
simultaneously. Offsetting is applied to certain interest rate swaps for which the services of a
central clearing house are used.
1.6.7
Repurchase transactions
and reverse
repurchase transactions
Securities sold subject to repurchase agreements (repos), securities lending and similar agreements
continue to be recognised in the consolidated statement of financial position. The counterparty
liability is measured at FVPL (designated) and included in Other financial
liabilities at FVPL if the
asset is measured at FVPL. Otherwise, the counterparty liability is included in Deposits from banks,
Customer deposits, or Trading,
as appropriate.
Securities purchased under agreements to resell (reverse
repos), securities borrowings and similar
agreements are not recognised
in the consolidated statement of financial
position. The
consideration paid to purchase securities is recognised as Loans
and advances to customers, Loans
and advances to banks, Other financial
assets at FVPL or Trading
assets, as appropriate. The
difference between the sale and repurchase
price is treated as interest and amortised over the life
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of the agreement using the effective interest method for instruments that are not measured at
FVPL.
1.6.8
Impairment of financial assets (IFRS 9)
An ECL model is applied 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.
Under the
ECL model ING Group calculates the allowance for credit
losses (loan loss provision, LLP)
by considering on a discounted basis the cash shortfalls it would incur in various default scenarios
for prescribed future periods and multiplying the shortfalls by the probability of each scenario
occurring. The LLP is the sum of these probability-weighted outcomes and the ECL estimates are
unbiased and include supportable information about past events, current conditions, and forecasts
of future economic conditions. ING Group’s approach
leverages the existing regulatory capital
models that use the Advanced Internal Ratings Based (AIRB) models for regulatory purposes.
Three stage approach
Financial assets are classified in any of the below 3 Stages at each
reporting date. A financial asset
can move between Stages during its lifetime. The Stages are
based on changes in credit quality
since initial recognition and defined as follows:
◾
Stage 1: 12 month ECL;
Financial assets that have not had a significant
increase in credit risk since initial recognition (i.e.
no
Stage 2 or 3 triggers apply). Assets are classified as stage 1 upon initial
recognition (with the
exception of purchased or originated credit impaired
(POCI) assets) and have a provision for ECL
associated with the probability of default (PD) events occurring with the next 12 months (12
months ECL). For those financial assets with a remaining maturity of less than 12 months, a PD is
used that corresponds to the remaining maturity;
◾
Stage 2: Lifetime ECL not credit impaired
Financial assets showing a significant increase in credit risk since initial recognition. A provision is
made for the life time ECL representing losses over
the life of the financial instrument (lifetime
ECL);
or
◾
Stage 3: Lifetime ECL credit impaired
Financial instruments that are credit impaired require
a life time provision.
Significant increase in credit risk
ING Group established a framework, incorporating quantitative
and qualitative indicators, to
identify and assess significant
increases in credit risk (SICR). This is used to determine the
appropriate ECL Staging for each financial asset.
The main determinate of SICR is a quantitative test, whereby the lifetime PD of an asset at each
reporting date is compared against its lifetime PD at the date of origination or purchase. If the delta
is above pre-defined absolute or relative PD thresholds, then an asset is considered to have
experienced a SICR, which is a trigger for movement between Stage 1 and Stage 2. In these
instances, assets will cease reporting a 12 month ECL, and instead report a lifetime ECL. Assets can
also return to Stage 1 if there is sufficient evidence that there has been a significant
reduction in
credit risk.
ING Group relies on a number of qualitative indicators to identify and assess SICR. These include:
◾
Forbearance status;
◾
Watch List status. Loans
on the Watch List are
individually assessed for Stage 2 classification;
◾
Intensive care management;
◾
Substandard Internal rating; and
◾
Arrears status.
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Credit impaired financial assets (Stage 3)
Financial assets are assessed for credit-impairment at each reporting date and more frequently
when circumstances warrant further assessment. Evidence of credit
-impairment includes arrears of
over 90 days on any material credit obligation, indications that the borrower is experiencing
significant financial
difficulty,
a breach of contract, bankruptcy or distressed restructuring.
An asset that is in stage 3 will move back to stage 2 when, as at the reporting date, it is no longer
considered to be credit-impaired.
The asset will migrate back to stage 1 when its credit risk at the
reporting date is no longer considered to have increased significantly since initial recognition.
Definition of default
ING Group has aligned the definition of credit impaired under IFRS 9 (Stage 3) with the definition
of
default for prudential purposes. This is also the definition
used for internal risk management
purposes.
Macroeconomic scenarios
ING has established a quarterly process whereby forward-looking macroeconomics
scenarios and
probability weightings are developed for ECL
calculation purposes. ING Group applies data
predominantly from a leading service provider
enriched with the internal ING Group view. A
baseline, up-scenario and a down-scenario are determined to reflect an unbiased and probability-
weighted ECL amount. As a baseline scenario, ING Group 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.
The alternative scenarios are based on observed forecast errors
in the past, adjusted for the risks
affecting the economy today and the forecast horizon. The probabilities assigned are based on the
likelihoods of observing the three scenarios and are derived from confidence intervals on a
probability distribution. The forecasts for the economic variables are
adjusted on a quarterly basis.
Measurement of ECL
ING Group applies a collective assessment method to measure ECL for performing (Stage 1), under-
performing (Stage 2), and certain non-performing (Stage 3) assets. Other non-performing assets
subject to ECL measurement apply the individual assessment method, and are all in Stage 3.
Collectively assessed
assets (Stages 1 to 3)
This is a model-based approach that calculates ECL in a formula that is expressed simplistically as
PD x EAD x LGD, adjusted for the time value of money. Assets that are collectively assessed are
grouped on the basis of similar credit risk characteristics, taking into account loan type, industry,
geographic location, collateral type, past due status and other relevant
factors. These
characteristics are relevant
to the estimation of future cash flows for groups of such assets by
being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of
the assets being evaluated.
For Stage 3 assets the PD equals 100% and the LGD and EAD represent
a lifetime view of the losses
based on characteristics of defaulted facilities.
To
build the IFRS 9 models, ING Group’s expected loss models (PD, LGD, EAD) used for regulatory
and capital purposes have been adjusted by removing embedded prudential conservatism (such as
floors) and converted through-the-cycle estimates to point-in-time estimates to support the
calculation of collective-assessment ECL under IFRS 9. The models assess ECL on the basis of
forward-looking macroeconomic forecasts
and other inputs. For most financial assets, the expected
life is limited to the remaining maturity. For overdrafts
and certain revolving credit facilities, such as
credit cards, the maturity is estimated based on historical data as these do not have a fixed term or
repayment schedule.
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Individually assessed assets (Stage
3)
ING Group estimates individual impairment provisions for individually significant credit impaired
financial assets within
Stage 3. Individual provisions are calculated using the discounted expected
future cash flow method. To determine expected future cash flows, one or more scenarios are
used. Each scenario is analysed based on the probability of occurrence and including forward
looking information.
In determining the scenarios, all relevant factors impacting the future cash flows are taken into
account. These include expected developments in credit quality, business and economic forecasts,
and estimates of if/when recoveries will occur and taking into account ING’s restructuring/recovery
strategy.
The best estimate of ECL is calculated as the weighted-average of the shortfall (gross carrying
amount minus discounted expected future cash flow using the original EIR)
per scenario, based on
best estimates of expected future cash flows. Recoveries can be from different sources including
repayment of the loan, collateral recovery,
asset sale etc. Cash flows from collateral and other
credit enhancements are included in the measurement of the expected credit losses of the related
financial asset
when it is part of or integral to the contractual terms of the financial asset and the
credit enhancement is not recognised separately. For
the individual assessment, with granular
(company or deal-specific)
scenarios, specific factors
can have a larger impact on the future cash
flows than macroeconomic factors.
When a financial
asset is credit-impaired, interest ceases to be
recognised on the regular accrual
basis, which accrues income based on the gross carrying amount of the asset. Rather, interest
income is calculated by applying the original EIR to the AC of the asset, which is the gross carrying
amount less the related loan loss provision.
Purchased
or Originated Credit Impaired (POCI) assets
POCI assets are financial assets that are credit-impaired on initial recognition. Impairment on a
POCI asset is determined based on lifetime ECL from initial recognition. POCI assets are recognised
initially at an amount net of impairments and are measured at AC using a credit-adjusted effective
interest rate.
In subsequent periods any changes to the estimated lifetime ECL are recognised in
profit or loss. Favourable changes are recognised
as an impairment gain even if the lifetime ECL at
the reporting date is lower than the estimated lifetime ECL at origination.
Modifications
In certain circumstances ING grants borrowers
postponement and/or reduction of loan principal
and/or interest
payments for a temporary period of time to maximise collection opportunities, and
if possible, avoid default, foreclosure,
or repossession. When such postponement and/or reduction
of loan principal and/or interest payments is executed based on credit
concerns it is also referred to
as forbearance (refer
to the ‘Risk Management’
section of the Annual Report for more details). In
such cases, the net present value of the postponement and/or reduction of loan and/or
interest
payments is taken into account in the determination of the appropriate level of impairment loss. If
the forbearance results in a substantial modification of the terms of the loan, the original loan is
derecognised and a new loan is recognised at its fair value at the modification date. ING Group
determines whether there has been a substantial modification
using both quantitative and
qualitative factors.
Write-off and debt forgiveness
If there is no reasonable expectation of recovery
and/or collectability of amounts due a write-off
can occur.
The following events can lead to a write-off:
◾
After a restructuring has been completed and there is a high improbability of recovery of part of
the remaining loan exposure (including partial debt forgiveness);
◾
In a bankruptcy liquidation scenario;
◾
After divestment or sale of a credit facility at a discount;
◾
Upon conversion of a credit facility into equity; or
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◾
ING Group releases a legal (monetary) claim it has on its customer.
When a loan is uncollectable, it is written off against
the related loan loss provision. Subsequent
recoveries of amounts previously
written off are recognised in the statement of profit or loss.
Debt forgiveness (or debt settlement) involves write-off but additionally involves the forgiveness
of
a legal obligation, in whole or in part. This means that ING forfeits the legal right to recover the
debt. As a result, the financial asset needs to be derecognised. Distinction is
made in situations
where ING ends the relationship with the client and situations where ING (partially) continues the
financing of the client.
Presentation of ECL
Loss allowances for financial assets measured at AC are deducted from the gross
carrying amount
of the assets. For debt instruments at FVOCI, the loss allowance is recognised in OCI, instead of
deducting the carrying amount of the asset. For impaired financial assets with
drawn and undrawn
components, ECL also reflects any credit losses related to the portion of the loan commitment that
is expected to be drawn down over the remaining life of the instrument. The loss allowance on
issued financial
guarantee contracts, in scope of IFRS 9 and not measured at FVPL, are recognised
as liabilities and presented in Other provisions. ECL are
presented in profit or loss in Addition to loan
loss provision.
Significant judgements and critical accounting estimates and assumptions:
Considerable management judgement is exercised in determining the amount of LLP for financial
assets assessed on both a collective and an individual impairment basis. In particular,
this
judgement requires ING Group to make various assumptions about the risk of default, the
subsequent expected loss rates in the event of default, and expected future cash flows. These
assumptions are based on a combination of the Group’s past history, existing market conditions
and forward-looking estimates at the end of each reporting period. Changes in these assumptions
may lead to changes in the LLP over time. Given they are subjective and complex in nature, and
because the LLP and the underlying exposures subject to impairment assessment are material,
these assumptions are considered critical accounting assumptions.
The sensitivity of these
assumptions is assessed in the credit risk section of the ‘Risk Management’ section
in the Annual
Report.
The critical accounting estimates and assumptions are:
The use of forward-looking macroeconomic scenarios in both collective and individual impairment
assessments. Forward-looking macroeconomic
scenarios are subjective and uncertain in nature.
The process the Group follows
involves using inputs from third
party provider Oxford Economics
(OE), and subjecting these to internal expert review and challenge to ensure the inputs used in the
models reflect ING’s view on the macro economy. Two internal groups, the Macroeconomics
Scenarios Team
and the Macroeconomics Scenarios Expert Panel, were established for this purpose.
The latter team consists of senior management representatives from
the Business, Risk and
Finance.
The use of alternate forward-looking macroeconomic scenarios can produce
significantly
different estimates of ECL. This is demonstrated in the sensitivity analysis in the ‘Risk Management’
section of the Annual Report, where the un-weighted ECL under each of the three scenarios for
some significant portfolios
is disclosed.
The probability weights applied to each of the three scenarios. This is a management judgement
that ultimately requires estimation and consideration of the range
of possibilities. This ensures
consensus view on the likelihood of each scenario materializing is appropriately reflected in the
weights applied by the Group for collective assessment ECL calculations. The sensitivity analysis in
the ‘Risk Management’ section of the Annual Report discloses
these weights used.
The significant judgements
are:
The criteria for identifying a significant
increase in credit risk. When determining whether the credit
risk on a financial
asset has increased significantly, ING Group considers reasonable and
supportable information available to compare the risk of default occurring at reporting date with
the risk of a default occurring at initial recognition of the financial asset. Whilst judgement
is
required in applying each financial asset with a PD rating, there is significant judgement used in
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determining the stage allocation PD banding thresholds. The process of comparing a financial
asset’s PD with the PD banding thresholds determines its ECL stage. Assets in Stage 1 are allocated
a 12 month ECL, and those in Stage 2 are allocated a lifetime ECL, and the difference is often
significant. As such, the judgement
made both in assigning financial
asset PDs and in setting PD
banding thresholds constitute a significant judgement. Analysis
of the sensitivity associated with
the assessment of significant
increase in credit risk is presented in the ‘Risk Management’ section of
the Annual Report.
The definition of default. Judgement is
exercised in management’s evaluation of whether there is
objective evidence of impairment loss has been incurred for larger exposures. Management
judgement is required in assessing evidence of credit
-impairment.
1.7
Financial instruments, prior to 1 January
2018 under IAS 39
The following is applicable to periods prior to 1 January 2018 for financial
instruments accounted
for under IAS 39, to the extent not already discussed earlier in this section. The 2017 comparative
period was not restated for the adoption of IFRS 9.
1.7.1
Classification and measurement of financial assets and financial liabilities
(IAS 39)
Financial assets and liabilities designated at fair
value through profit or
loss
Management will designate a financial
asset or a financial
liability as such only if this eliminates a
measurement inconsistency, if the related assets and liabilities are managed on a fair value basis
or classified as an
embedded derivative as described below.
Interest income and expense from financial instruments classified
at fair value through profit or
loss is recognised in Interest income using the effective interest method (where
applicable). The
remaining changes in fair value of such instruments are recognised in Valuation
results and net
trading income in the statement of profit or loss. Dividend income from equity instruments
classified at fair value through profit or loss
is generally recognised in ‘Valuation
results and net
trading income’ in the statement of profit or loss when the dividend has been declared.
Embedded derivatives
Certain derivatives embedded in other contracts are measured
as separate derivatives when their
economic characteristics and risks are not closely related to those of the host contract, the host
contract is not carried at fair value through profit or loss, and if
a separate instrument with the
same terms as the embedded derivative would meet the definition of a derivative. These
embedded derivatives are measured at fair value
with changes in fair value recognised in the
statement of profit or loss. An assessment is carried out when ING Group first
becomes party to the
contract. A reassessment is carried out only when there is a change in the terms of the contract
that significantly modifies
the expected cash flows.
Investments
Investments (including loans quoted in active markets) are classified
either as held-to-maturity or
available-for-sale. Investment debt securities and loans quoted in active markets with fixed
maturity where management has both the intent and the ability to hold to maturity are classified
as held-to-maturity. Investment securities and quoted loans intended to be held for an indefinite
period of time, which may be sold in response to needs for liquidity or changes in interest rates,
exchange rates or equity prices, are classified as available-for-sale financial
assets.
Available
-for-sale financial assets
Available-for
-sale financial
assets include available-for-sale debt securities and available-for-sale
equity securities. Available-for-sale financial assets are initially recognised at fair value plus
transaction costs. For available-for-sale debt securities, the difference between cost and
redemption value is amortised. Interest income is recognised using the effective interest method.
Available-for
-sale financial
assets are subsequently measured at fair value. Interest
income from
debt securities classified
as available-for-sale is recognised in Interest income in the statement of
profit or loss. Dividend income from equity instruments classified
as available-for-sale is recognised
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in Investment income in the statement of profit or loss when the dividend has been declared.
Unrealised gains and losses arising from changes in the fair value are recognised
in equity and are
recycled to the statement of profit or loss as Investment income when the asset is disposed.
Investments in prepayment sensitive securities such as Interest-Only and Principal-Only strips are
generally classified as available-for-sale.
Held-to-maturity investments
Non-derivative financial assets with fixed
or determinable payments and fixed
maturity for which
ING Group has the positive intent and ability to hold to maturity and which are designated by
management as held-to-maturity assets are initially recognised at fair value plus transaction costs.
Subsequently, they are carried at AC using the effective interest method less any impairment
losses. Interest income from debt securities classified as held-to-maturity is recognised in Interest
income in the statement of profit or loss using the effective
interest method. Held-to-maturity
investments include only debt securities.
Loans and receivables
Loans and receivables
are non-derivative financial assets with fixed or determinable
payments that
are not quoted in an active market. They are initially recognised at fair value plus transaction costs.
Subsequently, they are carried at AC using the effective interest method less any impairment
losses. Loans and receivables
include Cash and balances with central banks, Loans and advances to
banks, Loans and advances to customers, and some categories of Other assets and are reflected in
these line items in the statement of financial
position. Interest income from loans and receivables is
recognised in Interest income in the statement of profit or loss using the effective interest method.
Impairments of financial assets at amortised cost (loan loss provisions)
(IAS 39)
ING Group assesses periodically and at each balance sheet date whether there is objective evidence
that a financial asset
or group of financial assets is impaired. A financial
asset or a group of
financial assets is impaired and impairment losses
are incurred if, and only if, there
is objective
evidence of impairment as a result of one or more events that
occurred after the initial recognition
of the asset, but before the balance sheet date, (a loss event) and that loss event (or events) has an
impact on the estimated future cash flows of the financial
asset or group of financial assets that
can be reliably estimated. The following circumstances, among others, are considered
objective
evidence that a financial asset or group of assets is impaired:
◾
The borrower has sought or has been placed in bankruptcy or similar protection and this leads to
the avoidance of or delays in repayment of the financial asset;
◾
The borrower has failed in the repayment of principal, interest,
or fees and the payment failure
has remained unsolved for a certain period;
◾
The borrower has demonstrated significant financial difficulty,
to the extent that it will have a
negative impact on the expected future cash flows of the financial
asset;
◾
The credit obligation has been restructured for non-commercial
reasons. ING Group has granted
concessions, for economic or legal reasons relating to the borrower’s
financial
difficulty,
the
effect of which is a reduction in the expected future cash flows
of the financial
asset; and
◾
Historical experience, updated for current events where
necessary, provides evidence that a
proportion of a group of assets is impaired although the related events
that represent
impairment triggers are not yet captured by ING Group’s credit
risk systems.
Losses expected as a result of future
events, no matter how likely, are not recognised.
ING Group first assesses whether objective
evidence of impairment (a loss event/trigger) exists
individually for financial assets
that are individually significant, and then individually or collectively
for financial assets that are not individually significant.
If ING Group determines that no objective
evidence of impairment (a loss event/trigger) exists for an individually assessed financial
asset,
whether significant
or not, it includes the asset in a group of financial assets
with similar credit risk
characteristics and collectively assesses them for impairment. Assets that are individually assessed
for impairment and for which an impairment loss is or continues to be recognised are not included
in a collective assessment of impairment.
If there is objective evidence that an impairment loss on an asset carried at AC has been incurred,
the amount of the loss is measured as the difference between the asset’s carrying amount and the
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present value of estimated future cash flows (excluding future credit
losses that have not been
incurred) discounted at the financial asset’s original
effective interest rate. The carrying amount of
the asset is reduced through the use of an allowance account (loan loss provision)
and the amount
of the loss is recognised in the statement of profit or loss under Addition to loan loss provision. If
the asset has a variable interest rate, the discount rate
for measuring any impairment loss is the
current effective interest rate determined under the contract.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised (such as an
improvement in the debtor’s credit rating),
the previously recognised impairment loss is reversed
by adjusting the provision. The amount of the reversal is recognised
in the statement of profit or
loss.
Impairments on other debt instruments (Loans and held-to-maturity investments) are part of the
loan loss provision as described above.
Impairment of AFS assets
At each balance sheet date, ING Group assesses whether there is objective evidence that a financial
asset or a group of financial assets is impaired. In the specific
case of equity investments classified
as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost
is considered in determining whether the assets are impaired. Significant and prolonged are
interpreted on a case-by-case basis for specific equity securities; generally 25% and six months are
used as triggers. If any objective evidence exists for available-for-sale debt and equity investments,
the cumulative loss, measured as the difference between the acquisition cost and the current
fair
value, less any impairment loss on that financial
asset previously recognised in net result,
is
removed from
equity and recognised in the statement of profit or loss. Impairment losses
recognised on equity
instruments can never be reversed. If, in a subsequent period, the fair value of
a debt instrument classified
as available-for-sale increases and the increase can be objectively
related to an event occurring after the impairment loss was recognised in the statement of profit or
loss, the impairment loss is reversed through the statement of profit or loss.
1.8
Consolidation
ING Group comprises ING Groep N.V.
(the Parent Company), ING Bank N.V.
and all other subsidiaries.
Subsidiaries are entities controlled by ING Groep N.V.
Control exists if ING Groep N.V.
is exposed or
has rights to variable returns and has the ability to affect those returns through the power over the
investee. Control
is usually achieved through situations including, but not limited to:
◾
Ownership, directly or indirectly, of more than half of the voting power;
◾
Ability to appoint or remove the majority of the board of directors;
◾
Power to govern operating
and financial
policies under statute or agreement; and
◾
Power over more
than half of the voting rights through an agreement with other investors.
The existence and effect of potential voting rights that are currently exercisable or convertible are
considered in assessing whether Group controls another entity.
For interests in
structured entities, the existence of control requires
judgement as these entities are
designed so that voting or similar rights are not the dominant factor in deciding who controls the
entity. This judgement includes, for example, the involvement in the design of the structured entity,
contractual arrangements that give rights to direct the structured entities relevant
activities and
commitment to ensure that the structured entity operates as designed.
A list of principal subsidiaries is included in Note 48 ‘Principal subsidiaries’.
A list containing the information referred to in Section 379 (1), Book 2 of the Dutch Civil Code has
been filed with the
office
of the Commercial Register of Amsterdam, in accordance
with Section 379
(5), Book 2 of the Dutch Civil Code.
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The results of the operations and the net assets of subsidiaries are included in the statement of
profit or loss and the statement of financial
position from the date control is obtained until the date
control is lost. On disposal, the difference between the sales proceeds, net of directly
attributable
transaction costs, and the net assets is included in net result.
A subsidiary which ING Group has agreed to sell but is still legally owned by ING Group may still be
controlled by ING Group at the balance sheet date and therefore,
still be included in the
consolidation. Such a subsidiary may be presented as a held for sale disposal group if certain
conditions are met.
All intercompany transactions, balances and unrealised surpluses and deficits on transactions
between group companies are
eliminated. Where necessary, the accounting policies used by
subsidiaries are changed to ensure consistency with group policies. In general, the reporting
dates
of subsidiaries are the same as the reporting date of ING Groep N.V.
ING Groep N.V.
and its Dutch group companies are subject to legal restrictions regarding the
amount of dividends they can pay to their shareholders. The Dutch Civil Code contains the
restriction that dividends can only be paid up to an amount equal to the excess of the company’s
own funds over the sum of the paid-up capital and reserves required
by law. Additionally, certain
Group companies are subject to restrictions on the amount of funds they may transfer in the form
of dividends, or otherwise, to the parent company.
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.
1.9
Segment reporting
An operating segment is a distinguishable component of the Group, engaged in providing products
or services, whose operating results are
regularly reviewed
by the Executive Board of ING Group
and the Management Board Banking (together the Chief Operating Decision Maker (CODM)) to
make decisions about resources to be allocated to the segments and assess its performance. A
geographical area is a distinguishable component of the Group engaged in providing products or
services within a particular economic environment that is subject to risks and returns that are
different from those of segments operating in other economic environments.
The CODM examines ING Group’s performance both by line of business and geographic perspective
and has identified
five reportable segments by line of business
and six by geographical area. The
geographical analyses are based on the location of the office from which the transactions are
originated.
1.10 Foreign currency
translation
Functional and presentation
currency
Items included in the financial
statements of each of the Group’s entities are measured using the
currency of the primary economic environment in which the entity operates (the functional
currency). The Consolidated financial statements are presented in euros, which is Group’s
presentation currency.
Transactions
and balances
Foreign currency
transactions are translated into the functional currency using the exchange rate
prevailing at the date of the transactions. Exchange rate
differences resulting from
the settlement
of such transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are
recognised in the statement of profit or loss, except
when deferred in equity as part of qualifying cash flow hedges or qualifying net investment hedges.
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Non-monetary items that are measured in terms of historical cost in a foreign currency
are
translated using the exchange rate at the date of the transaction.
Exchange rate differences on non-monetary items, measured
at fair value through profit or loss,
are reported as part of the fair value gain or loss. Non-monetary items are retranslated
at the date
fair value is determined. Exchange rate differences
on non-monetary items measured at fair value
through the revaluation
reserve are included in the revaluation
reserve in equity.
Exchange rate differences in the statement of profit or loss are generally included in ‘Valuation
results and net trading income’. Reference
is made to Note 23 ‘Valuation results
and net trading
income’, which discloses the amounts included in the statement of profit or loss.
Exchange rate
differences relating to the disposal of debt and FVPL equity securities are considered to be an
inherent part of the capital gains and losses recognised in Investment income. As mentioned
below, in Group companies relating to the disposals of group companies, any exchange rate
difference deferred in equity is recognised in the statement of profit or loss in ‘Result on disposal of
group companies’. Reference
is also made to Note 20 ‘Equity’, which discloses the amounts
included in the statement of profit or loss.
Group companies
The results and financial positions of all group companies that have a functional currency different
from the presentation currency
are translated into the presentation currency
as follows:
◾
Assets and liabilities included in each statement of financial
position are translated at the closing
rate at the date of that statement of financial position;
◾
Income and expenses included in each statement of profit or loss
are translated at average
exchange rates (unless this average is not a reasonable
approximation of the cumulative effect
of the rates prevailing
on the transaction dates, in which case income and expenses are
translated at the dates of the transactions); and
◾
All resulting exchange rate
differences are recognised in a separate
component of equity.
On consolidation, exchange rate differences arising from the translation of a monetary item that
forms part of the net investment in a foreign operation, and of borrowings and other instruments
designated as hedges of such investments, are taken to shareholders’ equity. When a foreign
operation is sold, the corresponding exchange rate
differences are recognised in the
statement of
profit or loss as part of the gain or loss
on sale.
Goodwill and fair value adjustments arising from the acquisition of a foreign operation are
treated
as assets and liabilities of the foreign operation and translated at the exchange rate
prevailing at
the balance sheet date.
1.11 Investments in associates
and joint ventures
Associates are all entities over which the Group has significant influence but not
control. Significant
influence is the ability to participate
in the financial
and operating policies of the investee. It
generally results from
a shareholding of between 20% and 50% of the voting rights or through
situations including, but not limited to one or more of the following:
◾
Representation on the board of directors;
◾
Participation in the policymaking process; and
◾
Interchange of managerial personnel.
Joint ventures are entities over
which the Group has joint control. Joint control is the contractually
agreed sharing of control over
an arrangement or entity, which exists only when decisions about
the relevant activities require
the unanimous consent of the parties sharing control. Joint control
means that no party to the agreement is able to act unilaterally to control the activity of the
entity. The parties to the agreement must act together to control the entity and therefore exercise
the joint control.
Investments in associates and joint ventures are
initially recognised at cost and subsequently
accounted for using the equity method of accounting.
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The Group’s investment in associates and joint ventures (net of any accumulated impairment loss)
includes goodwill identified
on acquisition. The Group’s share of its associates and joint ventures
post-acquisition profits or losses is recognised in the statement of profit or loss,
and its share of
post-acquisition changes in reserves is recognised in equity. The cumulative post-acquisition
changes are adjusted against the carrying amount of the investment. When the Group’s share of
losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture,
including any long-term interests in the associate like uncollateralised loans that are neither
planned nor likely to be settled in the foreseeable future, the Group does not recognise
further
losses, unless it has incurred obligations or made payments on behalf of the associate or joint
venture.
Unrealised gains on transactions between the Group and its associates and joint ventures
are
eliminated to the extent of the Group’s interest in the associates and joint ventures. Unrealised
losses are also eliminated unless they provide evidence of an impairment of the asset transferred.
Accounting policies of associates and joint ventures have been changed where necessary to ensure
consistency with the policies adopted by the Group. The reporting dates of all significant associates
and joint ventures are consistent with the reporting date of the Group.
1.12 Property and equipment
Property in own use
Land and buildings held for own use are stated at fair
value at the balance sheet date. Increases in
the carrying amount arising on revaluation of land and buildings held for own use are credited
to
the revaluation reserve
in shareholders’ equity. Decreases in the carrying amount that offset
previous increases of the same asset are
charged against the revaluation reserve
directly in equity;
all other decreases are charged
to the statement of profit or loss. Increases that reverse a
revaluation decrease
on the same asset previously recognised in net result
are recognised in the
statement of profit or loss. Depreciation is recognised based on the fair value and the estimated
useful life (in general 20–50 years). Depreciation is calculated on a straight
-line basis. On disposal,
the related revaluation
reserve is transferred
to retained earnings.
The fair values of land and buildings are based on regular appraisals done by independent qualified
valuers or by internal valuers, similar to appraisals of real estate investments. Subsequent
expenditure is included in the asset’s carrying amount when it is probable that future economic
benefits associated
with the item will flow to the Group and the cost of the item can be measured
reliably.
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.
Disposals of property and equipment
The difference between the proceeds on disposal and net carrying value is recognised
in the
statement of profit or loss under Other income.
1.13 Acquisitions, goodwill and other intangible
assets
Acquisitions and goodwill
ING Group’s acquisitions are accounted for using the acquisition method of accounting. The
consideration for each acquisition is measured at the aggregate of the fair values
(at the date of
exchange) of assets given, liabilities incurred or assumed, and equity instruments issued in
exchange for control of the acquiree.
Goodwill, being the difference between the cost of the
acquisition (including assumed debt) and the Group’s interest in the fair value of the acquired
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assets, liabilities and contingent liabilities as at the date of acquisition, is capitalised as an
intangible asset. Goodwill is only recognised separately on acquisitions. The results of the
operations of the acquired companies are
included in the statement of profit or loss from the date
control is obtained.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from
a contingent consideration arrangement, the contingent consideration is measured
at its
acquisition-date fair value. Contingent consideration arrangements
classified as
an asset or a
liability, are subsequently measured at fair value and the changes in fair value will be recognised in
the statement of profit or loss. Changes in the fair value of the contingent consideration classified
as equity, are not recognised.
Where a business combination is achieved in stages, ING Group’s previously
held interests in the
assets and liabilities of the acquired entity are remeasured
to fair value at the acquisition date (i.e.
the date ING Group obtains control) and the result
ing gain or loss, if any, is recognised in the
statement of profit or loss. Amounts arising from interests in the acquiree prior to the acquisition
date that have previously been recognised in other comprehensive
income are reclassified to the
statement of profit or loss, where such treatment would be appropriate if that interest were
disposed of. Acquisition related costs are
recognised in the statement of profit or loss as incurred
and presented in the statement of profit or loss as Other operating expenses.
The initial accounting for the fair value of the net assets of the companies acquired during the year
may be determined only provisionally as the determination of the fair value can be complex and
the time between the acquisition and the preparation of the Financial statements can be limited.
The initial accounting shall be completed within a year after acquisition. Adjustments
to the fair
value as at the date of acquisition of acquired assets and liabilities, that are identified within one
year after acquisition are recognised as an adjustment to goodwill; any subsequent adjustment is
recognised as income or expense. On disposal of group companies where control
is lost, the
difference between the sale proceeds and carrying value (including goodwill) and the unrealised
results (including the currency translation
reserve in equity) is included in the statement of profit or
loss.
Goodwill impairment
ING assesses at each reporting period, whether there is an indication that an intangible asset may
be impaired. Irrespective of whether there is an indication of impairment, intangible assets with an
indefinite useful life, including goodwill acquired in a business combination, and intangible assets
not yet available for use, are tested annually for impairment. Goodwill is allocated to groups of
CGUs (that is, the group of cash generating units or CGUs) for the purpose of impairment testing.
These groups of CGUs represent
the lowest level at which goodwill is monitored for internal
management purposes. Goodwill is tested for impairment by comparing the carrying value of the
group of CGUs to the recoverable
amount of that group of CGUs. The carrying value is determined
as the IFRS net asset value including goodwill. In compliance with IAS 36 ‘Impairment of assets’, the
carrying value is determined on a basis that is consistent with the way in which the recoverable
amount of the CGU is determined. When the carrying values need to be allocated between Retail
and Wholesale solvency (risk-weighted assets) are used as a basis. The recoverable
amount is
estimated as the higher of fair value less costs of disposal and value in use. Several
methodologies
are applied to arrive at the best estimate of the recoverable
amount. Impairment of goodwill, if
applicable, is included in the statement of profit or loss in Other operating expenses.
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.
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Other intangible assets
Other intangible assets are capitalised and amortised over their expected economic life, which is
generally
between three and ten years. Intangible assets with an indefinite life are not amortised.
1.14 Taxation
Income tax on the result for the year comprises current and deferred
tax. Income tax is recognised
in the statement of profit or loss but it is recognised directly in equity if the tax relates to items that
are recognised directly in equity.
Deferred income
tax
Deferred income tax is provided
in full, using the liability method, on temporary differences arising
between the tax basis of assets and liabilities and their carrying amounts in the consolidated
financial statements.
Deferred income tax is determined using tax rates (and laws) that have been
enacted or substantively enacted by the balance sheet date and are expected to apply when the
related deferred income tax
asset is realised or the deferred income tax liability is settled. Deferred
tax assets and liabilities are not discounted.
Deferred tax assets are recognised
where it is probable that future taxable
profit will be available
against which the temporary differences can be utilised. Deferred income tax is provided
on
temporary differences arising from investments
in subsidiaries and associates, except where the
timing of the reversal of the temporary difference
is controlled by the Group and it is probable
that
the difference will not reverse in the foreseeable
future. The tax effects of income tax losses
available for carry forward are
recognised as an asset where it is probable that future
taxable
profits will be available against which these losses can be utilised.
Fair value remeasurement
of debt and equity instruments measured at FVOCI and cash flow
hedges are recognised directly in equity. Deferred
tax related to this fair value remeasurement
is
also recognised directly in equity and is subsequently recognised in the statement of profit or loss
together with the deferred gain or loss.
Uncertain tax positions are assessed continually by ING Group and in case it is probable that there
will be a cash outflow; a current tax liability is recognised.
1.15 Other assets
Investment property
Investment properties are recognised at
fair value at the balance sheet date. Changes in the
carrying amount resulting from revaluations
are recognised in the statement of profit or loss. On
disposal, the difference between the sale proceeds and carrying value is recognised
in the
statement of profit or loss.
Property obtained
from foreclosures
Property obtained from foreclosures
is stated at the lower of cost and net realisable value. Net
realisable value is the estimated selling price, less applicable variable selling expenses. Property
obtained from foreclosures
is included in Other assets - Property development and obtained from
foreclosures.
Property development
Property developed and under development is included in Other assets – Property development
and obtained from foreclosures.
Depending on the intention of ING Group after completion of the
development, the property is measured as follows:
Intention to sell: at the lower of cost and net realisable value;
Intention to use as a real estate investment: at fair value.
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1.16 Disposal groups held for sale
and discontinued operations
Disposal groups (and groups of non-current assets) are
classified
as held for sale if their carrying
amount will be recovered
principally through a sale transaction rather than through continuing
use. This is only the case when the sale is highly probable and the disposal group (or group of
assets) is available for immediate sale in its present condition; management must be committed to
the sale, which is expected to occur within one year from the date of classification
as held for sale.
Upon classification as
held for sale, the disposal group is measured at the lower of its carrying
amount and fair value less costs to sell, except where specifically exempt from IFRS 5.
An
impairment loss is recognised for any initial or subsequent write-down of the disposal group to fair
value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to
sell of the disposal group, but not in excess of any cumulative impairment loss previously
recognised. A gain or loss not previously recognised
by the date of the sale of the disposal group is
recognised at the date of derecognition. Assets within the disposal group are not depreciated
or
amortised while they are classified as
held for sale. Interest and other expenses attributable to the
liabilities of a disposal group classified as
held for sale continue to be recognised. The assets of the
disposal group classified as held for sale are presented separately from the other assets in the
balance sheet. The liabilities of a disposal group classified
as held for sale are presented separately
from other liabilities in the balance sheet.
When a group of assets that is classified as held for sale represents a major line of business or
geographical area the disposal group is classified as discontinued operations. Upon classification
of
a business as held for sale and discontinued operations the individual income and expenses are
presented within the Total
net result from discontinued operations instead of being presented
in
the usual line items in the Consolidated statement of profit or loss. All comparative years in the
Consolidated statement of profit or loss are restated and presented as discontinued operations for
all periods presented. Furthermore, the individual assets and liabilities are presented
in the
Consolidated statement of financial position as Assets
and liabilities held for sale and are no longer
included in the usual line items in the Consolidated statement of financial
position. Changes in
assets and liabilities as a result of classification as held for sale are included in the notes in the line
‘Changes in composition of the group and other changes’.
1.17 Provisions, contingent liabilities
and contingent assets
A provision is a present obligation arising from past events,
the settlement of which is expected to
result in an outflow of resources embodying economic benefits, however the timing or the amount
is uncertain. Provisions are discounted when the effect of the time value of money is significant
using a pre-tax discount rate.
Reorganisation provisions include employee termination benefits when the Group is demonstrably
committed to either terminating the employment of current employees according to a detailed
formal plan without possibility of withdrawal, or providing termination benefits as a result of an
offer made to encourage voluntary redundancy.
A liability is recognised for a levy when the activity that triggers payment, as identified
by the
relevant legislation, occurs. For
a levy that is triggered upon reaching a minimum threshold, the
liability is recognised only upon reaching the specified minimum threshold.
A contingent liability is a possible obligation that arises from past events and whose existence will
be confirmed only
by the occurrence or non-occurrence of one or more
uncertain future events not
wholly within the control of ING Group; or a present obligation that arises from
past events but is
not recognised because it is either not probable that an outflow of economic benefits
will be
required to settle the obligation or the amount of the obligation cannot be measured reliably.
Contingent liabilities are not recognised in the statement of financial position, but are rather
disclosed in the notes unless the possibility of the outflow
of economic benefits is remote.
A contingent asset is a possible asset that arises from past events and whose existence will be
confirmed
only by the occurrence or non-occurrence of one or more
uncertain future events not
wholly within the control of ING Group. Contingent
assets are recognised in the statement of
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2019 ING Group Annual Report on Form 20-F
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financial position only
when realisation of the income that arises from such an asset is virtually
certain. Contingent assets are disclosed in the notes when an inflow of economic benefits
is
probable.
Significant judgements and critical accounting estimates and assumptions:
The recognition and measurement of provisions is an inherently uncertain process
involving using
judgement to determine when a present obligation exists and estimates regarding probability,
amounts and timing of cash flows.
ING Group may become involved in legal proceedings.
The degree of uncertainty and the method
of making the accounting estimate depends on the individual case, its nature and complexity.
Legal cases are
usually one of a kind. Judgement is required to estimate the probability of an
unfavourable outcome and the amount of potential loss. For the assessment of litigation provisions
ING Group consults with legal experts. Even taking into consideration legal experts’ advice, the
probability of an outflow of economic benefits
can still be uncertain and the amount provisioned
can remain sensitive to the assumptions used which may have a broad range of outcomes.
Reference is made to Note 16 ‘Provisions’.
For legal proceedings where
it is not possible to make a
reliable estimate of the expected financial
effect, that could result from the ultimate resolution of
the proceedings, no provision is recognised,
however disclosure is included in the financial
statements. Reference is made to Note 46 ‘Legal
proceedings’.
Critical accounting estimates and assumptions for the reorganisation provision are
in estimating
the amounts and timing of cash flows as the announced
transformation initiatives are
implemented over a period of several years. Reference
is made to Note 16 ‘Provisions’.
1.18 Other liabilities
Defined benefit plans
The net defined benefit
asset or liability recognised in the statement of financial
position in respect
of defined benefit
pension plans is the fair value of the plan assets less the present value of the
defined benefit
obligation at the balance sheet date.
Plan assets are measured at fair value at the balance sheet date. For
determining the pension
expense, the return on plan assets is determined using a high quality corporate bond rate identical
to the discount rate used in determining the defined benefit
obligation.
Changes in plan assets that effect Shareholders’ equity and/or Net result, include mainly:
◾
Return on plan assets using a high quality corporate bond rate at the start of the reporting period
which are recognised as staff costs in the statement of profit or loss; and
◾
Remeasurements which are recognised
in Other comprehensive income (equity).
The defined
benefit obligation
is calculated by internal and external actuaries through actuarial
models and calculations using the projected unit credit method. This method considers expected
future payments required to settle the obligation resulting
from employee service in the current
and prior periods, discounted using a high quality corporate bond rate. Inherent in these actuarial
models are assumptions including discount rates, rates of increase
in future salary and benefit
levels, mortality rates, consumer price index and the expected level of indexation. The assumptions
are based on available market data as well as management expectations and are updated
regularly. The actuarial assumptions may differ significantly
from the actual results due to changes
in market conditions, economic and mortality trends, and other assumptions. Any changes in these
assumptions could have a significant impact
on the defined
benefit
plan obligation and future
pension costs.
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Changes in the defined
benefit obligation
that effects Shareholders’ equity and/or Net result,
include mainly:
◾
Service cost which are recognised as staff costs in the statement of profit or loss;
◾
Interest expenses using a high quality corporate bond rate at the start of the period which are
recognised as staff costs in the Statement of profit or loss; and
◾
Remeasurements which are recognised
in Other comprehensive income (equity).
Remeasurements
recognised in other comprehensive income are
not recycled to profit or loss. Any
past service cost relating to a plan amendment is recognised in profit or loss in the period of the
plan amendment. Gains and losses on curtailments and settlements
are recognised in the
statement of profit or loss when the curtailment or settlement
occurs.
The recognition of a net defined benefit
asset in the Consolidated statement of financial position
is
limited to the present value of any economic benefits available in the form of refunds from the
plans or reductions in future contributions to the plans.
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.
Other post-employment obligations
Some group companies provide other post-employment benefits to certain employees and former
employees. The entitlement to these benefits
is usually conditional on the employee remaining in
service up to retirement age and the completion of a minimum service period. The expected costs
of these benefits
are accrued over the period of employment using an accounting methodology
similar to that for defined benefit
pension plans.
1.19 Income recognition
Interest
Interest income and expense are recognised
in the statement of profit or loss using the effective
interest method. The effective interest method is a method of calculating the amortised cost of a
financial asset or a
financial liability and
of allocating the interest income or interest expense over
the relevant period. The effective interest rate
is the rate that exactly discounts estimated future
cash payments or receipts through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the financial
asset or financial
liability.
When calculating the effective interest rate, the Group estimates cash flows considering all
contractual
terms of the financial
instrument (for example, prepayment options) but does not
consider future credit losses.
The calculation includes all fees and points paid or received between parties to the contract that
are an integral part of the effective interest rate, transaction costs and all other premiums
or
discounts. Once a financial asset or a group of similar financial
assets has been written down as a
result of an impairment loss, interest income is recognised using the rate
of interest used to
discount the future cash
flows for the purpose of measuring the impairment
loss.
Interest results on instruments classified at Amortised Cost, assets measured at FVOCI and
derivatives in a formal hedge accounting relationship is presented in ‘Interest
income (expense)
using effective interest rate method’. Interest result
on financial assets
and liabilities voluntarily
designated as at FVPL and derivatives in so called economic hedges and instruments designated at
fair value are presented in ‘Other interest
income (expense)’. Interest result on all other financial
assets and liabilities at FVTPL is recognised in ‘Valuation results
and net trading income’.
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Fees and commissions
Fees and commissions are generally
recognised as the service is provided. Loan
commitment fees
for loans that are likely to be drawn down are
deferred (together with related direct costs) and
recognised as an adjustment to the effective interest rate on the loan. Loan syndication
fees are
recognised as income when the syndication has been completed and the Group has retained no
part of the loan package for itself or has retained a part at the same effective interest rate as the
other participants. Commission and fees arising from negotiating, or participating in the
negotiation of, a transaction for a third party – such as the arrangement of the acquisition of
shares or other securities or the purchase or sale of businesses – are recognised on completion of
the underlying transaction. Portfolio and other management advisory and service fees are
recognised based on the applicable service contracts as the service is provided. Asset management
fees related to investment funds and investment contract fees are
recognised on a pro-rata
basis
over the period the service is provided. The same principle is applied for wealth management,
financial planning and
custody services that are continuously provided over
an extended period of
time. Fees received
and paid between banks for payment services are classified as commission
income and expenses.
Lease income
The proceeds from leasing out assets under operating leases are recognised
on a straight-line basis
over the life of the lease agreement. Lease
payments received in respect of finance leases when
ING Group is the lessor are divided into an interest component (recognised
as interest income) and
a repayment component.
1.20 Expense recognition
Expenses are recognised in the statement of profit or loss as incurred or when a decrease in future
economic benefits
related to a decrease in an asset or an increase in a liability has arisen that can
be measured reliably. Fee
and commission expenses are generally a result
from a contract with ING
service providers in order to perform the service for ING Group’s
customers. Costs are generally
presented as ‘Commission expenses’ if they are specific, incremental, directly attributable and
identifiable to generate commission income.
Share-based payments
Share-based payment expenses are recognised as a staff expense over the vesting period. A
corresponding increase in equity is recognised
for equity-settled share-based payment
transactions. A liability is recognised for cash-settled share-based payment transactions. The fair
value of equity-settled share-based payment transactions are measured at the grant
date, and the
fair value of cash-settled share-based payment transactions are measured at each balance sheet
date. Rights granted will remain valid until the expiry date, even
if the share based payment
scheme is discontinued. The rights are subject to certain conditions, including a pre-determined
continuous period of service.
1.21 Earnings per ordinary
share
Earnings per ordinary share is calculated on the basis of the weighted average
number of ordinary
shares outstanding. In calculating the weighted average number of ordinar
y
shares outstanding:
◾
Own shares held by group companies are
deducted from the total number of ordinary shares in
issue;
◾
The computation is based on daily averages; and
◾
In case of exercised warrants, the
exercise date is taken into consideration.
The non-voting equity securities are not ordinary shares, because their terms and conditions
(especially with regard to coupons and voting rights) are
significantly
different. Therefore, the
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weighted average number of ordinary shares
outstanding during the period is not impacted by the
non-voting equity securities.
Diluted earnings per share data are computed as if all convertible instruments outstanding at year-
end were exercised at
the beginning of the period. It is also assumed that ING Group uses the
assumed proceeds thus received to buy its own shares
against the average market price in the
financial year. The net increase in the number of shares resulting
from the exercise is added to the
average number of shares used to calculate diluted earnings per share.
Share options with fixed or determinable terms are treated as options in the calculation of diluted
earnings per share, even though they may be contingent on vesting. They are treated
as
outstanding on the grant date. Performance-based employee share
options are treated as
contingently issuable shares because their issue is contingent upon satisfying specified
conditions
in addition to the passage of time.
1.22 Statement of cash flows
The statement of cash flows is prepared in accordance with the indirect method, classifying cash
flows as cash flows
from operating, investing and financing activities. In the net cash flow
from
operating activities, the result before tax is adjusted for
those items in the statement of profit or
loss and changes in items per the statement of financial
position, which do not result in actual cash
flows during the year.
For the purposes of the statement of cash flows, Cash and cash equivalents comprise balances with
less than three months’ maturity from the date of acquisition, including cash and balances with
central banks, treasury bills and other eligible bills, amounts due from other banks, and deposits
from banks. Investments qualify as a cash equivalent if they are readily
convertible to a known
amount of cash and are subject to an insignificant
risk of changes in value.
Cash flows arising from foreign currency transactions are
translated into the functional currency
using the exchange rates at the date of the cash flows.
The net cash flow shown in respect of Loans and advances to customers relates only to
transactions involving actual payments or receipts. The Addition to loan loss provision which is
deducted from the item Loans and advances to customers in the statement of financial position
has been adjusted accordingly from the result
before tax and is shown separately in the statement
of cash flows.
The difference between the Net cash flow in accordance with the statement of cash flows and the
change between the opening and closing balance of Cash and cash equivalents in the statement of
financial position is
due to exchange rate differences and is presented
separately in the cash flow
statement.
Liabilities arising from financing activities
are debt securities and subordinated loans.
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Assets
2
Cash
and balances
with
central
banks
Cash and balances with central banks
2019
2018
Amounts held at central banks
51,178
47,655
Cash and bank balances
2,024
2,333
53,202
49,987
The movement in Cash and balances with central banks reflects ING’s active liquidity management.
Amounts held at central banks reflect on demand balances.
Reference is made to Note 42 ‘Assets not freely disposable’ for restrictions on Cash balances
with
central banks.
3 Loans and advances
to banks
Loans and advances to banks
Netherlands
International
Total
2019
2018
2019
2018
2019
2018
Loans
13,641
7,967
21,499
22,460
35,140
30,428
Cash advances, overdrafts
and other balances
0
1
4
3
5
3
13,641
7,968
21,504
22,463
35,145
30,431
Loan loss provisions
–6
–5
–3
–5
–9
–9
13,635
7,963
21,501
22,458
35,136
30,422
Reference is made to Note 42 ‘Assets not freely disposable’ for restrictions on Loans
and advances
to banks.
Loans include balances (mainly short-term deposits) with central banks amounting to EUR 3,185
million (2018: EUR 4,713 million).
As at 31 December 2019, Loans include receivables related
to securities in reverse repurchase
transactions amounting to EUR 8,943 million (2018: EUR 6,686 million) and receivables related to
finance lease contracts amounting to EUR 24 million
(2018: EUR 51 million). Reference is made to
Note 7 ‘Loans and advances to customers’ for information on finance lease receivables.
As at 31 December 2019, all loans and advances to banks are non-subordinated.
4 Financial assets at fair value
through profit or loss
Financial assets at fair value through profit or loss
2019
2018
Trading
assets
49,254
50,152
Non-trading derivatives
2,257
2,664
Designated at fair value through profit or loss
3,076
2,887
Mandatorily measured at fair value through
profit or loss
41,600
64,783
96,187
120,486
Financial assets at fair value through profit or loss includes securities lending and sales and
repurchase transactions which were
not derecognised, because ING Group continues to be exposed
to substantially all risks and rewards of the transferred
financial asset. These
assets are included in
Trading
assets and Financial assets mandatorily measured at fair value through profit or loss.
Reference is made to Note 43 ‘Transfer
of financial assets’
for information on transferred
assets
which were not derecognised.
Trading
assets
Trading assets by type
2019
2018
Equity securities
8,499
8,898
Debt securities
6,256
5,213
Derivatives
21,694
22,110
Loans and receivables
12,806
13,931
49,254
50,152
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Trading
assets include assets that are classified under
IFRS as Trading,
but are closely related to
servicing the needs of the clients of ING Group. ING offers institutional clients, corporate clients, and
governments, products that are traded on the financial markets.
A significant part
of the derivatives in the trading portfolio is related to servicing corporate clients in
their risk management to hedge for example currency or interest rate
exposures. In addition, ING
provides its customers access to equity and debt markets for issuing their own equity or debt
securities (securities underwriting). Although these are presented as Trading
under IFRS, these are
directly related to services to ING’s customers.
Part of the trading assets are sold subject to repurchase
agreements, securities lending and similar
agreements comparable to collateralised
lending, and continue to be recognised in the
consolidated statement of financial position.
From
a risk perspective, the gross amount of trading assets must be considered together with the
gross amount of trading liabilities, which are presented
separately on the statement of financial
position since IFRS does not always allow netting of these positions in the statement of financial
position.
As at 31 December 2019, Trading
Assets - Loans and receivables include receivables
of EUR 11,969
million (2018: EUR 12,939 million) with regard to reverse repurchase
transactions.
Reference is made to Note 15 ‘Financial liabilities at fair value thro
ugh profit or loss’ for information
on trading liabilities.
Non-trading derivatives
Non-trading derivatives by type
2019
2018
Derivatives used in
-
fair value hedges
524
650
-
cash flow hedges
677
1,012
-
hedges of net investments in foreign operations
23
41
Other non-trading derivatives
1,033
961
2,257
2,664
Reference is made to Note 39 ‘Derivatives
and hedge accounting’ for information on derivatives
used in hedge accounting.
Other non-trading derivatives mainly includes interest rate
swaps and foreign exchange currency
swaps for which no hedge accounting is applied.
Designated at fair value
through profit or loss
Designated at fair value through profit or loss by type
2019
2018
Debt securities
2,334
2,114
Loans and receivables
742
772
3,076
2,887
‘Financial assets designated at fair value through profit or loss’ includes a portfolio of loans and
receivables which is economically hedged by credit derivatives. The hedges do not meet the criteria
for hedge accounting and the loans are recorded
at fair value to avoid an accounting mismatch.
The maximum credit exposure of the loans and receivables included in ‘Financial assets designated
at fair value through profit or loss’ approximates its carrying value. The cumulative
change in fair
value of the loans attributable to changes in credit risk is not significant.
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The notional value of the related credit derivatives is EUR 1,672 million (2018: EUR 1,364 million).
The change in fair value of the credit derivatives attributable to changes in credit risk since the
loans were first designated, amounts to EUR 29 million (2018: EUR -23 million)
and the change for
the current year amounts to EUR -52 million (2018: EUR 17 million).
The changes in fair value of the (designated) loans attributable to changes in credit risk have been
calculated by determining the changes in credit spread implicit in the fair value of bonds issued by
entities with similar credit characteristics.
Mandatorily at fair value
through profit or loss
Mandatorily at fair value through profit or loss by type
2019
2018
Equity securities
159
210
Debt securities
733
1,103
Loans and receivables
40,708
63,469
41,600
64,783
None of the equity securities are individually significant
for ING Group.
For details on ING Group’s total exposure
to debt securities reference is made to Note 6 ‘Securities
at amortised cost’.
As at 31 December 2019, Loans and receivables
mandatorily measured at fair value through profit
or loss includes EUR
38,985 million (2018: EUR
63,022 million) with regard to reverse
repurchase
transactions.
5 Financial assets at fair value
through other comprehensive
income
Financial assets at fair value through other comprehensive income by type
2019
2018
Equity securities
2,306
3,228
Debt securities
1
30,483
25,616
Loans and advances
1
1,680
2,379
34,468
31,223
1
Debt securities include an amount of EUR -7 million
(2018: EUR -6 million)
and the Loans and advances includes EUR -3
million (2018: EUR -5 million) of Loan loss provisions.
Exposure to equity securities
Equity securities designated as at fair value through other comprehensive
income
Carrying
value
Dividend
income
Carrying
value
Dividend
income
2019
2019
2018
2018
Investment in Bank of Beijing
2,001
93
1,967
83
Investment in Kotak Mahindra
Bank
–
–
919
1
Other Investments
305
18
342
8
2,306
111
3,228
92
For strategic equity securities, ING decided to apply the option to irrevocably designate these
investments at fair value through other comprehensive
income, instead of the IFRS 9 default
measurement of fair value through profit or loss.
As at 31 December 2019 ING holds approximately 13% (2018: 13%)
of the shares of Bank of
Beijing, a bank listed on the stock exchange of Shanghai. Following a change in regulatory
requirements set by China Banking and Insurance
Regulatory Commission,
ING, as a shareholder
holding more than 5% or more of the shares, is required
to supply additional capital when
necessary. No request for additional capital was received
in 2019 (2018: not applicable).
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The following table presents changes in financial assets at fair value through other comprehensive
income.
Changes in fair value through other comprehensive income financial assets
FVOCI equity
securities
FVOCI debt
instruments
1
Total
2019
2018
2019
2018
2019
2018
Opening balance as at 1 January
3,228
3,983
27,995
65,747
31,223
69,730
Effect of change in accounting policy due to the
implementation of IFRS 9
–184
–31,945
–32,129
Additions
11
33
16,259
10,486
16,270
10,518
Amortisation
–12
–12
–12
–12
Transfers
and reclassifications
3
1
–0
1
3
2
Changes in unrealised revaluations
2
139
–463
258
–660
397
–1,123
Impairments
–2
–2
Reversals of impairments
1
16
1
16
Disposals and redemptions
–1,091
–178
–12,298
–15,478
–13,389
–15,656
Exchange rate differences
15
35
–40
–159
–25
–124
Changes in the composition of the group and other
changes
0
2
1
3
1
Closing balance
2,306
3,228
32,163
27,995
34,468
31,223
1 Fair value through other comprehensive income debt instruments includes both debt securities and loans and advances.
2 Changes in unrealised revaluations include changes on hedged items which are recognised in the statement of profit or loss.
Following a partial divestment in the fourth quarter of 2018, ING sold its last tranche of shares in
India’s Kotak Mahindra Bank (Kotak)
in the first quarter
of 2019 for EUR 880 million. The transaction,
for a stake of 3.07%, concluded the divestment process and was the main driver for the increase in
the ‘disposal’ line.
Reference is made to Note 6 ‘Securities at amortised cost’ for details on ING Group’s total exposure
to debt securities.
6 Securities at amortised cost
Securities at amortised cost fully consist of Debt securities.
ING Group’s exposure to debt securities is included in the following lines in the statement of
financial position:
Exposure to debt securities
2019
2018
Debt securities at fair value through other comprehensive
income
30,483
25,616
Debt securities at amortised cost
46,108
47,276
Debt securities at fair value through other comprehensive
income and amortised cost
76,592
72,893
Trading
assets
6,256
5,213
Debt securities at fair value through profit or loss
3,067
3,218
Total
debt securities at fair value through profit or loss
9,323
8,431
85,914
81,323
ING Group’s total exposure to debt securities (excluding debt securities held in the trading portfolio)
of EUR 79,659 million (31 December 2018: EUR 76,111 million) is specified
as follows:
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Debt securities by type of exposure
Debt Securities
at FVPL
Debt Securities
at FVOCI
Debt Securities
at AC
Total
2019
2018
2019
2018
2019
2018
2019
2018
Government bonds
408
142
20,300
15,580
25,627
24,659
46,334
40,381
Sub-sovereign, Supranationals
and
Agencies
505
467
6,606
5,928
10,689
11,244
17,801
17,639
Covered
bonds
1,734
2,245
6,960
6,722
8,693
8,967
Corporate bonds
–
23
476
485
143
765
619
1,273
Financial institutions' bonds
1,440
1,527
332
460
1,536
2,415
3,308
4,402
ABS portfolio
714
1,059
1,043
924
1,163
1,483
2,920
3,466
3,067
3,218
30,491
25,622
46,118
47,288
79,676
76,128
Loan loss provisions
–7
–6
–10
–11
–17
–17
Bond portfolio
3,067
3,218
30,483
25,616
46,108
47,276
79,659
76,111
Approximately 90% (2018: 99%) of the exposure in the ABS portfolio is externally rated AAA, AA or
A. There are no borrowed
debt securities recognised in the statement of financial position.
7 Loans and advances
to customers
Loans and advances to customers by type
Netherlands
International
Total
2019
2018
2019
2018
2019
2018
Loans to, or guaranteed
by, public authorities
25,340
24,547
16,849
17,257
42,190
41,803
Loans secured
by mortgages
117,199
117,848
231,327
219,530
348,526
337,379
Loans guaranteed
by credit institutions
206
195
3,569
2,901
3,775
3,095
Personal lending
3,482
3,304
24,768
21,563
28,250
24,867
Corporate loans
39,645
37,213
150,233
149,787
189,878
187,000
185,873
183,106
426,746
411,037
612,619
594,144
Loan loss provisions
–1,193
–1,480
–3,398
–3,011
–4,590
–4,491
184,680
181,626
423,349
408,027
608,029
589,653
As at 31 December 2019, Loans and advances to customers – corporate loans include receivables
with regard to securities which have been acquired
in reverse repurchase
transactions amounting
to EUR 180 million (2018: EUR 266 million).
Loans and advances to customers by subordination
2019
2018
Non-subordinated
607,908
589,533
Subordinated
121
120
608,029
589,653
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.
Loans and advances to customers and Loans
and advances to banks include finance lease
receivables and are detailed as follows:
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Finance lease receivables
2019
2018
Maturities of gross investment in finance lease receivables
-
within 1 year
3,116
2,374
-
between 1-2 years
3,811
n/a
-
between 2-3 years
2,145
n/a
-
between 3-4 years
717
n/a
-
between 4-5 years
367
n/a
-
more than 1 year but less than 5 years
n/a
5,959
-
more than 5 years
434
1,646
10,591
9,979
Unearned future finance income on finance leases
–580
–673
Net investment in finance leases
10,011
9,306
Included in Loans and advances to banks
24
51
Included in Loans and advances to customers
9,987
9,256
10,011
9,306
The finance lease receivables mainly relate to the financing
of equipment and to a lesser extent
real estate for third parties, where ING is the lessor.
The finance lease receivables are part of
corporate loans. Interest income in 2019 on Finance lease receivables
amounts to EUR 251 million
(2018: EUR 269 million).
Expected credit losses for uncollectable finance lease receivables of EUR 136 million as at 31
December 2019 (2018: EUR 150 million) is included in the loan loss provision. The loan loss provision
for finance lease receivables is classified
into the following loan loss provision stages; stage 1: EUR 2
million (2018: EUR 5 million), stage 2: EUR 6 million (2018: EUR 11 million), and
stage 3: EUR 128
million (2018: EUR 134 million).
No individual finance lease
receivable has terms and conditions that significantly affect
the
amount, timing or certainty of the consolidated cash flows
of the Group.
8 Investments in associates
and joint venture
s
Investments in associates and joint ventures
2019
Interest
held (%)
Fair value
of listed
invest-
ments
Balance
sheet
value
Total
assets
Total
liabilities
Total
income
Total
expenses
TMB Public Company Limited
23
1,109
1,509
55,804
49,974
1,145
891
Other investments in associates and joint
ventures
281
1,790
Investments in associates and joint ventures
2018
Interest
held (%)
Fair value
of listed
invest-
ments
Balance
sheet
value
Total
assets
Total
liabilities
Total
income
Total
expenses
TMB Public Company Limited
30
776
991
23,494
20,884
1,055
722
Other investments in associates and joint
ventures
212
1,203
TMB is a financial institution
providing products and services to Wholesale, Small and Medium
Enterprise (SME), and Retail customers. TMB is domiciled in Bangkok, Thailand and is listed on the
Stock Exchange of Thailand (SET). In December 2019 TMB merged with Thanachart Bank and
became Thailand’s sixth largest bank. Prior to this merger ING paid a capital contribution to TMB of
EUR 381 million. As a result of the merger transaction ING recognized
a gain of EUR 16 million
mainly to partial release of the related foreign currency
reserves.
Other investments in associates and joint ventures are mainly financial services and financial
technology funds or vehicles operating predominantly in Europe
ING Group does not hold any interests in Investments in associates and joint ventures
that are
individually significant
to ING Group. Other investments in associates and joint ventures represents
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a large number of associates and joint ventures with an individual carrying value of less than EUR
50 million.
Significant influence
for associates in which the interest held is below 20%, is based on the
combination of ING Group’s financial interest and other arrangements, such as participation in the
Board of Directors.
The reporting dates of certain associates and joint ventures can differ from the reporting date of
the Group, but by no more than three months.
Accumulated impairments of EUR 49 million (2018: EUR 15 million) have been recognised. The
values presented in the tables above could differ from the values presented
in the individual
financial statements
of the associates and joint ventures, due to the fact that the individual values
have been brought in line with ING Group’s accounting principles. When the fair value of the
investment is below cost for a significant amount or prolonged period of time, an impairment test
is performed.
The associates and joint ventures of ING are subject to legal and regulatory restrictions regarding
the amount of dividends it can pay to ING. These restrictions are for example dependent on the
laws in the country of incorporation for declaring dividends or as a result of minimum capital
requirements that are
imposed by industry regulators in the countries in which the associates and
joint ventures operate.
In addition, the associates and joint ventures also consider other factors in
determining the appropriate levels of equity needed. These factors and limitations include, but are
not limited to, rating agency and regulatory views, which can change over time.
Changes in Investments in associates and joint ventures
2019
2018
Opening balance
1,203
1,088
Effect of change in accounting policy due to the implementation of IFRS 9
–28
Additions
507
97
Transfers
to and from Investments/Other assets and liabilities
4
5
Revaluations
–18
–2
Share of results
82
146
Dividends received
–58
–30
Disposals
–10
–116
Impairments
–34
–3
Exchange rate differences
113
47
Closing balance
1,790
1,203
Share of results from
associates and joint ventures of EUR 82 million (2018: EUR 146 million) as
included in the table above, is mainly attributable to results of TMB of EUR 77 million (2018: EUR
117 million).
Share of results from
associates and joint ventures as presented in the statement of profit or loss
includes, besides above mentioned share of results, also impairments.
9 Property and equipment
Property and equipment by type
2019
2018
Property in own use
757
780
Equipment
940
879
Right- of- use assets
1,476
n/a
3,172
1,659
As ING has implemented IFRS 16 Leases without restating comparatives,
no Right-of-use assets
were recognised in 2018. Reference
is made to Note 1 ‘Accounting policies’, 1.4.3. IFRS 16 ’leases’ –
Impact of adoption.
ING considers valuations from third party
experts in determining the fair values of Property, Plant
and Equipment.
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Changes in property in own use
2019
2018
Opening balance
780
774
Additions
5
5
Reclassifications
- Transfers
to and from Other Assets
–1
11
Amounts recognised in the statement of profit or loss for the year
- Depreciation
–11
–14
-
Impairments
–2
–4
-
Reversal of impairments
6
17
–7
–1
Revaluations recognised
in equity during the year
58
23
Disposals
–72
–12
Exchange rate differences
–7
–20
Closing balance
757
780
Gross carrying amount as at 31 December
1,279
1,320
Accumulated depreciation as at 31 December
–385
–387
Accumulated impairments as at 31 December
–137
–153
Net carrying value as at 31 December
757
780
Revaluation surplus
Opening balance
280
279
Revaluation in the year
59
1
Closing balance
339
280
The cost or the purchase price amounted to EUR 940 million (2018: EUR 1,040 million). Cost or the
purchase price less accumulated depreciation and impairments would have been EUR 417 million
(2018: EUR 500 million) had property in own use been valued at cost instead of at fair value.
Changes in equipment
Data processing
Fixtures and fittings
equipment
and other equipment
Total
2019
2018
2019
2018
2019
2018
Opening balance
290
291
589
626
879
917
Additions
149
148
200
136
349
284
Disposals
–1
–1
–8
–4
–9
–5
Depreciation
–136
–133
–142
–164
–278
–298
Impairments
–0
–4
–1
–1
–1
–5
Exchange rate differences
1
–8
1
–5
2
–13
Changes in the composition of the group
and other changes
3
–4
–5
1
–3
–2
Closing balance
307
290
633
589
940
879
Gross carrying amount as at 31 December
1,479
1,346
2,408
2,305
3,886
3,651
Accumulated depreciation as at 31 December
–1,171
–1,055
–1,774
–1,716
–2,946
–2,771
Accumulated impairments as at 31 December
–1
–1
–1
–0
–1
–1
Net carrying value as at 31 December
307
290
633
589
940
879
Right-of-use assets relates to leased land and buildings, cars and other assets.
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Changes in Right-of-use assets
Property
Cars
Other
leases
Total
2019
2019
2019
2019
Opening balance
n/a
n/a
n/a
n/a
Effect of changes in accounting policy due to the implementation of IFRS 16
1,138
70
72
1,280
Additions
381
65
–2
444
Depreciation
–211
–40
–12
–262
Impairments
–0
–0
Remeasurements
29
1
0
30
Disposals
–18
–0
–0
–19
Exchange rate differences
8
–0
–1
7
Changes in the composition of the group and other changes
–4
0
–4
Closing balance
1,323
96
57
1,476
Gross carrying amount as at 31 December
1,503
135
69
1,707
Accumulated depreciation as at 31 December
–213
–40
–12
–265
Accumulated impairments as at 31 December
–0
–0
Accumulated remeasurement
as at 31 December
33
1
0
34
Net carrying value as at 31 December
1,323
96
57
1,476
10 Intangible assets
Changes in intangible assets
Goodwill
Software
Other
Total
2019
2018
2019
2018
2019
2018
2019
2018
Opening balance
918
816
868
648
53
5
1,839
1,469
Additions
17
202
94
95
0
111
297
Capitalised expenses
285
286
285
286
Amortisation
–235
–204
–2
–5
–237
–209
Impairments
–61
–12
–0
–61
–12
Exchange rate differences
–28
–99
0
–5
–
0
–28
–104
Disposals
–1
0
–0
–1
0
Changes in the composition of the group
and other changes
8
59
1
52
9
111
Closing balance
907
918
958
868
52
53
1,916
1,839
Gross carrying amount as at 31 December
907
918
2,608
2,359
61
60
3,575
3,338
Accumulated amortisation as at 31 December
–1,641
–1,487
–7
–5
–1,648
–1,492
Accumulated impairments as at 31 December
–9
–4
–2
–2
–11
–6
Net carrying value as at 31 December
907
918
958
868
52
53
1,916
1,839
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Goodwill
Goodwill is allocated to groups of cash generating
units (CGUs) as follows:
Goodwill allocation to group of CGUs
Method used for
recoverable
amount
Discount
rate
Long term
growth rate
Goodwill
Goodwill
Group of CGU’s
2019
2018
Retail Netherlands
6.10%
0.00%
30
14
Retail Belgium
6.94%
0.00%
50
50
Retail Germany
6.10%
0.00%
349
349
Retail Growth Markets
1
10.47%
3.34%
209
231
Wholesale Banking
1
7.29%
0.69%
268
274
907
918
1
Goodwill related to Growth Countries is allocated across two groups
of CGUs, EUR 209 million to Retail Growth Markets and
EUR 61 million to Wholesale Banking (2018: EUR 230 million to Retail Growth Markets and EUR 67 million to Wholesale
Banking).
Changes in the goodwill in 2019 mainly relate to the acquisition of 80% of the shares of
Intersoftware Group B.V.
The transaction resulted in recognition of EUR 16 million of goodwill which
is fully allocated to Retail Netherland CGU.
In 2018, changes in the goodwill relate to the acquisition of 75% of the shares of Payvision Holding
B.V.
and 90% of the shares of Makelaarsland B.V.
The acquisition of Payvision and Makelaarsland
resulted in a recognition of goodwill of respectively EUR 188 million, allocated to Wholesale
Banking, and EUR 14 million, allocated to Retail Netherland.
Other changes in goodwill of the CGU’s Wholesale Banking and Retail Growth Markets relate to
changes in currency exchange rates. Reference
is made to Note 47 ‘Consolidated companies and
businesses acquired and divested’ for further information on the acquisitions that took place in
2018, 2019 and the goodwill recognised.
Methodology
Several methodologies are applied to arrive
at the best estimate of the recoverable amount. In line
with IFRS, the recoverable
amount is determined as the higher of the fair value less costs of
disposal and Value in Use (VIU). Fair
value less costs of disposal is based on observable share prices
(Level
1 inputs in the fair value hierarchy), observable Price-to-Book multiples of relevant
peer
banks (Level 2), or based on a discounted free
cash flow model (Level 3). The VIU calculation is
based on a Dividend Discount model using four year management approved plans. When
estimating the VIU of a CGU, local conditions and requirements determine the capital
requirements, discount rates,
and terminal growth rates. These local conditions and requirements
determine the ability to upstream excess capital and profits to ING Group. The discount rate
calculation includes other inputs such as equity market premium, country risk premium, and long
term inflation which are based on market sources and management’s judgement. The long term
growth rate for
EU-countries is based on long-term risk-free rate by reference
to the yield of a
composite index consisting of Euro generic government bonds, with a maturity of 30 years. For
other countries, the growth rate includes long term inflation rate obtained from market sources.
The recoverable
amount exceeds the carrying value of the CGUs for 2019 and 2018 and therefore
no impairment is required.
Sensitivity of key assumptions
Key assumptions in the goodwill impairment test model are the Price-to-Book ratios, level 1 inputs
(e.g. share price
of a listed subsidiary), and the local parameters for CET1, discount rate, and long
term growth rates. The model was tested for
sensitivity by changing the key parameters in the
model to more conservative values. The sensitivity analysis did not trigger additional impairment
considerations.
Software and Other intangible assets
Software, includes internally developed software amounting to EUR 741 million (2018: EUR 624
million).
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In 2018, Changes in the composition of the group and other changes mainly relates to the
recognition of intangible assets following the acquisition of Payvision.
Reference is made to Note
47 ‘Consolidated companies and businesses acquired and divested’ for further information on the
acquisitions that took place in 2018 and the assets and liabilities recognised.
The carrying value of CGU Wholesale Banking includes EUR 20 million of intangibles with indefinite
life which relates to acquired trade
names in the payments and cash management business. The
asset is deemed to have indefinite life because there is no foreseeable limit to the cash flows
generated by those intangible assets.
No impairment of indefinite
useful life asset was recognised
in 2019 (2018: nil).
11 Other assets
Other assets by type
2019
2018
Net defined benefit
assets
709
527
Investment properties
46
54
Property development and obtained from
foreclosures
98
124
Accrued assets
783
783
Amounts to be settled
2,835
4,248
Other
2,546
2,696
7,018
8,433
Disclosures in respect of Net defined benefit
assets are provided in Note 36 ‘Pension and other post-
employment benefits’.
Accrued assets
Accrued assets relate to income to be received attributable to 2019 and amounts paid in advance
in respect of costs chargeable to subsequent periods.
Amounts to be settled
Amounts to be settled include primarily transactions not settled at the balance sheet date. The
nature of these transaction is short term and are expected to settle shortly after the closing date of
the balance sheet.
Other
Other relates to various receivables
in the normal course of business, amongst others, short term
receivables relating to mortgage issuance and other amounts receivable from
customers.
12 Assets
and liabilities
held for
sale
Assets and liabilities held for sale includes disposal groups whose carrying amount will be recovered
principally through a sale transaction rather than through continuing operations.
In December 2018, ING reached an agreement to sell part of the ING Lease Italy business and
classified the this Italian
lease business as Assets held for Sale (EUR 1.261 million). In the first
6
months of 2019 customers repaid EUR 100 million on outstanding. The sale of this Italian lease
business was completed per 1 July 2019. The settlement price amounted to EUR 1.162 million,
consisted of a EUR 368 million cash settlement, a EUR 20 million Deferred Purchase Price and a EUR
774 million Senior Loan facility for the portfolio of lease receivables. The deferred
purchase price is
linked to the performance of the sold portfolio and is reported under the financial
assets
mandatorily measured at fair value through profit and loss. The additional loss in 2019 amounted
to EUR -2 million (2018: EUR -123 million).
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Reference is made to Note 25 ‘Result
on disposal of group companies’ and to Note 47 ‘Consolidated
companies and businesses acquired and divested’.
13 Deposits
from
banks
Deposits from banks include non-subordinated debt from banks, except for amounts in the form of
debt securities.
Deposits from banks by type
Netherlands
International
Total
2019
2018
2019
2018
2019
2018
Non-interest bearing
107
22
73
412
180
434
Interest bearing
17,544
17,211
17,101
19,686
34,646
36,896
17,651
17,233
17,175
20,097
34,826
37,330
Deposits from banks includes ING’s participation in the targeted longer-term refinancing operations
(TLTRO)
of EUR 17.7 billion (2018: EUR 17.7 billion). The TLTRO aims to stimulate lending to the real
economy in the Eurozone.
The interest rate
on the TLTRO’s is fixed over the life of each operation at
the benchmark rate of the European Central
Bank.
14 Customer deposits
Customer deposits
2019
2018
1
Savings accounts
326,864
322,711
Credit balances on customer accounts
224,022
205,053
Corporate deposits
22,329
26,920
Other
1,140
1,044
574,355
555,729
1
The prior periods have been updated to improve
consistency and comparability.
Customer deposits by type
Netherlands
International
Total
2019
2018
2019
2018
2019
2018
Non-interest bearing
19,030
16,841
24,782
25,342
43,812
42,182
Interest bearing
159,546
155,910
370,997
357,635
530,543
513,546
178,576
172,751
395,779
382,977
574,355
555,729
Savings accounts relate to the balances on savings accounts, savings books, savings deposits, and
time deposits of private individuals.
15 Financial liabilities at fair
value through profit
or loss
Financial liabilities at fair value through profit or loss
2019
2018
Trading
liabilities
28,042
31,215
Non-trading derivatives
2,215
2,299
Designated at fair value through profit or loss
47,684
59,179
77,942
92,693
Reference is made to Note 43 ‘Transfer
of financial assets’
for information on securities lending as
well as sale and repurchase transactions included in Trading
liabilities and Financial liabilities
designated at fair value through profit or loss.
Trading
liabilities
Trading liabilities by type
2019
2018
Equity securities
193
355
Debt securities
1,201
5,363
Funds on deposit
5,322
3,968
Derivatives
21,325
21,528
28,042
31,215
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As at 31 December 2019, Trading
liabilities include funds on deposit of EUR 4,556 million (2018: EUR
3,227 million) with regard to repurchase
transactions.
Non-trading derivatives
Non-trading derivatives by type
2019
2018
Derivatives used in:
-
fair value hedges
873
1,035
-
cash flow hedges
339
458
-
hedges of net investments in foreign operations
51
17
Other non-trading derivatives
953
791
2,215
2,299
Reference is made to Note 39 ‘Derivatives
and hedge accounting’ for information on derivatives
used for hedge accounting.
Other non-trading derivatives mainly includes interest rate
swaps and foreign currency swaps for
hedging purposes, but for which no hedge accounting is applied.
Designated at fair value
through profit or loss
Designated at fair value through profit or loss by type
2019
2018
Debt securities
8,053
8,216
Funds entrusted
39,386
50,650
Subordinated liabilities
246
313
47,684
59,179
As at 31 December 2019, financial
liabilities designated at fair value through profit or loss include
funds entrusted of EUR 38,492 million (2018: EUR 49,010 million) with regard to repurchase
transactions.
As at 31 December 2019, the change in the fair value of financial
liabilities designated at fair value
through profit or loss attributable to changes in credit risk is EUR 139 million (2018: EUR 18 million)
on a cumulative basis. This change has been determined as the amount of change in fair value of
the financial liability
that is not attributable to changes in market conditions that gave rise to
market risk (i.e. mainly interest rate
risk based on yield curves).
The amount that ING Group is contractually required to pay
at maturity to the holders of financial
liabilities designated at fair value through profit or loss excluding repurchase agreements is EUR
8,634 million (2018: EUR
9,934 million).
16 Provisions
Provisions by type
2019
2018
Reorganisation provisions
385
613
Other provisions
303
399
688
1,011
Reorganisation provisions
Changes in reorganisation provisions
2019
2018
Opening balance
613
1,097
Additions
56
53
Unused amounts reversed
–49
–49
Utilised
–234
–487
Other changes
–0
–2
Closing balance
385
613
In 2019 the addition to the reorganisation provision is mainly related
to ING’s Agile transformation
in Germany and updates in existing reorganization provisions.
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In 2018, changes in the reorganisation provisions were
mainly attributable to existing initiatives
following the digital transformation programmes
of ING Bank. These initiatives are implemented
over a period of several
years and the estimate of the reorganisation provisions is inherently
uncertain. The provision at the balance sheet date represents the best estimate of the expected
redundancy costs and are expected to be sufficient
to cover these costs.
Other provisions
Changes in other provisions
Litigation
Other
Total
2019
2018
2019
2018
2019
2018
Opening balance
165
365
234
251
399
616
Effect of change in accounting policies
7
11
7
11
Additions
74
59
46
35
120
95
Interest
–5
1
–5
1
Unused amounts reversed
–31
–76
–38
–37
–68
–113
Utilised
–104
–186
–12
–28
–116
–214
Exchange rate differences
–1
–4
–0
1
–1
–3
Other changes
–0
6
–31
–0
–31
6
Closing balance
102
165
201
234
303
399
Reference is made to Note 46 ‘Legal
proceedings’ for developments in litigation provisions.
In 2019, Other provisions – other includes provisions of EUR 25 million (2018: EUR 42 million) that
relate to credit replacement
facilities and EUR 93 million (2018: EUR 80 million)
that relate to non-
credit replacement, off balance facilities.
As at 31 December 2019 amounts expected to be settled within twelve months, amount to EUR
146 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.
Further reference
is made to Note 28 ‘Other operating expenses’.
17 Other liabilities
Other liabilities by type
2019
2018
Net defined benefit
liability
483
421
Other post-employment benefits
84
76
Other staff-related liabilities
526
473
Share-based payment plan liabilities
6
9
Other taxation and social security contributions
442
403
Rents received in advance
9
61
Costs payable
2,111
2,272
Amounts to be settled
4,741
6,098
Lease liabilities
1,507
n/a
Other
2,921
3,697
12,829
13,510
Disclosures in respect of Net defined benefit
liabilities are provided in Note 36 ‘Pension and other
post-employment benefits’.
Other staff-related liabilities
Other staff-related liabilities includes vacation leave provisions, variable compensation provisions,
jubilee provisions, and disability/illness provisions.
Costs payable
Costs payable relate to costs attributable to 2019, which will be paid in subsequent periods.
Amounts to be settled
Amounts to be settled include primarily transactions not settled at the balance sheet date. The
nature of these transaction is short term and are expected to settle shortly after the closing date of
the balance sheet.
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Lease liabilities
As ING has implemented IFRS 16 Leases without restating comparatives,
no Lease Liabilities were
recognised in 2018. Reference
is made to Note 1 ‘Accounting policies’, 1.4.3. IFRS 16 ’leases’ –
Impact of adoption.
The total cash outflow for leases in 2019 was EUR 271 million.
Other
Other relates mainly to balances on margin accounts or amounts payable to customers.
18 Debt
securities
in issue
Debt securities in issue relate to debentures and other issued debt securities with either fixed
interest rates or interest
rates based on floating interest rate levels, such as certificates of deposit
and accepted bills issued by ING Group, except for subordinated items. Debt securities in issue do
not include debt securities presented as Financial liabilities at fair value through profit or loss. ING
Group does not have debt securities that are issued on terms other than those available in the
normal course of business. The maturities of the debt securities are as follows:
Debt securities in issue – maturities
2019
2018
Fixed rate debt securities
Within 1 year
26,871
32,626
More than 1 year but less than 2 years
10,358
7,766
More than 2 years but less than 3 years
9,527
10,267
More than 3 years but less than 4 years
6,321
8,228
More than 4 years but less than 5 years
2,836
6,288
More than 5 years
29,007
20,321
Total
fixed rate debt securities
84,920
85,496
Floating rate debt securities
Within 1 year
24,938
22,684
More than 1 year but less than 2 years
3,126
4,134
More than 2 years but less than 3 years
3,041
1,587
More than 3 years but less than 4 years
1,541
1,234
More than 4 years but less than 5 years
144
1,563
More than 5 years
816
3,053
Total
floating rate debt securities
33,608
34,255
Total
debt securities
118,528
119,751
In 2019 Debt securities in issue decreased by EUR 1.2 billion. This decrease is mainly attributable to
a decrease in commercial paper of EUR 6.1 billion, matured savings certificates of EUR 1.2 billion,
the redemption of RMBS (residential mortgage backed securities) of EUR 2.3 billion, partly
offset by
the issuance of long term maturity bonds of EUR 2.8 billion, covered bonds of EUR 2.9 billion and
certificates of deposits
of EUR 1.9 billion,
and an increase in other Debt securities in issue of EUR 0.8
billion.
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19 Subordinated
loans
Subordinated loans by group companies
2019
2018
ING Groep N.V.
13,069
10,355
ING Group companies
3,519
3,370
16,588
13,724
Subordinated loans issued by ING Groep N.V.
include bonds issued to raise Tier 1 and lower Tier 2 (CRD IV eligible)
capital for ING Bank N.V.
Under IFRS these bonds are classified as liabilities and for regulatory purposes, they are
considered capital. Subordinated
loans issued by ING Group companies comprise, for the most part, subordinated
loans which are subordinated to all current
and future liabilities of ING Bank N.V.
Changes in subordinated loans
2019
2018
Opening balance
13,724
15,968
Effect of change in accounting policy due to the implementation of IFRS 9
241
New issuances
3,429
1,859
Repayments
–933
–4,646
Exchange rate differences and
other
367
302
Closing balance
16,588
13,724
In 2019 ING Groep N.V.
issued two Perpetual additional Tier 1 Contingent Convertible Capital
Securities of USD 1.25 billion with first
call date on 16 April 2024 and USD 1.5 billion with first
call
date on 16 November 2026. In addition, subordinated Tier 2 notes of EUR 1 billion have been issued
on 13 November 2019.
In June 2019 ING redeemed USD 1 billion Tier 1 ING Perpetual Hybrid Capital Securities.
The average interest rate
on subordinated loans is
4.38% (2018: 4.44%). The interest expense
during the year 2019 was EUR 660 million (2018: EUR 711 million).
Equity
20 Equity
Total
equity
2019
2018
2017
Share capital and share premium
-
Share capital
39
39
39
-
Share premium
17,078
17,050
17,006
17,117
17,088
17,045
Other reserves
n/a
n/a
3,447
1,580
1,914
n/a
322
398
n/a
1,208
604
263
–114
8
n/a
253
204
203
–336
–394
–400
–2,079
–2,043
–1,663
3,189
2,940
2,527
–10
–11
–15
4,013
3,621
4,362
Retained earnings
29,866
28,339
27,022
Shareholders’ equity (parent)
50,996
49,049
48,429
Non-controlling interests
893
803
715
Total
equity
51,889
49,851
49,144
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Share capital and share
premium
Share capital
Share capital
Ordinary shares (par value EUR 0.01)
Number x 1,000
Amount
2019
2018
2017
2019
2018
2017
Authorised share capital
14,729,000
14,729,000
14,729,000
147
147
147
Unissued share capital
10,832,266
10,837,272
10,843,210
108
108
108
Issued share capital
3,896,734
3,891,728
3,885,790
39
39
39
Changes in issued share capital
Ordinary shares
(par value EUR 0.01)
Number x
1,000
Amount
Issued share capital as at 1 January 2017
3,878,484
39
Issue of shares
7,306
Issued share capital as at 31 December 2017
3,885,790
39
Issue of shares
5,938
Issued share capital as at 31 December 2018
3,891,728
39
Issue of shares
5,006
Issued share capital as at 31 December 2019
3,896,734
39
In 2019, ING Groep N.V.
issued 5.0 million ordinary shares (2018: 5.9 million ordinary shares, 2017:
7.3 million). These issues were made in order to fund obligations arising from share-based
employee incentive programmes.
In 2019, 2018 and 2017 respectively, ING Groep N.V.
issued USD 2,750 million, nil and nil Perpetual
Additional Tier 1 Contingent Convertible Capital Securities which can, in accordance
with their terms
and conditions, convert by operation of law into ordinary shares if the conditions to such
conversion are fulfilled. As a result of this conversion, the issued share capital can increase
by no
more than 306 million ordinary shares. Reference
is made to Note 19 ‘Subordinated loans’.
Ordinary shares
All ordinary shares are
in registered form. No share
certificates have been issued. Ordinary shares
may be transferred by means of a deed of transfer.
A transfer of ordinary shares
requires written
acknowledgement by ING Groep N.V.
Ordinary shares are
listed on various stock exchanges. The
par value of ordinary shares is EUR 0.01 . The authorised ordinary share
capital of ING Groep N.V.
currently consists of 14,729 million ordinary shares. As at 31 December 2019, 3,897 million
ordinary shares were
issued and fully paid.
Ordinary shares held by ING Group (Treasury
shares)
As at 31 December 2019, 0.9 million ordinary shares (2018: 1.1 million and 2017: 0.9 million) of ING
Groep N.V.
with a par value of EUR 0.01 are held by ING Groep N.V.
or its subsidiaries. The
obligations with regard to the existing stock option plan and the share plans will be funded either
by cash or by newly issued shares at the discretion of ING Group.
Share premium
Share premium
2019
2018
2017
Opening balance
17,050
17,006
16,950
Issue of shares
28
44
56
Closing balance
17,078
17,050
17,006
The increase in share premium, is a result
of the issuance of ordinary shares related
to share-based
employee incentive programmes.
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2019 ING Group Annual Report on Form 20-F
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Other reserves
Revaluation reserves
Changes in revaluation reserve
Equity securities at FVOCI
Debt instruments at FVOCI
AFS and other
Cash flow hedge
Credit liability
Property in own use
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
Opening balance
1,914
n/a
n/a
398
n/a
n/a
n/a
3,447
3,830
604
263
777
8
n/a
n/a
204
203
204
Effect of change in accounting policy due to the implementation of
IFRS 9
2,432
629
-3,447
-190
Changes in credit liability reserve
-116
199
Unrealised revaluations
137
-461
-43
-177
-293
604
342
-514
58
3
25
Realised gains/losses transferred
to the statement of profit or loss
-33
-54
-90
Realised revaluations transferred
to retained earnings
-472
-56
-6
-9
-2
-26
Closing balance
1,580
1,914
n/a
322
398
n/a
n/a
n/a
3,447
1,208
604
263
(114)
8
n/a
253
204
203
Equity securities at FVOCI
In 2019, the unrealised revaluations of EUR 137 million are
due to the revaluation of shares
in Bank
of Beijing EUR 35 million and shares in EquensWorldLine EUR 101 million. The EUR -472 million
transfer of revaluation
reserve to retained earnings is mainly related
to the sale of shares in Kotak
Mahindra Bank EUR -320 million and EquensWorldLine EUR -149 million.
In 2018, the Equity securities at FVOCI revaluation reserve
decreased by EUR 517 million, mainly
due to the revaluation of shares
in Bank of Beijing EUR -549 million, partly offset
by revaluation of
shares in Kotak Mahindra
Bank EUR 71 million.
Available-for-sale and other
As from 2018, due to implementation of IFRS 9, the revaluation results
of Available-for-sale and
other are reported in the FVOCI reserve.
In 2017, the Available-for-sale revaluation
reserve decreased by EUR 383 million mainly due to the
revaluation of shares
in Bank of Beijing EUR -479 million, partly offset
by revaluation of shares in
Kotak Mahindra Bank EUR 302 million.
Cash flow hedge
ING mainly hedges floating
rate lending with interest rate
swaps. Due to decrease in interest rate
yield curve in 2019 the interest rate swaps had a positive revaluation
of EUR 604 million which is
recognised in cah flow hedge reserve.
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Net defined benefit asset/liability
remeasurement reserve
Reference is made to Note 36 ‘Pension and other post-employment
benefits’.
Currency translation
reserve
Changes in currency translation reserve
2019
2018
2017
Opening balance
–2,043
–1,663
–770
Unrealised revaluations
–134
71
192
Realised gains/losses transferred
to the statement of profit or loss
–138
Exchange rate differences
236
–451
–1,085
Closing balance
–2,079
–2,043
–1,663
Realised gains/losses transferred to the statement of profit or loss is related to the sale of shares in
Kotak Mahindra Bank (EUR -119 million) and the effect of the merger transaction of TMB (EUR -18
million).
Unrealised revaluations relates
to changes in the value of hedging instruments that are designated
as net investment hedges. The hedging strategy is to hedge the CET1 ratio. The net increase of
unrealized revaluations
and Exchange rate differences of EUR 102 million is related to several
currencies.
Share of associates, joint ventures
and other reserves
Changes in share of associates, joint ventures and other
reserves
2019
2018
2017
Opening balance
2,940
2,527
2,235
Effect of change in accounting policy due to the implementation of IFRS 9
–28
Result for the year
180
160
153
Transfer
to/from retained earnings
69
280
139
Closing balance
3,189
2,940
2,527
Treasury
shares
Changes in treasury shares
Amount
Number
2019
2018
2017
2019
2018
2017
Opening balance
–11
–15
–8
1,137,701
944,257
600,634
Purchased/sold
1
4
–7
–218,314
193,444
343,623
Closing balance
–10
–11
–15
919,387
1,137,701
944,257
Retained earnings
Changes in retained earnings
2019
2018
2017
Opening balance
28,339
27,022
24,371
Effect of change in accounting policy due to the implementation of IFRS 9
–390
Transfer
to/from other reserves
418
–211
–139
Result for the year
3,723
4,601
5,311
Dividend
–2,650
–2,607
–2,564
Employee stock options and share plans
13
19
21
Changes in composition of the group and other changes
23
–96
22
Closing balance
29,866
28,339
27,022
Changes in the composition of the group
In 2019 ING acquired the additional 23% of shares in Payvsion. Given that ING already had control
over Payvision, the acquisition of the shares in 2019 represents
a shareholder transaction and
resulted in a transfer
between Non-controlling interest
and Retained earnings within Shareholders
equity of EUR 24 million. Reference is made to Note 47, 'Consolidated companies and businesses
acquired and divested', 'Acquisitions'.
Dividend
In 2019, a cash dividend of EUR 2,650 million (2018: EUR 2,607 million and 2017: EUR 2,564 million)
was paid to the shareholders of ING Group.
For further information, reference
is made to Note 30 ‘Dividend per ordinary share’.
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Ordinary shares
- Restrictions with respect to dividend and repayment
of capital
The following equity components cannot be freely distributed: Revaluation reserves,
Net defined
benefit asset/liability
remeasurement reserve,
Currency translation reserve,
Share of associates
and joint ventures reserve
and Other reserves including the part related to the former Stichting
Regio Bank and the former Stichting Vakbondsspaarbank SPN.
As at 31 December 2019, an amount of EUR 1,818 million (2018: EUR 1,638 million; 2017: EUR 1,478
million) related to the former Stichting Regio Bank and the former Stichting Vakbondsspaarbank
SPN is included.
ING Groep N.V.
is subject to legal restrictions regarding the amount of dividends it can pay to the
holders of its ordinary shares. Pursuant to the Dutch Civil Code, dividends can only be paid up to an
amount equal to the excess of the company’s own funds over the sum of the paid-up capital and
reserves required
by law.
Moreover, ING Groep
N.V.’s
ability to pay dividends is dependent on the dividend payment ability
of
its subsidiaries, associates and joint ventures. ING Groep N.V.
is legally required to create
a non-
distributable reserve insofar as profits of its subsidiaries, associates and joint ventures are subject
to dividend payment restrictions which apply to those subsidiaries, associates and joint ventures
themselves. Such restrictions may among others be of a similar nature as the restrictions which
apply to ING Groep N.V.,
including minimum capital requirements that are imposed by industry
regulators in the countries in which the subsidiaries, associates and joint ventures operate, or other
limitations which may exist in certain countries.
Non distributable reserves, determined in accordance with the financial reporting requirements
included in Part 9 of Book 2 of the Dutch Civil Code, from ING Group’s subsidiaries, associates and
joint ventures are as follows:
Non-distributable reserves
2019
2018
2017
ING Bank
8,397
7,603
7,603
Other
0
97
75
Non-distributable reserves
8,398
7,700
7,678
Furthermore there
are restrictions to the ability of subsidiaries, associates and joint ventures to
distribute reserves to ING Groep N.V.
as a result of minimum capital requirements
that are imposed
by industry regulators in the countries in which the subsidiaries operate.
In addition to the legal and regulatory restrictions on distributing dividends from subsidiaries,
associates and joint ventures to ING Groep N.V.
there are various other considerations
and
limitations that are taken into account in determining the appropriate levels of equity in the
Group’s subsidiaries, associates and joint ventures. These considerations and limitations include,
but are not restricted to, rating agency and regulatory
views, which can change over time; it is not
possible to disclose a reliable quantification of these limitations.
For an overview
of the minimal
capital requirements of ING Group
refer to the ‘Capital Management’ section.
Without prejudice to the authority of the Executive Board to allocate profits to reserves and to the
fact that the ordinary shares are the most junior securities issued by ING Groep N.V.,
no specific
dividend payment restrictions with respect to ordinary shares exist.
Furthermore, ING Groep N.V.
is subject to legal restrictions with respect to repayment of capital to
holders of ordinary shares. Capital may be repaid
to the holders of ordinary shares pursuant to an
amendment of ING Groep N.V.’s
Articles of Association whereby the ordinary shares are written
down.
Pursuant to the Dutch Civil Code, capital may only be repaid if none of ING Groep N.V.’s
creditors
opposes such a repayment within two months following the announcement of a resolution to that
effect.
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Cumulative preference
shares (not issued)
Pursuant to the Articles of Association of ING Groep N.V.
the authorised cumulative preference
share capital consists of 4.6 billion cumulative preference
shares, of which none have been issued.
The par value of these cumulative preference
shares is EUR 0.01.
The cumulative preference
shares rank before
the ordinary shares in entitlement to dividend and to
distributions upon liquidation of ING Groep N.V.
The dividend on the cumulative preference shares
will be equal to a percentage, calculated on the
amount compulsorily paid up or yet to be paid up. This percentage shall be equal to the average of
the Euro OverNight Index Average
(EONIA) as calculated by the European Central
Bank during the
financial year for which the
distribution is made; this percentage being weighted on the basis of the
number of days for which it applies, and increased by 2.5 percentage points.
If, and to the extent that the profit available for distribution is not sufficient
to pay the dividend
referred
to above in full, the shortfall will be made up from the reserves insofar as possible. If, and
to the extent that, the dividend distribution cannot be made from the reserves, the profits earned
in subsequent years shall first
be used to make up the shortfall before any distribution may be
made on shares of any other category.
ING Groep N.V.’s
Articles of Association make provision for the cancellation of cumulative
preference
shares. Upon cancellation of cumulative preference
shares and upon liquidation of ING
Groep N.V.,
the amount paid up on the cumulative preference shares
will be repaid together with
the accrued dividend as well as any dividend shortfall in preceding years, insofar as this shortfall
has not yet been made up.
No specific dividend
payment restrictions with respect to the cumulative preference
shares exist.
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Notes to the Consolidated
statement of pro
fit or loss
21 Net interest income
Net interest income
2019
2018
2017
2019
2018
2017
Interest income on loans
19,028
18,966
1
18,338
Interest expense on deposits from banks
361
362
301
Interest income on financial assets at fair value through OCI
615
554
n/a
Interest expense on customer deposits
2,934
2,607
2,664
Interest income on financial assets at amortised cost
673
780
1
n/a
Interest expense on debt securities in issue
2,350
2,254
2,054
Interest income on non-trading
derivatives (hedge accounting)
4,319
4,497
n/a
Interest expense on subordinated loans
660
711
784
Negative interest on liabilities
422
453
500
Negative interest on assets
349
412
407
Total
interest income using effective interest rate
method
25,056
25,249
n/a
Interest expense on non-trading derivatives
(hedge accounting)
4,615
4,826
5,946
Total
interest expense using effective interest rate
method
11,268
11,171
n/a
Interest income on financial assets at fair value through profit or loss
1,897
1,795
n/a
Interest income on investments
n/a
n/a
1,494
Interest expense on financial liabilities at fair value through profit or loss
1,695
1,578
n/a
Interest income on trading derivatives
n/a
n/a
16,108
Interest expense on trading derivatives
n/a
n/a
16,117
Interest income on other trading
portfolio
n/a
n/a
1,028
Interest expense on other trading liabilities
n/a
n/a
744
Interest income on non-trading
derivatives (no hedge accounting)
1,181
1,059
1
700
1
Interest expense on non-trading derivatives
(no hedge accounting)
1,311
1,387
1
1,001
1
Interest income on non-trading
derivatives (hedge accounting)
n/a
n/a
5,690
Interest expense on lease liabilities
25
n/a
n/a
Interest income other
30
25
138
Interest expense other
54
33
331
Total
other interest income
3,107
2,880
n/a
Total
other interest expense
3,084
2,997
n/a
Total
interest income
28,163
28,129
43,996
Total
interest expense
14,353
14,169
30,349
Net interest income
13,811
13,960
13,647
1 The prior periods have been updated to improve consistency and comparability.
Total
Net interest income of EUR 13,811 million (2018: EUR 13,960 million) includes interest income
and expense for instruments calculated using the effective interest rate method and other interest
income and interest expense. IFRS 9 resulted
in changes to IAS 1 for the presentation of Interest
income for instruments calculated using the effective interest rate method, which ING reports as a
separate line item in the consolidated statement of profit or loss as from 2018.
To
further enhance the relevance of the interest disclosures, ING
Group changed its separate
presentation since 2018 of interest (income and expenses) for trading derivatives,
trading securities
and trading loans / deposits (mainly repo’s) to presenting the full fair value movements in
‘Valuation results
and net trading income’. The change in presentation is in line with the changed
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presentation of accrued interest in the balance sheet that is no longer separately presented,
but
included in the corresponding balance sheet item of the host contract.
The new interest presentation was applied prospectively
together with the other presentation
requirements of IFRS 9 as from
2018.
22 Net fee and commission income
Fee and commission income
2019
2018
2017
Funds transfer
1,513
1,394
1,172
Securities business
603
618
532
Insurance broking
191
173
176
Asset management fees
205
170
116
Brokerage and advisory fees
611
584
548
Other
1,317
1,302
1,321
4,439
4,240
3,865
Other, mainly consists of commission fees in respect of bank guarantees of EUR 202 million (2018:
EUR 207 million; 2017: EUR 209 million), in respect of underwriting syndication loans
of EUR 10
million (2018: EUR 4 million; 2017: EUR 52 million), in respect of structured finance
fees of EUR 141
million (2018: EUR 129 million; 2017: EUR 136 million), and in respect of collective instruments
distributed but not managed by ING of EUR 167 million (2018: EUR 165 million; 2017: EUR 165
million).
Fee and commission
expenses
2019
2018
2017
Funds transfer
659
597
437
Securities business
140
170
150
Insurance broking
2
2
4
Asset management fees
8
4
5
Brokerage and advisory fees
282
220
192
Other
481
448
367
1,571
1,442
1,155
All of ING’s net fee and commission income are in scope of IFRS 15 ‘Revenue from
Contracts with
Customers’. Reference is made to Note 34 ‘Segments’ which includes net fee and commission
income, as reported to the Executive Board and the Management Board
Banking, disaggregated by
line of business and by geographical segment.
23 Valuation
results and net trading
income
Valuation results and net trading
income
2019
2018
2017
Securities trading results
974
–722
656
Derivatives trading results
–998
540
59
Other trading results
117
116
62
Change in fair value of derivatives relating
to
–
fair value hedges
–318
185
–184
–
cash flow hedges (ineffective portion)
47
–19
44
–
other non-trading derivatives
93
868
–301
Change in fair value of assets and liabilities (hedged items)
–518
–176
91
Valuation results
on assets and liabilities designated at FVPL
(excluding trading)
–358
366
–109
Foreign exchange
transactions results
801
69
1,194
–159
1,227
1,512
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Securities trading results includes the results
of market making in instruments such as government
securities, equity securities, corporate debt securities, money-market instruments, and interest
rate derivatives such as swaps, options, futures, and forward
contracts. Foreign exchange
transactions results include gains and losses from spot and forward
contracts, options, futures, and
translated foreign currency
assets and liabilities. As from current year the other trading results are
presented separately in this disclosure.
Prior year figures are updated accordingly. Other trading
results include the results of trading
loans and funds entrusted.
The portion of trading gains and losses relating to trading securities still held as at 31 December
2019 amounts to EUR -82 million (2018: EUR 396 million; 2017: EUR -68 million).
Net trading income relates to trading
assets and trading liabilities which include assets and
liabilities that are classified under IFRS as
Trading
but are closely related to servicing the needs of
the clients of ING. ING offers products that are traded on the financial markets
to institutional
clients, corporate clients, and governments. ING Group’s trading
books are managed based on
internal limits and comprise a mix of products with results which could be offset. A significant
part
of the derivatives in the trading portfolio are related
to servicing corporate clients in their risk
management to hedge for example currency or interest rate
exposures. From
a risk perspective,
the gross amount of trading assets must be considered together with the gross amount of trading
liabilities, which are presented separately on the statement of financial position. However, IFRS
does not always allow netting of these positions in the statement of financial
position. Reference is
made to Note 4 ‘Financial assets at fair value through profit or loss’ and Note 15 ‘Financial liabilities
at fair value through profit or loss’ for information on trading liabilities.
The majority of the risks involved in security and currency trading is economically hedged with
derivatives. The securities trading results are
partly offset by results on these derivatives. The result
of these derivatives is included in Derivatives trading results. The
result on currency trading
is
included in foreign exchange transactions results.
In 2019, Derivatives trading results
include EUR 39 million CVA/DVA
adjustments on trading
derivatives (2018: EUR -20 million; 2017: EUR 47 million).
‘Valuation results
and net trading income’ include the fair value movements on derivatives (used
for both hedge accounting and economically hedging exposures) as well as the changes in the fair
value of assets and liabilities included in hedging relationships as hedged items. Reference is made
to Note 39 ‘Derivatives and hedge accounting’ for information on derivatives used for hedge
accounting.
The fair value movements on the derivatives are
influenced by changes in the
market conditions,
such as stock prices, interest rates and currency exchange
rates. In addition, ‘Valuation
results and
net trading income’ include the results on assets and liabilities designated at fair value through
profit or loss.
The Valuation results
on assets and liabilities designated at fair value through profit or loss include
fair value changes on certain issued debt securities. Valuation results
on assets and liabilities
designated at fair value through profit or loss were mainly due to changes in the fair value of
financial liabilities
driven by changes in market conditions as disclosed in Note 15 ‘Financial
liabilities at fair value through profit or loss’.
In 2019, Valuation results
on assets and liabilities designated at fair value through profit or loss
(excluding trading) include fair value adjustments on own issued notes amounting to EUR -424
million (2018: EUR 302 million; 2017: EUR -107 million). In 2017, DVA adjustment on own issued
notes amounting to EUR -79 million was included in Valuation results. Starting 2018, in accordance
with IFRS 9, the DVA
adjustment on own issued notes is recognised in Other Comprehensive
Income
‘Credit
liability reserve’.
Compared to previous
years, in 2019 Valuation results
and net trading income do not include
results on non-trading derivatives
related to warrants on the shares
of Voya and NN Group
(2018:
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EUR 90 million; 2017: EUR -52 million). As at 31 December 2018 ING no longer holds any
warrants
on the shares of Voya
and NN Group.
Interest income from trading
assets in 2019 amounted to EUR 15,187 million (2018: EUR 13,924
million). Interest expense from trading liabilities in 2019
amounted to EUR 14,922 million (2018:
EUR 13,976 million).
‘Valuation results
and net trading income’ are reflected in the Consolidated statement of cash flows
in the line Result before tax - Adjusted for: other.
24 Investment income
Investment income
2019
1
2018
1
2017
1
Dividend income
115
102
80
Realised gains/losses on disposal of debt instruments measured at FVOCI
46
77
n/a
Realised gains/losses on disposal of Available-for
-sale debt securities
n/a
n/a
64
Impairments of Available-for-sale debt securities
n/a
n/a
Reversal of impairments of Available
-for-sale debt securities
n/a
n/a
3
Realised gains/losses and impairments of debt instruments measured at
FVOCI
46
77
67
Realised gains/losses on disposal of Available-for
-sale equity securities
n/a
n/a
48
Impairments of Available-for-sale equity securities
n/a
n/a
–6
Realised gains/losses and impairments of Available-for
-sale equity
securities
n/a
n/a
42
Income from and fair value gains/losses on investment
properties
27
4
3
Investment income
188
183
192
1 The adoption of IFRS 9 led to new presentation requirements for 2019 and 2018; 2017 period amounts have not been
restated.’.
In 2019, 2018 and 2017, Dividend income mainly consists of dividend received from ING’s equity
stake in Bank of Beijing.
Impairments and reversals of impairments on investments are presented
within Investment
income, which is part of Total income.
25 Result on disposal of group
companies
Result on disposal of group companies
2019
2018
2017
Baring Private Equity Partners
1
ING Lease Italy
–2
–123
ING Mauritius
119
117
–123
1
In 2019 the Result on disposal of group companies is mainly impacted by the sale of ING’s stake in
Kotak Mahindra Bank by ING Mauritius during 1Q 2019. ING Mauritius is in the process of being
liquidated and consequently, the release of the currency translation reserve
(CTA) and the release
of the Net Investment Foreign Entities reserve
resulted in a one-off gain of EUR 119 million.
The Result on disposal of group companies includes the result (fair value
less cost to sell) on the
sale of part of the ING Lease Italy business amounting to EUR -123 million, which was recognized in
2018 and a final result of EUR -2 million recognized in 2019.
In 2017 the Result on disposal of group companies included realised deferred
profits on
divestments in prior periods related to Baring Private Equity Partners
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26 Other
income
In 2019, Other income of EUR 252 million (2018: EUR 136 million; 2017: EUR 350 million) includes
the recognition of EUR 79 million receivable related
to the insolvency of a financial institution.
Furthermore, Other income includes income from subleasing right of use assets and gains or losses
from sale and lease back transactions amounting to EUR 5 million as well as income from positive
recovery of defaulted
receivables of EUR 32 million. The remainder of the Other income is mainly
impacted by positive results on the sale of loans and property and various other non-recurring
results.
In 2017 an amount of EUR 121 million is included related to a tax charge at ING Australia Holdings
Ltd., for which a full reimbursement is expected to be received
from NN Group.
27 Staff expenses
Staff expenses
2019
2018
2017
Salaries
3,572
3,287
3,273
Pension costs and other staff-related benefit costs
366
385
381
Social security costs
530
509
499
Share-based compensation arrangements
41
49
74
External employees
974
901
716
Education
64
87
76
Other staff costs
208
202
183
5,755
5,420
5,202
Number of employees
Netherlands
International
Total
2019
2018
2017
2019
2018
2017
2019
2018
2017
Total
average number
of internal employees at
full time equivalent basis
14,415
13,600
13,141
39,016
38,633
38,363
53,431
52,233
51,504
Share-based compensation arrangements include EUR 38 million (2018: EUR 46 million; 2017: EUR
69 million) relating to equity-settled share-based payment arrangements and EUR 3 million (2018:
EUR 3 million; 2017: EUR 5 million) relating to cash-settled share-based payment arrangements.
Remuneration of
senior management, Executive
Board and Supervisory Board
Reference is made to Note 50 ‘Related parties’.
Stock option and share
plans
ING Groep N.V.
has granted option rights on ING Groep N.V.
shares and conditional rights on shares
to a number of senior executives (members of the Executive Board, general managers and other
officers
nominated by the Executive Board), and to a considerable number of employees of ING
Group. The purpose of the option and share schemes, apart from promoting a lasting growth
of ING
Group, is to attract, retain and motivate senior executives
and staff.
ING grants four types of share awards,
deferred shares, performance shares
and upfront shares,
which form part of the variable remuneration offering via the Long term Sustainable Performance
Plan (LSPP), as well as fixed shares. The entitlement to the LSPP share awards is granted
conditionally. If the participant remains in employment for an uninterrupted period between the
grant date and the vesting date, the entitlement becomes unconditional, with the exception of the
upfront shares which are
immediately vested upon grant. Additionally, a condition before vesting
was applied to performance shares until 2018. As of 2019, this performance condition is no longer
applicable. Upfront and deferred
shares awarded to the Management Board members of ING Group
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as well as identified staff,
have a retention obligation that must be adhered to upon vesting, a
minimum retention of 12 months applies. ING has the authority to apply a hold back to awarded
but unvested shares and a claw-back to vested shares.
In addition to the LSPP share awards, ING also pays a number of senior employees fixed shares. The
number of shares are determined each month from a cash value that forms part of the employee
fixed remuneration. The shares are immediately vested to the employee, but have a minimum
holding requirement of two
years before the employee can dispose of the shares. The fixed shares
are not subject to holdback or clawback.
The share awards granted
in 2019 relate to the performance year 2018. In 2019, no
share awards
(2018: 31,743; 2017: 54,768) were granted to the members of the Executive Board
of ING Groep
N.V.,
and
2,837 share awards (2018: 80,036; 2017:
104,449) were granted to the Management
Board Banking (related to pre
-board service period). To
senior
management and other employees
2,167,817 share awards (2018:
3,989,214; 2017:
4,846,903) were granted.
Every year, the ING Group Executive
Board decides whether the option and share schemes are to
be continued and, if so, to what extent. In 2010, the Group Executive Board decided not to continue
the option scheme as from 2011. The existing option schemes will run off in the coming year as
the
option rights will expire in 2020.
The option rights are valid for a period of ten years. Option rights that are not exercised within this
period, lapse. Option rights granted will remain valid until the expiry date, even if the option
scheme is discontinued. The option rights are subject to certain conditions, including a pre-
determined continuous period of service. The exercise prices of the options are the same as the
quoted prices of ING Groep N.V.
shares at the date on which the options are granted.
The obligations with regard to the existing stock option plan and the share plans will be funded
either by cash or by newly issued shares at the discretion of ING Group.
Changes in option rights outstanding
Options outstanding
Weighted average
exercise price
(in numbers)
(in euros)
2019
2018
2017
2019
2018
2017
Opening balance
5,123,853
15,141,980
25,574,912
5.69
12.36
15.53
Exercised
–2,186,316
–827,755
–2,216,764
4.40
5.91
5.89
Forfeited
–45,852
–89,816
–168,007
7.01
8.09
14.26
Expired
–535,342
–9,100,556
–8,048,161
3.51
16.75
24.18
Closing balance
2,356,343
5,123,853
15,141,980
7.35
5.69
12.36
As per 31 December 2019, total options outstanding consists of
1,733,349 options (2018:
3,754,976; 2017: 10,156,219) relating to equity-settled share-based payment arrangements and
622,994 options (2018: 1,368,877; 2017: 4,985,761) relating to cash-settled share-based payment
arrangements.
The weighted average share price
at the date of exercise for options exercised during 2019 is EUR
10.89 (2018: EUR 13.65; 2017: 13.81). All option rights are vested.
Summary of stock options outstanding and exercisable
Options outstanding and exercisable as
at 31 December
Weighted average
remaining contractual life
Weighted average
exercise
price
Range of exercise
price in euros
2019
2018
2017
2019
2018
2017
2019
2018
2017
0.00 –
5.00
1,930,068
2,294,423
0.21
1.21
2.88
2.88
5.00 –
10.00
2,356,343
3,193,785
3,754,542
0.22
1.21
2.21
7.35
7.38
7.38
10.00 –
15.00
110,086
0.71
14.35
15.00 –
20.00
8,982,929
0.21
16.84
2,356,343
5,123,853
15,141,980
All options outstanding are exercisable.
As at 31 December 2019, the aggregate intrinsic value of
options outstanding and exercisable is EUR 8 million (2018: EUR 19 million; 2017: EUR 59 million).
Cash received
from stock option exercises for the year ended 31 December 2019 is EUR 7 million
(2018: EUR 4 million; 2017: EUR 10 million).
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Changes in share awards
Share awards
Weighted average
grant date fair value
(in numbers)
(in euros)
2019
2018
2017
2019
2018
2017
Opening balance
5,854,999
7,222,279
8,382,963
11.62
11.46
10.44
Granted
2,170,654
4,100,993
5,006,120
10.04
12.50
13.20
Performance effect
–
341,623
379,934
11.12
11.65
10.47
Vested
–3,945,020
–5,565,093
–6,328,318
11.23
12.05
11.40
Forfeited
–223,585
–244,803
–218,420
11.39
11.52
10.83
Closing balance
3,857,048
5,854,999
7,222,279
11.14
11.62
11.46
As at 31 December 2019 the share awards consists of
3,346,004 share awards (2018: 5,211,339;
2017: 6,416,705)
relating to equity-settled share-based payment arrangements and
511,044
share awards (2018: 643,660; 2017: 805,574) relating to cash-settled share
-based payment
arrangements.
The fair value of share awards
granted is recognised as an expense under Staff expenses and is
allocated over the vesting period of the share awards.
The fair value calculation takes into account
the current stock prices, expected volatities and the dividend yield of ING shares.
As at 31 December 2019, total unrecognised compensation costs related to share awards
amount
to EUR 15 million (2018: EUR 29 million; 2017: EUR 37 million). These costs are expected to be
recognised over a weighted average
period of 1.4 years (2018: 1.4 years; 2017: 1.4 years).
28 Other operating expenses
Other operating expenses
2019
2018
2017
Regulatory costs
1,021
947
901
Audit and non-audit services
30
26
22
IT related expenses
759
779
737
Advertising and public relations
391
402
455
External advisory fees
416
358
353
Office
expenses
325
564
587
Travel
and accommodation expenses
140
179
178
Contributions and subscriptions
108
91
91
Postal charges
46
54
50
Depreciation of property and equipment
1
551
312
319
Amortisation of intangible assets
237
209
179
Impairments and reversals on property
and equipment and intangibles
59
19
18
Addition/(unused amounts reversed) of provision
for reorganisations
6
4
–5
Addition/(unused amounts reversed) of other provisions
29
–13
167
Other
477
1,332
575
4,598
5,262
4,627
1 Includes depreciation expenses of right-of-use assets as recognised under IFRS 16.
Regulatory costs
Regulatory costs represent contributions to the Deposit Guarantee
Schemes (DGS), The Single
Resolution Fund (SRF), local bank taxes and local resolution funds. Included in Regulatory costs
for
2019, are contributions to DGS of EUR 362 million (2018: EUR 364 million; 2017: EUR 341 million)
mainly related to the Netherlands, Germany, Belgium, Poland, and Spain and contributions to the
SRF and local resolution funds of EUR 239 million (2018: EUR 208 million; 2017: EUR 179 million). In
2019 local bank taxes increased by EUR 45 million from EUR 375 million in 2018 to EUR 420 million
(2017: EUR 381 million).
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Audit and non-audit services
Total
audit and non-audit services include the following fees for services provided by the Group’s
auditor.
Fees of Group’s auditors
2019
2018
2017
Audit fees
21
19
18
Audit related fees
2
1
1
Total
23
20
19
1
The Group’s auditors did not provide any non-audit services.
Fees as disclosed in the table above relate
to the network of the Group’s auditors and are the
amounts related to the respective years, i.e.
on an accrual basis. The increase in audit fees 2019
primarily relates to audit activities for the implementation of IFRS 16, new statutory audits and new
IT systems in scope.
Tangible
and Intangible impairments and reversals
Impairments and reversals of property and equipment and intangibles
Impairment losses
Reversals of impairments
Total
2019
2018
2017
2019
2018
2017
2019
2018
2017
Property and equipment
4
9
10
–6
–17
–24
–3
–8
–14
Property development
1
15
2
1
15
2
Software and other
intangible assets
61
12
30
–0
61
12
30
(Reversals of) other impairments
66
35
42
–7
–17
–24
59
19
18
Impairment losses on software and intangible assets in 2019 relate to rescoping of IT
transformation programs.
2018 and 2017 impairments include software that was impaired to its
Value in Use, related
to the acceleration of the Think Forward
Strategy.
In 2018, impairment losses on property development mainly relate to impairments in Spain and
Italy due to lower expected Net Realizable Values.
The reversals of impairments on property and equipment in both 2018 and 2017 relate to
impairments previously recognised in the statement of profit or loss and mainly include
impairments on property in own use that were reversed
following the sale process of office
buildings.
Addition/(unused amounts reversed)
of provision for
reorganisations
Included in Addition/(unused amounts reversed) provision for reorganisations
in 2019, is an
increase in relation to the reorganisation
relating to ING’s Agile transformation in
Germany.
Reference is made to Note 16 ‘Provisions’.
Addition/(unused amounts reversed)
of other provisions
Included in Addition/(unused amounts reversed) of other provisions in 2019, are
movements
mainly in the litigation provision. Reference
is made to Note 16 ‘Provisions’ and Note 46
‘Legal
proceedings’.
Other
In 2018 Other operating expenses - Other included, amongst others, the settlement with the Dutch
Public Prosecution Service of EUR 775 million. The settlement related to previously disclosed
investigations regarding various
requirements for client on-boarding
and the prevention of money
laundering and corrupt practices. Reference is made to Note 46 ‘Legal
proceedings’.
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29 Earnings per ordinary
share
Earnings per ordinary share
Weighted average
number of ordinary
Amount
during the period
Per ordinary share
(in EUR million)
(in millions)
(in EUR)
2019
2018
2017
2019
2018
2017
2019
2018
2017
Basic earnings
3,903
4,761
5,464
3,894.8
3,888.9
3,882.8
1.00
1.22
1.41
Basic earnings from
continuing operations
3,903
4,761
5,464
1.00
1.22
1.41
Effect of dilutive
instruments:
Stock option and share
plans
0.5
1.5
2.8
0.5
1.5
2.8
Diluted earnings
3,903
4,761
5,464
3,895.3
3,890.4
3,885.6
1.00
1.22
1.41
Diluted earnings from
continuing operations
3,903
4,761
5,464
1.00
1.22
1.41
Dilutive instruments
Diluted earnings per share is calculated as if the stock options and share plans outstanding at the
end of the period had been exercised at the beginning of the period and assuming that the cash
received from
exercised stock options and share plans is used to buy own shares
against the
average market price during the period. The net increase in the number of shares resulting
from
exercising stock options and share plans is added to the average number of shares
used for the
calculation of diluted earnings per share.
30 Dividend per ordinary share
Dividends to shareholders of the parent
Per ordinary
share
Total
(in EUR)
(in EUR million)
Dividends on ordinary shares:
In respect of 2017
0.24
933
0.43
1,670
Total
dividend in respect of 2017
0.67
2,603
In respect of 2018
0.24
934
0.44
1,714
Total
dividend in respect of 2018
0.68
2,648
In respect of 2019
0.24
935
0.45
1,754
Total
dividend in respect of 2019
0.69
2,689
ING Groep N.V.
is required to withhold tax of 15% on dividends paid.
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31 Net
cash flo
w
from
operating
activities
The table below shows a detailed overview of the net cash flow from operating activities.
Cash flows from operating activities
in EUR million
2019
2018
2017
Cash flows from operating activities
Result before tax
5,653
6,986
8,085
Adjusted for:
- Depreciation and amortisation
789
520
520
-
Addition to loan loss provisions
1,120
656
676
-
Other non-cash items included in result before
tax
1,213
–1,763
703
Taxation
paid
–2,345
–1,602
–1,691
Changes in:
–
Loans and advances to banks, not available on demand
–1,338
–777
–3,126
–
Deposits from banks, not payable on demand
–2,574
566
6,320
Net change in loans and advances to/ from banks,
not available/ payable on demand
–3,911
–211
3,194
–
Trading
assets
605
16,928
–1,612
–
Trading
liabilities
–3,173
–7,018
–9,575
Net change in Trading
assets and Trading
liabilities
–2,568
9,910
–11,187
Loans and advances to customers
–16,687
–31,356
–21,390
Customer deposits
18,040
19,709
18,291
–
Non–trading derivatives
1,072
–215
–2,239
–
Assets designated at fair value through profit or loss
–7
–725
441
–
Assets mandatorily at fair value through profit or loss
23,343
–6,968
n/a
–
Other assets
1,363
684
–430
–
Other financial liabilities at fair value through profit or loss
–12,235
10,522
–565
–
Provisions and other liabilities
–1,784
769
339
Other
11,752
4,067
–2,454
Net cash flow from/(used in) operating activities
13,055
6,915
–5,253
32 Changes in liabilities arising from
financing activities
Changes in liabilities arising from financing activities
Debt securities in
issue
Subordinated Loans
Lease liabilities
Total
Liabilities from
financing activities
2019
2018
2019
2018
2019
2018
2019
2018
Opening balance
119,751
96,086
13,724
15,968
n/a
n/a
133,475
112,054
Effect of change in
accounting policy due to
the implementation of
IFRS 9/16
–
740
–
241
1,301
1,301
981
Cashflows:
Additions
90,793
152,543
3,429
1,859
–
94,222
154,402
Redemptions / Disposals
–94,497
–131,170
–933
–4,646
–271
–95,700
–135,816
Non cash changes:
Amortisation
135
85
1
13
25
161
98
Other
21
–0
26
443
490
–0
Changes in FV
1,018
–53
201
–73
–
1,220
–126
Foreign exchange
movement
1,306
1,521
140
362
8
1,454
1,883
Closing balance
118,528
119,751
16,588
13,724
1,507
n/a
136,622
133,475
33 Cash and cash equivalents
Cash and cash equivalents
2019
2018
2017
Treasury
bills and other eligible bills
43
159
391
Deposits from banks/Loans
and advances to banks
786
–2,617
–3,403
Cash and balances with central banks
53,202
49,987
21,989
Cash and cash equivalents at end of year
54,031
47,529
18,977
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Treasury bills and other eligible bills included in cash and cash equivalents
2019
2018
2017
Treasury
bills and other eligible bills included in trading assets
0
17
5
Treasury
bills and other eligible bills included in AFS investments
n/a
n/a
386
Treasury
bills and other eligible bills included in FVOCI
–0
n/a
Treasury
bills and other eligible bills included in securities at AC
43
142
n/a
43
159
391
2019
2018
2017
Included in cash and cash equivalents:
–
Deposits from banks
–8,519
–8,520
–8,563
–
Loans and advances to banks
9,304
5,903
5,160
786
–2,617
–3,403
Not included in cash and cash equivalents:
–
Deposits from banks
–26,307
–28,811
–28,258
–
Loans and advances to banks
25,832
24,519
23,651
–476
–4,292
–4,607
Total
as included in the statement of financial position:
–
Deposits from banks
–34,826
–37,330
–36,821
–
Loans and advances to banks
35,136
30,422
28,811
310
–6,909
–8,010
Cash and cash equivalents includes deposits from banks and loans and advances to banks that are
on demand.
Included in Cash and cash equivalents, are minimum mandatory reserve deposits to be held with
various central banks. Reference
is made to Note 42 ‘Assets not freely disposable’ for restrictions on
Cash and balances with central banks.
Segment
reporting
34 Segments
a. General
ING Group’s segments are based on the internal reporting structures by lines of business.
The Executive Board of ING Group
and the Management Board Banking set the performance
targets, approve
and monitor the budgets prepared by the business lines. Business lines formulate
strategic, commercial, and financial plans in conformity with the strategy and performance targets
set by the Executive Board of ING Group
and the Management Board Banking.
Recognition and measurement of segment results are
in line with the accounting policies as
described in Note 1 ‘Accounting policies’. Corporate expenses are allocated to business lines based
on time spent by head office
personnel, the relative number of staff, or on the basis of income,
expenses and/or assets of the segment.
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The following table specifies the segments
by line of business and main sources of income of each
of the segments:
Specification of the main sources of income of each of the segments by line of business
Segments of the Banking results by
line of business
Main source of income
Retail Netherlands
Income from retail and
private banking activities in the Netherlands,
including the SME and mid-corporate segments, and the Real Estate
Finance portfolio related to Dutch domestic mid-corporates.
The main
products offered are current
and savings accounts, business lending,
mortgages and other consumer lending in the Netherlands.
(Market Leaders)
Retail Belgium
Income from retail and
private banking activities in Belgium (including
Luxembourg),
including the SME and mid-corporate segments. The main
products offered are similar to those in the Netherlands.
(Market Leaders)
Retail Germany
Income from retail and
private banking activities in Germany (including
Austria). The main products offered are current
and savings accounts,
mortgages and other customer lending.
(Challengers and Growth Markets)
Retail Other
Income from retail banking activities in the rest
of the world, including the
SME and mid-corporate segments in specific countries. The main products
offered are similar to those in the Netherlands.
(Challengers and Growth Markets)
Wholesale Banking
Income from wholesale banking activities. The main products are: lending,
debt capital markets, working capital solutions, export finance, daily
banking solutions, treasury and risk solutions, and corporate
finance.
As of 1 January 2019, the Real Estate Finance portfolio related to Dutch domestic mid-corporates,
which was included under Wholesale Banking, has been transferred to Retail Netherlands in order
to define clearer roles and responsibilities. The presentation of previously reported underlying profit
and loss amounts has been adjusted to reflect this
change.
The geographical segments for the Banking results are presented
on page F - 79.
Specification of geographical
segments
Geographical segments
Main countries
The Netherlands
Belgium
Including Luxembourg
Germany
Including Austria
Other Challengers
Australia, France,
Italy, Spain, Portugal, Czech Republic, and UK Legacy
and
Other
Growth Markets
Poland, Romania, Turkey,
Philippines and Asian bank stakes
Wholesale Banking Rest of World
UK, Americas, Asia and other countries in Central
and Eastern Europe
Other
Corporate Line Banking and the run-off portfolio of Real Estate
ING Group evaluates the results
of its banking segments using a financial
performance measure
called underlying result. Underlying result is used to monitor the performance of ING Group at a
consolidated level and by segment. The Executive Board and the Management Board Banking
consider this measure to be relevant
to an understanding of the Group’s financial performance,
because it allows investors to understand the primary method used by management to evaluate
the Group’s operating performance and make decisions about allocating resources.
In addition, ING
Group believes that the presentation of underlying net result
helps investors compare its segment
performance on a meaningful basis by highlighting result before tax attributable to ongoing
operations and the underlying profitability of the segment businesses. Underlying
result is derived
by excluding from IFRS the following: special items, adjustment of the EU ‘IAS 39 carve out’, the
impact of divestments and Insurance Other.
Special items include items of income or expense that are significant and arise
from events or
transactions that are clearly distinct from the regular operating
activities. Disclosures on
comparative periods also reflect the impact of divestments. Insurance Other reflects (former)
insurance related activities that are not part of the discontinued operations.
ING Group reconciles the total segment results
to the total result of Banking using Corporate
Line
Banking. The Corporate Line Banking is a reflection of capital management activities and certain
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 75
income and expenses that are not allocated to the banking businesses, including a higher VAT
refund in 2019 as well as a EUR 119 million gain from the release of a currency
translation reserve
following the sale of ING’s stake in Kotak Mahindra Bank and the recognition of a EUR 79 million
receivable related
to the insolvency of a financial institution
(both recorded under income).
Furthermore, the Corporate
Line Banking includes the isolated legacy costs (mainly negative
interest results) caused by the replacement
of short-term funding with long-term funding during
2013 and 2014. ING Group applies a system of capital charging for its banking operations in order
to create a comparable basis for the results
of business units globally, irrespective of the business
units’ book equity and the currency they operate in.
Underlying result as presented below is a non-GAAP financial measure and is not a measure of
financial performance under IFRS. Because
underlying result is not determined in accordance with
IFRS, underlying result as presented by ING may not be comparable to other similarly titled
measures of performance of other companies. The underlying result of ING’s segments is
reconciled to the net result as reported in the
IFRS Consolidated statement of profit or loss below.
The information presented in this note is in line with the information presented to the Executive
Board of ING Group and Management Board Banking.
This note does not provide information on the revenue
specified to each
product or service as this is
not reported internally and is therefore not readily
available.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 76
Reconciliation between IFRS and Underlying income, expenses and net result
2019
2018
2017
Income
Expenses
Taxation
Non-
Controlling
interests
Net result¹
Income
Expenses
Taxation
Non-
Controlling
interests
Net result¹
Income
Expenses
Taxation
Non-
Controlling
interests
Net result¹
Net result IFRS attributable to equity holder of the parent
17,125
11,472
1,652
99
3,903
18,324
11,338
2,116
108
4,761
18,590
10,505
2,539
82
5,464
Remove impact of:
Special items
2
–775
775
–121
–121
0
Insurance Other
3
–89
1
–90
53
1
52
Adjustment of the EU 'IAS 39 carve out'
4
1,181
303
878
–148
–90
–58
–817
–258
–559
Underlying
5
18,306
11,472
1,955
99
4,781
18,088
10,563
2,028
108
5,389
17,704
10,505
2,160
82
4,957
1 Net result, after tax and non-controlling interests.
2 Special items in 2018 comprised a settlement agreement with the Dutch authorities on regulatory issues as announced on 4
September 2018.
3 Insurance Other comprises the net result relating to warrants on the shares of Voya
Financial and NN Group. In March 2018 ING sold its remaining part of warrants on the shares of Voya Financial. In November
2018 the warrant agreement between NN Group
4 ING prepares the Form 20-F in accordance
with IFRS-IASB. This information is prepared by reversing the hedge accounting impacts that applied under the EU 'carve-out'
5 Underlying figures are derived from figures according to IFRS by excluding the impact of adjustment of the EU 'IAS
39 carve-out', special items and Insurance Other.
b. ING Group
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 77
ING Group Total
2019
2018
2017
ING
Bank N.V.
Other
Banking
Total
Banking
Legacy
Insurance
Total
ING
Bank N.V.
Other
Banking
Total
Banking
Legacy
Insurance
Total
ING
Bank N.V.
Other
Banking
Total
Banking
Legacy
Insurance
Total
Underlying income
Net interest income
14,074
4
14,079
14,079
13,949
–34
13,916
13,916
13,782
–68
13,714
13,714
Net fee and commission income
2,868
–0
2,868
2,868
2,803
–0
2,803
2,803
2,714
–0
2,714
2,714
Total
investment and other income
1,352
8
1,360
1,360
1,350
19
1,369
1,369
1,259
17
1,277
1,277
Total
underlying income
18,295
12
18,306
18,306
18,102
–15
18,088
18,088
17,755
–51
17,704
17,704
Underlying expenditure
Operating expenses
10,343
9
10,353
10,353
9,920
–13
9,907
9,907
9,795
34
9,829
9,829
Additions to loan loss provision
1,120
0
1,120
1,120
656
0
656
656
676
0
676
676
Total
underlying expenses
11,463
9
11,472
11,472
10,576
–13
10,563
10,563
10,472
34
10,505
10,505
Underlying result before taxation
6,831
3
6,834
6,834
7,526
–2
7,524
7,524
7,283
–84
7,199
7,199
Taxation
1,889
66
1,955
1,955
2,036
–8
2,028
2,028
2,182
–22
2,160
2,160
Non-controlling interests
99
99
99
108
108
108
82
82
82
Underlying net result
4,843
–63
4,781
4,781
5,382
6
5,389
5,389
5,019
–62
4,957
4,957
Special items
–775
–775
–775
0
0
0
Insurance Other
90
90
–52
–52
Adjustment of the EU 'IAS 39 carve out'
–878
–878
–878
58
58
58
559
559
559
Net result IFRS attributable to equity holder of the parent
3,966
–63
3,903
3,903
4,665
6
4,672
90
4,761
5,578
–62
5,516
–52
5,464
1
Comprises for the most part the funding charges of ING Groep N.V.
(Holding).
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2019 ING Group Annual Report on Form 20-F
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c. Banking activities
Segments Banking by line of business
2019
2018
2017
Retail
Nether-
lands
Retail
Belgium
Retail
Germany
Retail
Other
Wholesale
Banking
Corporate Line
Banking
Total
Banking
Retail
Nether-
lands
1
Retail
Belgium
Retail
Germany
Retail
Other
Wholesale
Banking
1
Corporate Line
Banking
Total
Banking
Retail
Nether-
lands
1
Retail
Belgium
Retail
Germany
Retail
Other
Wholesale
Banking
1
Corporate Line
Banking
Total
Banking
Underlying income
–
Net interest income
3,541
1,907
1,579
2,787
3,794
470
14,079
3,749
1,830
1,671
2,690
3,686
290
13,916
3,866
1,842
1,704
2,437
3,639
226
13,714
–
Net fee and commission income
674
374
268
423
1,135
–6
2,868
664
371
225
395
1,152
–4
2,803
607
408
215
384
1,102
–3
2,714
–
Total
investment and other income
290
161
138
298
369
103
1,360
335
169
76
230
673
–113
1,369
256
224
–28
207
919
–301
1,277
Total
underlying income
4,505
2,442
1,985
3,509
5,298
568
18,306
4,747
2,369
1,972
3,315
5,510
173
18,088
4,730
2,473
1,891
3,028
5,660
–78
17,704
Underlying expenditure
–
Operating expenses
2,210
1,609
1,080
2,210
2,937
307
10,353
2,220
1,610
1,027
2,033
2,771
247
9,907
2,260
1,584
1,032
1,919
2,744
290
9,829
–
Additions to loan loss provision
91
186
–53
364
532
–0
1,120
–41
164
–27
350
210
–1
656
15
104
–10
284
282
1
676
Total
underlying expenses
2,301
1,794
1,027
2,574
3,469
307
11,472
2,179
1,774
1,000
2,383
2,981
246
10,563
2,275
1,688
1,022
2,203
3,026
291
10,505
Underlying result before taxation
2,204
647
957
935
1,830
261
6,834
2,568
595
972
932
2,529
–72
7,524
2,455
785
869
825
2,634
–369
7,199
Taxation
558
192
328
234
464
179
1,955
626
199
324
200
633
47
2,028
615
296
241
188
832
–13
2,160
Non-controlling interests
0
3
82
14
99
6
3
80
19
108
–2
2
67
15
82
Underlying net result
1,646
455
627
619
1,352
82
4,781
1,942
390
646
652
1,877
–119
5,389
1,839
491
625
569
1,788
–356
4,957
Special items
–775
–775
0
0
Adjustment of the EU 'IAS 39 carve out'
–878
–878
58
58
559
559
Net result Banking
1,646
455
627
619
474
82
3,903
1,942
390
646
652
1,935
–894
4,672
1,839
491
625
569
2,347
–356
5,516
Net result Insurance
Other
90
–52
Net result IFRS-IASB
3,903
4,761
5,464
1 In 2019, the Dutch domestic midcorporates real
estate finance portfolio transferred from Wholesale Banking to Retail
Banking Netherlands. Comparative figures have been adjusted.
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2019 ING Group Annual Report on Form 20-F
F - 79
Geographical segments Banking
2019
2018
2017
Nether-
lands
Belgium
Germany
Other
Challengers
Growth
markets
Wholesale
Banking Rest
of World
Other
Total
Banking
Nether-
lands
Belgium
1
Germany
Other
Challengers
Growth
markets
Wholesale
Banking Rest
of World
1
Other
Total
Banking
Nether-
lands
Belgium
1
Germany
Other
Challengers
Growth
markets
Wholesale
Banking Rest
of World
1
Other
Total
Banking
Underlying income
–
Net interest income
4,213
2,233
2,122
1,808
1,606
1,636
461
14,079
4,374
2,137
2,200
1,732
1,639
1,548
285
13,916
4,537
2,110
2,172
1,527
1,515
1,625
227
13,714
–
Net fee and commission
income
994
533
315
283
299
451
–7
2,868
980
520
273
254
297
482
–4
2,803
871
521
269
232
316
507
–3
2,714
–
Total
investment and other
income
119
233
169
16
411
301
111
1,360
509
379
99
–92
333
245
–104
1,369
445
480
–17
22
296
245
–193
1,277
Total
underlying income
5,325
2,999
2,606
2,107
2,316
2,388
566
18,306
5,863
3,037
2,572
1,895
2,269
2,274
177
18,088
5,853
3,111
2,424
1,781
2,127
2,377
31
17,704
Underlying expenditure
–
Operating expenses
2,994
1,925
1,237
1,318
1,261
1,309
308
10,353
2,929
1,932
1,171
1,217
1,175
1,222
263
9,907
2,930
2,071
1,154
1,142
1,126
1,105
301
9,829
–
Additions to loan loss
provision
146
268
–40
171
271
303
–0
1,120
–65
153
6
163
274
126
–1
656
3
160
–15
201
241
85
1
676
Total
underlying expenses
3,140
2,194
1,197
1,489
1,533
1,612
308
11,472
2,863
2,085
1,176
1,380
1,449
1,347
262
10,563
2,933
2,231
1,140
1,344
1,367
1,190
301
10,505
Underlying result before
taxation
2,185
805
1,409
618
784
776
258
6,834
3,000
952
1,396
515
820
927
–85
7,524
2,920
880
1,285
437
760
1,188
–270
7,199
Taxation
549
247
476
207
166
137
173
1,955
741
291
459
178
143
174
43
2,028
708
369
407
145
151
379
–1
2,160
Non-controlling interests
–0
0
3
96
99
1
6
3
98
108
–
–2
2
82
82
Underlying net result
1,637
558
929
411
521
639
85
4,781
2,258
655
935
337
580
753
–128
5,389
2,212
512
875
292
527
808
–269
4,957
Special items
–
–
–775
–775
0
0
Insurance Other
–
–
90
90
–52
–52
Adjustment of the EU 'IAS 39
carve out'
–273
–372
–232
–0
–878
106
22
–72
2
58
465
38
113
–58
558
Net result IFRS
1,363
186
697
411
521
639
85
3,903
2,364
677
863
339
580
753
–813
4,761
2,677
550
988
234
527
808
–321
5,464
1 As from 2019, financials of Nordics locations (which are managed from Brussels( transferred from 'Wholesale Banking rest of the World' to 'Belgium'. Comparative figures have been adjusted.
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2019 ING Group Annual Report on Form 20-F
F - 80
35 Information
on geographical
areas
ING Group’s business lines operate in seven main geographical
areas: the Netherlands, Belgium,
Rest of Europe, North America, Latin
America, Asia and Australia. A geographical area is a
distinguishable component of the Group engaged in providing products or services within a
particular economic environment that is subject to risks and returns that are different from those of
geographical areas operating
in other economic environments. The geographical analyses are
based on the location of the office
from which the transactions are originated. The Netherlands is
ING Group’s country of domicile.
The tables below provide additional information, for the years 2019, 2018 and 2017 respectively, on
names of principal subsidiaries and branches, nature of main activities and average number of
employees on a full time equivalent basis by country/tax jurisdiction.
Additional information by country
Geographical area
Country/Tax
jurisdiction
Name of principal
subsidiary
Main (banking)
activity
Average
number of employees
at full time equivalent basis
Total
Income
Total
assets
Result before tax
Taxation
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
Netherlands
Netherlands
ING Bank N.V.
Wholesale / Retail
14,415
13,600
13,141
5,198
6,130
6,396
267,368
259,387
239,342
1,397
1,973
2,940
437
738
812
Belgium
Belgium
ING België N.V.
Wholesale / Retail
7,694
8,248
8,893
2,277
2,838
3,041
121,813
120,287
119,068
291
898
1,093
142
285
455
Luxemburg
ING Luxembourg
S.A.
Wholesale / Retail
841
791
777
292
315
298
16,608
13,310
14,748
123
199
68
29
50
27
Rest of Europe
Poland
ING Bank Slaski S.A
Wholesale / Retail
8,968
8,829
8,664
1,344
1,229
1,119
37,220
33,040
29,976
533
525
444
141
128
112
Germany
ING DiBa A.G.
Wholesale / Retail
4,639
4,625
4,587
2,141
2,315
2,477
147,642
144,861
138,185
1,032
1,203
1,405
355
397
448
Romania
Branch of ING Bank N.V.
Wholesale / Retail
2,575
2,269
1,968
457
403
314
7,424
7,112
5,940
221
183
135
34
25
23
Spain
Branch of ING Bank N.V.
Wholesale / Retail
1,233
1,201
1,135
706
600
509
26,118
23,757
23,858
249
195
97
72
71
25
Italy
Branch of ING Bank N.V.
Wholesale / Retail
959
911
838
269
231
336
15,726
16,991
16,728
–39
–101
–4
4
–24
7
UK
Branch of ING Bank N.V.
Wholesale
692
672
603
594
505
550
61,088
64,016
78,573
214
180
324
52
44
76
France
Branch of ING Bank N.V.
Wholesale / Retail
659
620
591
308
323
310
12,058
12,063
10,678
70
111
93
35
45
32
Russia
ING Bank (Eurasia) Z.A.O.
Wholesale
293
277
270
93
82
136
1,499
1,449
1,607
68
25
78
22
3
20
Czech Republic
Branch of ING Bank N.V.
Wholesale / Retail
339
306
245
88
106
–5
4,494
6,278
5,640
10
39
–55
2
10
–11
Hungary
Branch of ING Bank N.V.
Wholesale
138
141
146
24
40
32
1,299
1,227
1,003
–7
5
–
2
3
2
Slovakia
Branch of ING Bank N.V.
Wholesale
703
571
497
14
14
14
587
487
677
2
–0
2
–0
1
1
Ukraine
PJSC ING Bank Ukraine
Wholesale
111
109
106
43
36
30
481
368
321
31
22
9
9
3
2
Austria
Branch of ING DiBa A.G.
Wholesale / Retail
279
235
225
80
85
80
1,441
753
682
0
18
25
1
6
–1
Bulgaria
Branch of ING Bank N.V.
Wholesale
68
69
70
12
9
9
358
360
268
2
–0
–2
–
–
–
Ireland
Branch of ING Bank N.V.
Wholesale
48
47
43
71
68
57
2,575
2,868
2,337
58
65
47
8
8
6
Portugal
Branch of ING Bank N.V.
Wholesale
12
11
11
18
18
14
899
905
667
14
13
9
4
4
3
Switzerland
Branch of ING België N.V.
Wholesale
257
244
204
234
257
224
8,577
8,266
9,737
126
169
145
–36
35
38
1
Public subsidies received, as defined in article 89
of the CRD IV, amounts to EUR 0.3 million (2018: EUR 0.5 million;
2017: EUR 0.5 million).
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2019 ING Group Annual Report on Form 20-F
F - 81
Additional information by country (continued)
Geographical area
Country/Tax
jurisdiction
Name of principal
subsidiary
Main (banking)
activity
Average
number of employees
at full time equivalent basis
Total
Income
Total
assets
Result before tax
Taxation
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
North America
Canada
Payvision Canada Services
Ltd.
Wholesale
1
1
3
3
1
2
2
0
0
–
USA
ING Financial Holdings
Corp.
Wholesale
626
617
564
813
736
724
45,521
61,440
42,873
366
343
371
118
61
134
Latin America
Brazil
Branch of ING Bank N.V.
Wholesale
89
88
78
43
35
47
2,921
1,974
1,184
27
16
16
6
9
4
Colombia
ING Capital Colombia
S.A.S.
Wholesale
3
3
2
1
1
1
2
2
2
Mexico
ING Consulting, S.A. de
C.V.
Wholesale
8
8
8
1
1
1
2
2
2
–2
–2
–2
Asia
China
Branch of ING Bank N.V.
Wholesale
89
86
81
35
37
35
2,031
2,107
2,298
7
3
7
–1
7
–2
Japan
Branch of ING Bank N.V.
Wholesale
33
32
35
31
36
33
5,109
2,300
2,238
22
19
17
8
5
11
Singapore
Branch of ING Bank N.V.
Wholesale
592
546
512
349
340
297
27,982
32,222
25,803
76
176
133
13
21
9
Macau
Payvision Macau Ltd.
Wholesale
n/a
–
n/a
–
n/a
–
n/a
–
n/a
Hong Kong
Branch of ING Bank N.V.
Wholesale
128
122
108
96
110
94
7,350
6,975
7,850
38
52
55
7
8
7
Philippines
Branch of ING Bank N.V.
Wholesale/ Retail
1,420
878
604
25
17
18
412
395
322
–11
0
6
–5
3
2
South Korea
Branch of ING Bank N.V.
Wholesale
79
80
82
60
55
55
5,457
4,299
4,602
25
14
21
7
3
6
Taiwan
Branch of ING Bank N.V.
Wholesale
34
33
33
26
23
23
2,873
2,839
3,910
10
7
11
0
0
–
Indonesia
PT ING Securities
Indonesia
Wholesale
0
3
5
0
0
1
6
6
6
–0
–0
–
Malaysia
Branch of ING Bank N.V.
Wholesale
5
5
5
1
1
166
139
29
0
0
–1
0
0
India
Branch of ING Bank N.V.
Wholesale
–
–
–
0
1
1
2
0
–
1
0
–0
Turkey
ING Bank A.S.
Wholesale / Retail
4,074
4,709
5,221
677
678
741
9,927
11,521
13,798
304
245
267
66
50
54
United Arabic
Emirates
Branch of ING Bank N.V.
Wholesale
11
11
10
–1
–0
0
0
–2
–1
–2
Australia
Australia
ING Bank (Australia) Ltd.
Wholesale / Retail
1,319
1,234
1,143
701
647
577
43,482
39,673
37,982
400
389
330
121
118
235
Other
Mauritius
ING Mauritius Ltd.
Investment
Management
0
1
1
1
920
939
–0
1
–
Total
53,431
52,233
51,504
17,125
18,324
18,590
888,520
884,603
843,878
5,653
6,986
8,085
1,652
2,116
2,539
2019
The relatively high tax charge of 31% in the Netherlands (compared to statutory rate
of 25%) is
mainly caused by the non-deductible Dutch bank tax (EUR 177 million) and the
non-deductible AT1
interest expenses (EUR 276 million).
The relatively low tax charge in Switzerland is caused by a deferred
tax benefit following a tax rate
reduction in 2019.
2018
The relatively high tax charge of 37% in the Netherlands (compared to statutory rate
of 25%) is
mainly caused by non-deductible expenses of EUR 775 million upon the settlement
agreement
reached with the Dutch authorities on regulatory
issues.
2017
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Australia has a very high tax charge due to a tax charge at ING
Australia Holdings Ltd related
to the
years 2007-2013, for which a full reimbursement is expected to be received from NN Group.
Although the impact on net result was nil, this special item affected both the tax and ‘other
income’ line in the Consolidated statement of profit or loss.
Due to the tax reforms in the US and Belgium, which resulted in a tax charge to record
a reduction
in deferred tax assets, the tax charge is significantly higher.
Austria, China, Singapore and Taiwan
all have lower tax charges due to prior year adjustments.
Additional
notes
to the
Consolidated
financial
statements
36 Pension
and other
post-employment
benefits
Most group companies sponsor defined contribution pension
plans. The assets of all ING Group’s
defined contribution
plans are held in independently administered funds. Contributions are
generally determined as a percentage of remuneration.
For the defined contribution scheme in the
Netherlands, the premium paid is also dependent on the interest rate developments and the
methodology of the Dutch Central Bank for determining the ultimate forward rate.
These plans do
not give rise to provisions in the statement of financial position, other than relating to short-term
timing differences included in other assets/liabilities.
ING Group maintains defined benefit
retirement plans in some countries. These plans provide
benefits that are related to the remuneration and service of employees upon retirement. The
benefits in some of
these plans are subject to various forms of indexation. The indexation is, in
some cases, at the discretion of management; in other cases it is dependent upon the sufficiency
of plan assets.
Annual contributions are paid to the funds at a rate necessary to adequately finance the accrued
liabilities of the plans calculated in accordance with local legal requirements.
Plans in all countries
are designed
to comply with applicable local regulations governing investments and funding levels.
ING Group provides other post-employment benefits to certain employees and former employees.
These are primarily post-employment healthcare benefits and discounts on ING products provided
to employees and former employees.
Statement of financial position - Net defined benefit asset/liability
Plan assets and defined benefit
obligation per country
Plan assets
Defined benefit
obligation
Funded Status
2019
2018
2019
2018
2019
2018
The Netherlands
454
394
634
540
–180
–146
United States
277
222
275
224
3
–3
United Kingdom
1,887
1,703
1,184
1,179
703
524
Belgium
590
547
676
636
–85
–88
Other countries
168
154
383
334
–214
–181
Funded status (Net defined benefit asset/liability)
3,377
3,019
3,151
2,913
226
106
Presented as:
- Other assets
709
527
- Other liabilities
–483
–421
226
106
The most recent (actuarial) valuations of the plan assets and the present value of the defined
benefit obligation
were carried out as at 31 December 2019. The present value of the defined
benefit obligation,
and the related current service cost and past service cost, were
determined
using the projected unit credit method.
Changes in the fair value of plan assets for the period were as follows:
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Changes in fair value of plan assets
2019
2018
Opening balance
3,019
3,206
Interest income
70
66
Remeasurements: Return on plan assets excluding
amounts included in interest income
274
–143
Employer's contribution
34
66
Participants contributions
2
3
Benefits paid
–126
–176
Exchange rate differences
104
–3
Closing balance
3,377
3,019
Actual return on the plan assets
344
–77
As at 31 December 2019 the various defined
benefit plans
did not hold any direct investments in
ING Groep N.V.
(2018: nil). During 2019 and 2018 there were no purchases or sales of assets
between ING and the pension funds.
ING does not manage the pension funds and thus receives no compensation for fund
management. The pension fund has not engaged ING in any swap or derivative transactions to
manage the risk of the pension funds.
No plan assets are expected to be returned to ING Group during 2020.
Changes in the present value of the defined benefit
obligation and other post-employment benefits
for the period were as follows:
Changes in defined benefit obligation
and other post-employment benefits
Defined benefit
obligation
Other post-
employment
benefits
2019
2018
2019
2018
Opening balance
2,913
3,140
76
87
Current service cost
28
39
–1
–4
Interest cost
65
61
3
2
Remeasurements: Actuarial gains and losses arising from changes in
demographic assumptions
–6
2
Remeasurements: Actuarial gains and losses arising from changes in
financial assumptions
206
–153
7
–11
Participants’ contributions
2
3
1
1
Benefits paid
–130
–179
–1
–1
Past service cost
0
Exchange rate differences
73
2
1
2
Changes in the composition of the group and other changes
0
–1
Closing balance
3,151
2,913
84
76
Amounts recognised directly in Other comprehensive
income (equity) were as follows:
Changes in the net defined benefit
assets/liability remeasurement reserve
2019
2018
Opening balance
–394
–400
Remeasurement of plan assets
274
–143
Actuarial gains and losses arising from changes in demographic assumptions
6
–2
Actuarial gains and losses arising from changes in financial assumptions
–206
153
Taxation
and Exchange rate differences
–15
–3
Total
Other comprehensive income movement
for the year
58
6
Closing balance
–336
–394
In 2019, EUR 274 million remeasurement of plan assets recognized as a gain in Other
comprehensive income is driven by higher yields on investments. The EUR -206 million actuarial
gains and losses arising from changes in financial
assumptions in the calculation of the defined
benefit obligation
are mainly due to a decrease in discount rates.
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The accumulated amount of remeasurements recognised directly
in Other comprehensive income
(equity) is EUR -378 million (EUR -336 million after
tax) as at 31 December 2019 (2018: EUR -453
million; EUR -394 million after tax).
Amounts recognised in the statement of profit or loss related to pension and other staff related
benefits are as follows:
Pension and other staff-related benefit costs
Net defined benefit
asset/liability
Other post-
employment benefits
Other
Total
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
Current service cost
28
39
34
–1
–4
–3
1
22
–2
29
57
29
Net Interest cost
–5
–4
–4
3
2
3
0
1
–2
–2
Effect of curtailment
or settlement
–3
–1
–1
–3
Other
Defined benefit
plans
23
35
27
2
–1
2
21
–1
26
54
26
Defined contribution
plans
340
331
355
366
385
381
Determination of the net defined benefit asset/liability
The net defined benefit
asset/liability is reviewed and adjusted annually. The assumptions used in
the determination of the net defined
benefit asset/liability
and the Other post-employment
benefits include discount rates, mortality rates, expected rates of salary increases (excluding
promotion increases), and indexation. The rates used for salary developments,
interest discount
factors, and other adjustments reflect
country-specific conditions.
The key assumption in the determination of the net defined
benefit asset/liability
is the discount
rate. The discount rate
is the weighted average of the discount rates that are
applied in different
regions where ING Group
has defined
benefit pension plans
(weighted by the defined
benefit
obligation). The discount rate is based on a methodology that uses market yields on high quality
corporate bonds of the specific regions with durations matching the pension liabilities as key input.
Market yields of high quality corporate bonds reflect the yield on corporate bonds with an AA rating
for durations where such yields are
available. An extrapolation is applied in order to determine the
yield to the longer durations for which no AA-rated corporate
bonds are available. As a result
of the
limited availability of long-duration AA-rated corporate bonds, extrapolation
is an important
element of the determination of the discount rate. The weighted average discount rate
applied for
net defined
benefit
asset/liability for 2019 was 1.5% 2018: (2.3%) based on the pension plan in the
Netherlands, Germany, Belgium, The United States of America, and the United Kingdom. The
average discount rate
applied for Other post-employment benefits
was 3.3% 2018: (3.9%).
Sensitivity analysis of key assumptions
ING performs sensitivity analysis on the most significant
assumptions: discount rates, mortality,
expected rate of salary increase, and indexation. The sensitivity analysis has been carried out
under the assumption that the changes occurred at the end of the reporting period.
The sensitivity analysis calculates the financial
impact on the defined
benefit
obligation of an
increase or decrease of the weighted averages
of each significant actuarial
assumption, all other
assumptions held constant. In practice, this is unlikely to occur, and some changes of the
assumptions may be correlated. Changes to mortality, expected rate of salary increase, and
indexation would have no material impact on the defined
benefit obligation.
The most significant
impact would be from a change in the discount rate. An increase
or decrease in the discount rate of
1% creates an impact on the defined
benefit obligation
of EUR -443 million and EUR 561 million,
respectively.
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Expected cash flows
Annual contributions are paid to the funds at a rate necessary to adequately finance the accrued
liabilities of the plans calculated in accordance with local legal requirements.
Plans in all countries
are designed to comply with applicable local regulations governing investments
and funding levels.
ING Group’s subsidiaries should fund the cost of the entitlements expected to be earned on a yearly
basis.
For 2020 the expected contributions to defined benefit
pension plans are EUR 44 million.
The benefit payments
for defined benefit
and other post-employment benefits
expected to be
made by the plan between 2020-2024 are estimated to be between EUR 100 million and EUR 135
million per annum. From 2025 to 2029 the total payments made by the plan are expected to be
EUR 882 million.
37 Taxation
Statement of financial position – Deferred
tax
Deferred taxes are
recognised on all temporary differences under the liability method using tax
rates applicable in the jurisdictions in which ING Group is subject to taxation.
Changes in deferred tax
2019
Net
liability (-)
Net
asset (+)
2018
Change
through
equity
Change
through
net result
Exchange
rate
differences
Changes
in the
composi-
tion of the
group and
other
changes
Net
liability (-)
Net
asset (+)
2019
Financial assets at FVOCI
1
–118
23
–11
–1
–107
Investment properties
–6
–1
–0
–7
Financial assets and liabilities at FVPL
1
632
314
2
–2
947
Depreciation
–23
5
–0
–19
Cash flow hedges
–140
–199
2
–337
Pension and post-employment benefits
59
–14
2
–5
42
Other provisions
10
–1
–3
6
Loans and advances
1
474
–1
18
491
Unused tax losses carried forward
51
5
5
–0
61
Other
–160
16
–13
1
–0
–156
778
–176
318
2
–2
920
Presented in the statement of financial
position as:
–
Deferred tax liabilities
–180
–322
–
Deferred tax assets
958
1,242
778
920
1
The prior period has been updated to improve consistency and comparability.
IFRS 16 Leases (implemented per 1 January 2019) requires lessees to recognise
right-of-use assets
and lease liabilities on the balance sheet. The above table shows netted amounts which include in
the row ‘Other’ a deferred tax
amount for right-of-use assets
of EUR 370 million (1 January 2019:
EUR 320 million) and a deferred tax amount for lease liabilities of EUR -376 million (1 January 2019:
EUR -323 million).
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Financial assets and liabilities FVPL changes through net result in 2019 relates to the increase in fair
value of derivatives due to decreased interest
yield curves.
Changes in deferred tax
2018
Net
liability (-)
Net
asset (+)
Effect of
changes in
accounting
policies due
to the
implement-
ation of IFRS
9
Change
through
equity
Change
through
net result
Exchange
rate
differences
Changes in
the composi-
tion of the
group and
other
changes
Net
liability (-)
Net
asset (+)
2018
Financial assets FVOCI
1
–663
157
113
273
4
–2
–118
Investment properties
–5
–1
0
–6
Financial assets and
liabilities at FVPL
1
1,082
–15
–453
17
1
632
Depreciation
–24
1
–0
–23
Cash flow hedges
–72
–76
7
1
–140
Pension and post-
employment benefits
76
–12
–8
2
0
59
Other provisions
198
4
–187
–7
1
10
Loans and advances
1
337
137
3
–5
–0
2
474
Unused tax losses carried
forward
–8
61
–2
–0
51
Other
–178
45
–53
55
1
–31
–160
Total
744
328
–25
–265
23
–27
778
Presented in the
statement of financial
position as:
–
deferred tax liabilities
–362
–180
–
deferred tax assets
1,106
958
744
778
1
The prior period has been updated to improve consistency and comparability.
The deferred tax balance recorded
under 'Other provisions' declined in 2018 by EUR 187 million
change through net result of which EUR 90 million relates to the decline of the Belgian
reorganisation provision.
Changes in the Composition of the Group and other changes include the deferred tax liability (EUR
30 million) regarding the acquisition of Payvision.
Deferred tax in connection with unused tax losses carried forward
2019
2018
To
tal unused tax losses carried forward
1,685
1,773
Unused tax losses carried forward not recognised
as a deferred tax asset
922
1,010
Unused tax losses carried forward recognised
as a deferred tax asset
764
763
Average
tax rate
21.4%
20.4%
Deferred tax asset
163
156
Total
unused tax losses carried forward analysed by expiry terms
No deferred tax
asset recognised
Deferred tax
asset recognised
2019
2018
2019
2018
Within 1 year
1
1
More than 1 year but less than 5 years
4
2
17
2
More than 5 years but less than 10 years
92
83
1
Unlimited
824
923
746
759
922
1,010
764
763
The above mentioned deferred tax of EUR 163 million (2018: EUR 156 million) and the related
unused tax losses carried forward exclude the deferred
tax liability recorded in the Netherlands
with respect to the recapture of previously
deducted UK tax losses in the Netherlands for the
amount of EUR -102 million (2018: EUR -105 million).
Deferred tax assets are recognised
for temporary deductible differences, for tax losses carried
forward and unused tax credits only to the extent that realisation
of the related tax benefit is
probable.
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Breakdown of certain net deferred tax asset positions by jurisdiction
2019
2018
Italy
181
189
Philippines
7
Slovakia
1
189
189
The table above include a breakdown of certain net deferred tax asset positions by jurisdiction for
which the utilisation of the deferred tax asset is dependent on future taxable profits in excess of the
profits arising from the reversal of existing taxable temporary differences
whilst the related entities
have incurred losses in either the current or the preceding year.
Statement of profit or loss – Tax
ation
Taxation
by type
Netherlands
International
Total
2019
2018
2017
2019
2018
2017
2019
2018
2017
Current taxation
488
587
488
1,481
1,264
1,527
1,970
1,851
2,015
Deferred taxation
–51
151
324
–267
114
200
–318
265
524
437
738
812
1,214
1,379
1,727
1,652
2,116
2,539
Reconciliation of the weighted average statutory income tax rate
to
ING Group’s effective income tax rate
2019
2018
2017
Result before tax
from continuing operations
5,653
6,986
8,085
Weighted average
statutory tax rate
25.8%
25.8%
27.5%
Weighted average
statutory tax amount
1,459
1,803
2,226
Participation exemption
–49
–77
–45
Other income not subject to tax
–76
–70
–74
Expenses not deductible for tax purposes
237
346
156
Impact on deferred tax from change in tax rates
–57
50
55
Deferred tax benefit from previously unrecognised
amounts
–4
Current tax from previously
unrecognised amounts
48
28
66
Write-off/reversal
of deferred tax assets
2
4
2
State and local taxes
72
25
47
Adjustment to prior periods
16
7
110
Effective tax amount
1,652
2,116
2,539
Effective tax rate
29.2%
30.3%
31.4%
The weighted average statutory tax rate
in 2019 is equal to the rate of 25.8% in 2018. The
weighted average statutory tax rate
in 2018 is lower compared to 2017, due to a decrease in
statutory income tax rates in the USA and Belgium in that year.
The effective tax rate of 29.2% in 2019 is higher than the weighted average statutory tax rate. This
is mainly caused by a high amount of expenses non-deductible for tax purposes with respect to
interest on additional Tier 1 securities and non-deductible bank tax in the Netherlands and
regulatory expenses non-deductible for tax purposes in some other European countries.
The effective tax rate of 30.3% in 2018 is significantly
higher than the weighted average statutory
tax rate. This is mainly caused by a high amount of expenses non-deductible for tax purposes (tax
amount: EUR 346 million).
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This relatively high amount of non-deductible expenses is caused by the EUR 775 million
settlement agreement reached with the Dutch Public Prosecution Service (tax amount: EUR 194
million).
The effective tax rate in 2017 was with 31.4% significantly
higher than the weighted average
statutory tax rate. This was caused by the following items:
◾
A relatively high amount of prior period tax adjustments which ING, for the most part is
reimbursed by NN Group (reimbursement is included in the result
before tax), recognised under
‘Adjustment to prior periods’;
◾
Impact on deferred tax positions following changes in the income tax rate in the USA and
Belgium, recognised under ‘Impact on deferred tax from change in tax rates’;
and
◾
The recapture of previously
deducted UK tax losses in the Netherlands due to increased
profitability in the United Kingdom, recognised under ‘Current tax from previously unrecognised
amounts’.
Equity – Other comprehensive
income
Income tax related to components of other comprehensive income
2019
2018
1
2017
Unrealised revaluations
financial assets at fair value through other comprehensive
income and other revaluations
11
90
103
Realised gains/losses transferred
to the statement of profit or loss
(reclassifications from equity to profit or loss)
12
23
20
Changes in cash flow hedge reserve
–199
–76
167
Remeasurement of the net defined benefit asset/liability
–14
–12
–25
Changes in fair value of own credit risk of financial liabilities at fair value through
profit or loss
7
–33
Exchange rate differences and
other
7
–18
–12
Total
income tax related to components of other comprehensive
income
–176
–25
253
1
The prior period has been updated to improve consistency and comparability.
Tax
Contingency
The contingent liability (also disclosed in note 45 ‘Contingent liabilities’) in connection with taxation
in the Netherlands refers to a possible obligation arising from the deduction from Dutch taxable
profit of losses incurred by ING Bank in the United Kingdom in previous years. The existence of this
obligation will be confirmed
only by the occurrence of future profits in the United Kingdom.
38 Fair
value
of assets
and liabilities
a) Financial assets and liabilities
The following table presents the estimated fair values of ING Group’s financial assets and liabilities.
Certain items per the statement of financial position
are not included in the table, as they do not
meet the definition
of a financial asset
or liability. The aggregation of the fair values presented
below does not represent, and should not be construed as representing,
the underlying value of
ING Group.
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Fair value of financial assets and liabilities
Estimated fair value
Statement of financial
position value
2019
2018
2019
2018
Financial assets
Cash and balances with central banks
53,202
49,987
53,202
49,987
Loans and advances to banks
35,133
30,549
35,136
30,422
Financial assets at fair value through profit or loss
–
Trading
assets
49,254
50,152
49,254
50,152
–
Non-trading derivatives
2,257
2,664
2,257
2,664
–
Assets mandatorily as at fair value through profit or loss
41,600
64,783
41,600
64,783
–
Assets designated as at fair value through profit or loss
3,076
2,887
3,076
2,887
Financial assets at fair value through other comprehensive
income
–
Equity securities
2,306
3,228
2,306
3,228
–
Debt securities
30,483
25,616
30,483
25,616
–
Loans and advances
1,680
2,379
1,680
2,379
Securities at amortised cost
46,928
47,815
46,108
47,276
Loans and advances to customers
621,194
602,841
608,029
589,653
Other assets
1
5,854
7,397
5,854
7,397
892,966
890,299
878,985
876,444
Financial liabilities
Deposits from banks
35,086
37,631
34,826
37,330
Customer deposits
575,055
556,127
574,355
555,729
Financial liabilities at fair value through profit or loss
–
Trading
liabilities
28,042
31,215
28,042
31,215
–
Non-trading derivatives
2,215
2,299
2,215
2,299
–
Designated as at fair value through profit or loss
47,684
59,179
47,684
59,179
Other liabilities
2
9,776
12,117
9,776
12,117
Debt securities in issue
118,844
119,893
118,528
119,751
Subordinated loans
17,253
13,519
16,588
13,724
833,956
831,980
832,014
831,345
1
Other assets do not include, among others: (deferred) tax assets, net defined
benefit asset, inventory, property development
and property obtained from foreclosures.
2
Other liabilities do not include, among others: (deferred) tax liabilities, net defined
benefit and related employee benefit
liabilities, reorganisation and other provisions, other taxation, social security contributions and lease liabilities.
Valuation Methods
The estimated fair values represent the price that would be
received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
It is a market-based measurement, which is based on assumptions that market participants would
use and takes into account the characteristics of the asset or liability that market participants
would take into account when pricing the asset or liability. Fair values of financial assets and
liabilities are based on quoted prices in active market where available. When such quoted prices are
not available, the fair value is determined by using valuation techniques.
ING uses unadjusted quotes where available. Unadjusted quoted prices are primarily obtained from
exchange prices for listed financial instruments. Where an exchange price is not available, quoted
market prices in active markets may be obtained from independent market vendors, brokers, or
market makers. In general, positions are valued at the bid price for a long position and at the offer
price for a short position or are valued at the price within the bid-offer spread that is most
representative
of fair value at the date of valuation.
For certain financial assets and liabilities quoted market prices are not available. For these financial
assets and liabilities, fair value is determined using valuation techniques. These valuation
techniques range from discounting of cash flows to various valuation models, where relevant
pricing factors including the market price of underlying reference instruments, market parameters
(e.g. volatilities, correlations and credit
ratings), and customer behaviour are taken into account.
ING maximises the use of market observable inputs and minimises the use of unobservable input in
determining the fair value. The fair value can be subjective dependent on the significance of the
unobservable input to the overall valuation. All valuation techniques used are
subject to internal
review and approval.
Data used in these valuation techniques are validated on a daily basis when
possible.
When a group of financial assets and financial
liabilities are managed on the basis of their net risk
exposures, are measured
the fair value of a group of financial assets or liabilities on net portfolio
level.
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Control framework
To
determine whether the valuations based upon data inputs have led to an appropriate fair value,
the process of independent price verification (‘IPV’) or price testing is applied. This is done to ensure
the appropriate reflection of these valuations in balance sheet and the profit
and loss accounts. IPV
tests and confirms the reliability of the market data used in these valuations and
can lead to
adjustments in valuation. The IPV process is performed at least monthly or more frequently
depending on the nature of the market or trading activity. Multiple data sources are used to the
extent that such prices are available and taking into account cost-benefit ratio of retrieving such
prices. Valuation differences between
primary and secondary source data are assessed. When
differences resulting from
price testing exceed pre-approved
thresholds, adjustments to the profit
and loss shall be made. Differences and adjustments must be assessed individually, approved by
the Local Parameter
Committee, and reported back in the meeting minutes. In case a material
difference in value is found through the IPV process,
it must be fully understood what the
underlying cause is for the difference, and if a systematic change is required (e.g.
change of
source). Pricing and price testing is applied at individual trade level and is organised
at a desk level.
Valuation processes
are governed by various governance
bodies, which include Local Parameter
Committees (LPC), Global Price Testing
and Impairment Committee (GP&IC), Market Data
Committee (MDC), Trading
Pricing Model Committee (TPMC). All relevant committees meet on a
quarterly basis or more frequent as required.
Key valuation controls including product approval
process (PARP),
IPV, valuation adjustments, and model use is monitored.
The Global Price Testing
and Impairment Committee is responsible for the oversight and the
approval of the outcome of
impairments (other loan loss provisions) and valuation-
(price-testing)
processes It oversees the quality and coherence
of valuation methodologies and processes.. The
TMPC is responsible for validating the appropriate models. Local
Parameter Committees monitor
the appropriateness of (quoted) pricing, any other relevant market info, as well as that of pricing
models themselves related to the fair valued positions to which they are applied. LPC executes
valuation methodology and processes at a local level. The Market Data Committee approves
and
reviews all pricing inputs for the calculation of market parameters.
Valuation Adjustments
Valuation adjustments are
an integral part of the fair value. They are included as part of the fair
value to provide better estimation of market exit value on measurement date. ING considers
various valuation adjustments to arrive at the fair value including Bid-Offer adjustments, Credit
Valuation Adjustments (CVA),
Debt Valuation Adjustments (DVA),
Model Risk Adjustments,
Collateral Valuation
Adjustment (CollVA),
Funding Valuation
Adjustment (FVA) and Exceptional
Valuation Adjustments. The combination of Credit Valuation
adjustment and Debt Valuation
adjustment for derivatives is called Bilateral Valuation
Adjustment (BVA).
◾
Bid-Offer adjustments are required to adjust mid-market values to appropriate bid or offer value
in order to best represent the exit value,
and therefore fair value.
It is applicable to financial
assets and liabilities that are valued at mid-price initially. In practice this adjustment accounts for
the difference in valuation from mid to bid and mid to offer for long and short exposures
respectively. In principle assets are valued at the bid prices and liabilities are valued at the offer
price. For certain assets or liabilities, where market quoted price is not available, the price within
the bid-offer spread that is most representative of fair value is used.
◾
Bilateral Valuation
Adjustment (BVA)
is the valuation component for the counterparty credit risk
of the derivative contracts. It has bilateral nature, where
both counterparty’s credit risk and ING’s
own credit risks is taken into account. The calculation is based on the estimation of the expected
exposure, the counterparties’ risk of default, and taking into account the collateral agreements
as well as netting agreements. The counterparties’ risk of default is measured by probability of
default and expected loss given default, which is based on market information including credit
default swap (CDS) spread. Where counterparty CDS spreads are
not available, relevant proxy
spreads are used. Additionally, wrong-way risk (when exposure
to a counterparty is increasing
and the credit quality of that counterparty deteriorates) and right-way risk (when exposure to a
counterparty is increasing and the credit quality of that counterparty improves) are
included in
the adjustment.
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◾
ING applies Debt Valuation Adjustment (DVA)
to own issued financial liabilities
that are measured
at fair value through profit or loss, if the credit risk component has not been included in the
prices. In the DVA
calculation, the default probability of the institution are estimated based on
the ING Funding spread.
◾
Model risk adjustments reduce the risk of possible financial
losses resulting from the use of a mis-
specified, misapplied,
or incorrect implementation of a model.
◾
Collateral Valuation
Adjustment (CollVA)
is a derivative valuation adjustment capturing specific
features of CSA (Credit Support Annex) with a counterparty that the regular valuation framework
does not capture. Non-standard CSA features
may include deviations in relation to the currency
in which ING posts or receives collateral, deviations in remuneration
rate on collateral which may
pay lower or higher rate than overnight rate
or even no interest at all. Other deviations can be
posting securities rather than cash as collateral.
◾
ING applies an additional ‘Funding Valuation
Adjustment’ (FVA) to address
the funding costs
associated with the
collateral funding asymmetry on uncollateralized or partially collateralized
derivatives in the portfolio. This adjustment is based on the expected exposure profiles of the
uncollateralized or partially collateralized OTC
derivatives and market-based funding spreads.
◾
Exceptional Valuation
Adjustments - Exceptional valuation adjustments are valuation
adjustments of temporary nature and are subject to approval
of GP&IC.
The following methods and assumptions were used by ING Group to estimate the fair value of the
financial instruments:
a.1) Financial assets
Cash and balances with central banks
The carrying amount of cash approximates its fair value.
Loans and advances to banks
The fair values of receivables from
banks are generally based on quoted market prices or, if
unquoted, on estimates based on discounting future cash flows using available market interest
rates including appropriate spreads offered for
receivables with similar characteristics, similar to
Loans and advances to customers described below.
Financial assets at fair value through profit or loss, Financial assets at fair value through other
comprehensive income and Securities at amortised cost
Derivatives
Derivatives contracts can either be exchange-traded or over
the counter (OTC). The fair value of
exchange-traded derivatives is determined using quoted market prices in an active market and
those derivatives are classified in Level 1 of the fair value hierarchy.
For those instruments not
actively traded, fair values are estimated based on valuation techniques. OTC derivatives
and
derivatives trading in an inactive market are valued using valuation techniques because quoted
market prices in an active market are not available for such instruments. The valuation techniques
and inputs depend on the type of derivative and the nature of the underlying instruments. The
principal techniques used to value these instruments are based on (amongst others) discounted
cash flows option pricing models and Monte Carlo simulation. These valuation models calculate the
present value of expected future cash
flows, based on ‘no-arbitrage’ principles. These models are
commonly used in the financial
industry. Inputs to valuation models are determined from
observable market data where possible. Certain inputs may not be observable in the market, but
can be determined from observable prices via valuation model calibration procedures.
The inputs
used include for example prices available from exchanges, dealers, brokers or providers
of pricing,
yield curves, credit spreads, default rates,
recovery rates,
dividend rates, volatility of underlying
interest rates, equity prices, and foreign
currency exchange rates. These inputs are
determined
with reference
to quoted prices, recently executed trades, independent market quotes and
consensus data, where available.
For uncollateralised OTC
derivatives, ING applies Credit Valuation
Adjustment to correctly reflect the
counterparty credit risk in the valuation. See section CVA/DVA/BVA
for more details regarding
the
calculation.
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Equity securities
The fair values of publicly traded equity securities are based on quoted market prices when
available. Where no quoted market prices are
available, fair value is determined based on quoted
prices for similar securities or other valuation techniques.
The fair value of private equity is based on quoted market prices, if available. In the absence of
quoted prices in an active market, fair value is estimated on the basis of an analysis of the
investee’s financial position and results, risk profile, prospects, price, earnings
comparisons and
revenue multiples, and by reference
to market valuations for similar entities quoted in an active
market.
Debt securities
Fair values for debt securities are based on quoted market prices, where
available. Quoted market
prices may be obtained from an exchange, dealer, broker, industry group, pricing service, or
regulatory service. The quoted prices from
non-exchange sources are assessed to determine if they
are tradable prices. This distinction determines where it falls in the fair value hierarchy.
If quoted prices in an active market are not available, fair value is based on an analysis of available
market inputs, which may include consensus prices obtained from one or more pricing services or
by a valuation technique that discounts expected future cash flows using a market interest rate
curves, referenced
credit spreads, maturity of the investment, and estimated prepayment rates
where applicable.
Loans and advances to customers
For loans and advances that are
repriced frequently and have had no significant changes in credit
risk, carrying amounts represent a reasonable estimate of the fair value.
The fair value of other
loans is estimated by discounting expected future cash flows
using a discount rate that reflects
credit risk, liquidity, and other current market conditions. The fair value of mortgage loans is
estimated by taking into account prepayment behaviour.
Loans with similar characteristics are
aggregated for calculation purposes.
Other assets
The other assets are stated at their carrying value which is not significantly different from their fair
value.
a.2) Financial liabilities
Deposits from banks
The fair values of payables to banks are generally based on quoted market prices or, if not
available, on estimates based on discounting future cash flows using available market interest
rates and credit spreads
for payables to banks with similar characteristics.
Customer deposits
The carrying values of customer deposits with an immediate on demand features approximate
their fair values. The fair values of deposits with fixed contractual terms have been estimated based
on discounting future cash flows using the interest rates currently applicable to deposits of similar
maturities.
Financial liabilities at fair value through profit or loss
The fair values of securities in the trading portfolio and other liabilities at fair value through profit or
loss are based on quoted market prices, where available. For
those securities not actively traded,
fair values are estimated based on internal discounted cash flow valuation techniques using
interest rates and credit
spreads that apply to similar instruments. Reference is made to Financial
assets at fair value through profit or loss above.
Other liabilities
The other liabilities are stated at their carrying value which is not significantly different from their
fair value.
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Debt securities in issue
The fair value of debt securities in issue is generally based on quoted market prices, or if not
available, on estimated prices by discounting expected future cash flows using a current market
interest rate and credit
spreads applicable to the yield, credit quality and maturity.
Subordinated loans
The fair value of publicly traded subordinated loans are
based on quoted market prices when
available. Where no quoted market prices are
available, fair value of the subordinated loans is
estimated using discounted cash flows based on interest rates and credit spreads that apply to
similar instruments.
a.3) Fair value hierarchy
ING Group has categorised its financial instruments that are either measured in the statement of
financial position at
fair value or of which the fair value is disclosed, into a three level
hierarchy
based on the priority of the inputs to the valuation. The fair value hierarchy gives the highest
priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the
lowest priority to valuation techniques supported by unobservable inputs. An active market for the
asset or liability is a market in which transactions for the asset or liability occur with sufficient
frequency and volume to provide reliable
pricing information on an ongoing basis. The fair value
hierarchy consists of three
levels, depending upon whether fair values were determined based on
(unadjusted) quoted prices in an active market (Level 1), valuation techniques with observable
inputs (Level
2) or valuation techniques that incorporate inputs which are unobservable and which
have a more than insignificant impact on the fair value of the instrument (Level 3). Financial assets
in Level
3 include for example illiquid debt securities, complex derivatives, certain complex loans
(for which current market information about similar assets to use as observable, corroborated data
for all significant inputs into a valuation model is not
available), and asset backed securities for
which there is no active market and a wide dispersion in quoted prices.
Observable inputs reflect market data obtained from independent sources. Unobservable inputs are
inputs which are based on the Group’s own assumptions about the factors that market participants
would use in pricing an asset or liability, developed based on the best information available in the
market. Unobservable inputs may include volatility, correlation, spreads to discount rates, default
rates and recovery
rates, prepayment rates,
and certain credit spreads. Transfers
into and transfers
out of fair value hierarchy
levels are made on a quarterly basis.
Level 1 – (Unadjusted) quoted prices in active markets
This category includes financial
instruments whose fair value is determined directly by reference to
(unadjusted) quoted prices in an active market that ING Group can access. A financial
instrument is
regarded as quoted in an active market if quoted prices are readily
and regularly available from an
exchange, dealer markets, brokered markets, or principal to principal markets. Those prices
represent actual and regularly occurring market transactions with sufficient frequency and volume
to provide pricing information on an ongoing basis. Transfers
out of Level 1 into Level
2 or Level 3
occur when ING Group establishes that markets are no longer active and therefore
(unadjusted)
quoted prices no longer provide reliable pricing information.
Level 2 – Valuation
technique supported by observable inputs
This category includes financial
instruments whose fair value is based on market observables other
than (unadjusted) quoted prices. The fair value for financial instruments
in this category can be
determined by reference to quoted prices for
similar instruments in active markets, but for which
the prices are modified based on other market observable external data or reference to quoted
prices for identical or similar instruments in markets that are not active. These prices can be
obtained from a third party pricing service. ING analyses how the prices are
derived and determines
whether the prices are liquid tradable prices or model based consensus prices taking various data
as inputs.
For financial instruments that do not have a reference price available, fair value is determined using
a valuation technique (e.g. a model), where inputs in the model are taken from
an active market or
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are observable, such as interest rates
and yield curves observable at commonly quoted intervals,
implied volatilities, and credit spreads.
If certain inputs in the model are unobservable, the instrument is still classified
in this category,
provided that the impact of those unobservable inputs on the overall valuation is insignificant. The
notion of significant is particularly
relevant for
the distinction between Level 2 and Level
3 assets
and liabilities. ING Group has chosen to align the definition
of significant with
the 90% confidence
range as captured in the prudent value definition by EBA. Unobservable parameters are shifted
down and upwards to reach
this 90% confidence range. The same 90% confidence
range is applied
to model uncertainty. If the combined change in asset value resulting from the shift of the
unobservable parameters and the model uncertainty exceeds the threshold, the asset is classified
as Level
3. A value change below the threshold results in a Level
2 classification.
Valuation techniques used for Level
2 assets and liabilities range from discounting of cash flows to
various industry standard valuation models such as option pricing model and Monte Carlo
simulation model, where relevant pricing factors including the market price of underlying reference
instruments, market parameters (volatilities, correlations, and credit ratings), and customer
behaviour are taken into account.
Level 3 – Valuation
technique supported by unobservable inputs
This category includes financial
instruments whose fair value is determined using a valuation
technique (e.g. a model) for which more than an insignificant part of the inputs in terms of the
overall valuation are
not market observable. This category also includes financial assets
and
liabilities whose fair value is determined by reference to price quotes but for which the market is
considered inactive. An instrument in its entirety is classified as Level 3 if a significant portion of the
instrument’s fair value is driven by unobservable inputs. Unobservable in this context means that
there is little or no current market data available from which to derive
a price that an unrelated,
informed buyer would purchase the asset or liability at.
Financial instruments at fair value
The fair values of the financial instruments were determined as follows:
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Methods applied in determining fair values of financial assets and liabilities (carried at fair value)
Level 1
Level 2
Level 3
Total
2019
2018
2019
2018
2019
2018
2019
2018
Financial Assets
Financial assets at fair value through profit or loss
13,228
13,041
35,852
36,617
174
494
49,254
50,152
2,249
2,636
8
27
2,257
2,664
22
141
40,196
63,601
1,381
1,042
41,600
64,783
203
147
1,628
1,665
1,244
1,075
3,076
2,887
Financial assets at fair value through other comprehensive
income
32,165
27,218
343
1,256
1,961
2,749
34,468
31,223
45,618
40,547
80,269
105,775
4,768
5,387
130,655
151,709
Financial liabilities
Financial liabilities at fair value through profit or loss
–
Trading
liabilities
1,446
5,706
26,401
25,387
195
122
28,042
31,215
–
Non-trading derivatives
2,105
2,219
110
80
2,215
2,299
–
Financial liabilities designated as at fair value through
profit or loss
1,081
1,166
46,419
57,305
184
708
47,684
59,179
2,527
6,872
74,924
84,911
490
910
77,942
92,693
In 2019, the decrease in financial assets mandatorily at fair value through profit or loss, mainly
relates to reverse
repurchase transactions for which the valuation technique is supported by
observable inputs.
In 2019
there were no significant transfers between level
1 and 2 and no significant changes
in
valuation techniques.
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Changes in Level 3 Financial assets
Trading
assets
Non-trading
derivatives
Financial assets
mandatorily at FVPL
Financial assets
designated at FVPL
Financial assets
at FVOCI
Total
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Opening balance
494
1,104
27
85
1,042
1,075
365
2,749
480
5,387
2,034
Effect of change in accounting policy due to the implementation of IFRS 9
1,653
–1
3,446
5,097
Realised gain/loss
recognised in the statement of profit or loss during the period
40
–54
–21
109
–63
10
–6
–20
–15
1
–66
45
Revaluation recognised
in other comprehensive income during the period
155
–131
155
–131
Purchase of assets
28
359
2
1,494
1,154
360
731
11
85
1,893
2,331
Sale of assets
3
–53
–120
–3
–166
–832
–1,677
–212
–680
–557
–1,780
–2,521
Maturity/settlement
3
–11
–42
–461
–78
–35
–212
–330
–719
–450
Reclassifications
–279
279
3
2
4
2
Transfers
into Level 3
26
85
4
9
63
–0
103
85
Transfers
out of Level 3
–72
–839
–88
–37
–53
–249
–214
–1,125
Exchange rate differences
1
–1
17
1
3
1
20
Changes in the composition of the group and other changes
2
1
–1
3
–1
Closing balance
174
494
8
27
1,381
1,042
1,244
1,075
1,961
2,749
4,768
5,387
1
Net gains/losses were recorded as ‘Valuation
results and net trading income’ in the statement of profit or loss. The total
amounts includes EUR 43 million of unrealised gains and losses recognised in the statement of profit
or loss.
2
Revaluation recognised in other comprehensive income is included on the line ‘Net change in fair value of debt instruments
at fair value through other comprehensive income’.
3
Prior period of Financial assets at FVOCI has been updated to improve consistency and comparability.
In 2019 the amounts reported on the line reclassifications relate to syndicated loans reclassed
From
trading assets to financial assets mandatory at FVPL.
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Changes in Level 3 Financial liabilities
Financial liabilities designated as at fair
value through profit or loss
Trading
liabilities
Non-trading derivatives
Available-for-sale investments
2019
2018
2019
2018
2019
2018
2019
2018
Opening balance
122
1,073
80
68
708
101
910
1,242
Effect of change in accounting policy due to the implementation of IFRS 9
4
4
Realised gain/loss recognised in the statement of profit or loss
during the period
1
102
–67
–16
8
32
1
118
–58
Issue of liabilities
72
42
46
35
545
154
587
Early repayment of liabilities
–30
–87
–0
–10
–20
–40
–106
Maturity/settlement
–32
–37
–479
–11
–511
–49
Reclassifications
Transfers
into Level 3
13
39
49
92
62
131
Transfers
out of Level 3
–52
–844
–150
–202
–844
Exchange rate differences
–0
–0
–0
Changes in the composition of the group and other changes
2
2
Closing balance
195
122
110
80
184
708
490
910
1
Net gains/losses were recorded as ‘Valuation
results and net trading income’ in the statement of profit or loss. The total
amount includes EUR 115 million of unrealised gains and losses recognised in the statement
of profit or loss.
In 2019 and 2018, financial
liabilities mainly repo’s were transferred
out of Level
3 mainly due to
the valuation not being significantly impacted
by unobservable inputs.
Recognition of unrealised
gains and losses in Level
3
Amounts recognised in the statement of profit or loss relating to unrealised gains and losses during
the year that relates to Level
3 assets and liabilities are included in the line item ‘Valuation results
and net trading income’ in the statement of profit or loss.
Unrealised gains and losses that relate to ‘Financial assets at fair value through other
comprehensive income’ (2019 and 2018) are included in the Revaluation
reserve – Equity securities
at fair value through other comprehensive income
or Debt Instruments at fair value through other
comprehensive income (2019 and 2018).
Level 3 Financial
assets and liabilities
Financial assets measured at fair value in the statement of financial position as at 31 December
2019 of EUR 131 billion includes an amount of EUR 4.8 billion ( 3.6%) which is classified
as Level
3
(31 December 2018: EUR 5.4 billion, being 3.6%). Changes in Level 3 from 31 December 2018 to 31
December 2019 are detailed above in the table Changes in Level
3 Financial assets.
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Financial liabilities measured at fair value in the statement of financial position as at 31 December
2019 of EUR 78 billion includes an amount of EUR 0.5 billion ( 0.6%) which is classified
as Level
3 (31
December 2018: EUR 0.9 billion, being 1.0%). Changes in Level 3 from 31 December 2018 to 31
December 2019 are disclosed above in the table ‘Changes in Level
3 Financial liabilities’.
Financial assets and liabilities in Level 3 include both assets and liabilities for which the fair value
was determined using (i) valuation techniques that incorporate unobservable inputs as well as
(ii)
quoted prices which have been adjusted to reflect that the market was not actively
trading at or
around the balance sheet date. Unobservable inputs are inputs which are based on ING’s own
assumptions about the factors that market participants
would use in pricing an asset or liability,
developed based on the best information available in the circumstances. Unobservable inputs may
include volatility, correlation, spreads to discount rates, default
rates and recovery
rates,
prepayment rates, and certain credit spreads.
Valuation techniques that incorporate
unobservable
inputs are sensitive to the inputs used.
Of the total amount of financial
assets classified
as Level 3 as at 31 December 2019 of EUR 4.8
billion (31 December 2018: EUR 5.4 billion), an amount of EUR 2.5 billion ( 52.6%) (31 December
2018: EUR 3.4 billion,
being 63.2%) is based on unadjusted quoted prices in inactive markets. As ING
does not generally adjust quoted prices using its own
inputs, there is no significant sensitivity to
ING’s own unobservable inputs.
Furthermore, Level
3 financial assets includes
approximately EUR 1.3 billion (31 December 2018:
EUR 1.1 billion) which relates to financial assets that are part of structures that are designed to be
fully neutral in terms of market risk. Such structures include various financial assets and liabilities
for which the overall sensitivity to market risk is insignificant. Whereas the fair value of individual
components of these structures may be determined using different techniques and the fair value
of each of the components of these structures may be sensitive to unobservable inputs, the overall
sensitivity is by design not significant.
The remaining EUR 1.0 billion (31 December 2018: EUR 0.8 billion) of the fair value classified
in Level
3 financial assets is
established using valuation techniques that incorporates certain inputs that are
unobservable.
Of the total amount of financial
liabilities classified
as Level 3 as at 31 December 2019 of EUR 0.5
billion (31 December 2018: EUR 0.9 billion),
an amount of EUR 0.2 billion (39.3%) (31 December
2018: EUR 0.7 billion, being 82.0%) is based on unadjusted quoted prices in inactive markets.
As ING
does not generally adjust quoted prices using its own inputs, there is no significant sensitivity to
ING’s own unobservable inputs.
Furthermore, Level
3 financial liabilities
includes approximately EUR 0.1 billion (31 December 2018:
EUR 0.1 billion) which relates to financial liabilities that are part of structures that are designed to
be fully neutral in terms of market risk. As explained above, the fair value of each of the
components of these structures may be sensitive to unobservable inputs, but the overall sensitivity
is by design not significant.
The remaining EUR 0.2 billion (31 December 2018: EUR 0.1 billion) of the fair value classified
in Level
3 financial liabilities
is established using valuation techniques that incorporates certain inputs that
are unobservable.
The table below provides a summary of the valuation techniques, key unobservable inputs and the
lower and upper range of such unobservable inputs, by type of Level
3 asset/liability. The lower and
upper range mentioned in the overview represent
the lowest and highest variance of the respective
valuation input as actually used in the valuation of the different financial
instruments. Amounts
and percentages stated are unweighted. The range
can vary from period to period subject to
market movements and change in Level
3 position. Lower and upper bounds reflect the variability
of Level
3 positions and their underlying valuation inputs in the portfolio, but do
not adequately
reflect their level of valuation uncertainty. For valuation uncertainty assessment, reference is made
to section Sensitivity analysis of unobservable inputs (Level 3)
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Valuation techniques and range of unobservable inputs (Level 3)
Assets
Liabilities
Valuation techniques
Significant unobservable inputs
Lower range
Upper range
2019
2018
2019
2018
2019
2018
2019
2018
At fair value through profit or loss
Debt securities
920
807
3
Price based
Price (%)
0%
0%
121%
105%
Net asset value
Price (%)
n/a
0%
n/a
0%
Present value techniques
Credit spread (bps)
131
n/a
131
Loan pricing model
Credit spread (bps)
n/a
n/a
n/a
n/a
Equity securities
146
162
1
Price based
Price
0
0
5,475
5,475
Loans and advances
1,576
1,047
15
Price based
Price (%)
0%
1%
104%
102%
Present value techniques
Price (%)
n/a
100%
n/a
100%
Credit spread (bps)
1
19
250
550
(Reverse) repo's
3
481
1
424
Present value techniques
Price (%)
4%
3%
4%
4%
Structured notes
184
284
Price based
Price (%)
83%
77%
124%
108%
Net asset value
Price (%)
n/a
n/a
n/a
n/a
Option pricing model
Equity volatility (%)
13%
13%
20%
34%
Equity/Equity correlation
0.6
0.6
0.8
0.9
Equity/FX correlation
-0.5
-0.7
0.3
0.5
Dividend yield (%)
2%
1%
4%
5%
Interest rate volatility
(%)
n/a
49
n/a
86
IR/IR correlation
n/a
0.8
n/a
0.8
Present value techniques
Implied correlation
n/a
(0.7)
n/a
0.7
Derivatives
–
Rates
13
57
68
39
Option pricing model
Interest rate volatility
(bps)
17
23
137
300
Interest rate correlation
n/a
0.8
n/a
0.8
IR/INF correlation
n/a
n/a
n/a
n/a
Present value techniques
Reset spread (%)
2%
2%
2%
2%
Prepayment rate (%)
n/a
n/a
n/a
n/a
Inflation rate (%)
n/a
n/a
n/a
n/a
Credit spread (bps)
n/a
46
n/a
46
–
FX
1
Present value techniques
Inflation rate (%)
n/a
n/a
n/a
n/a
Option pricing model
FX volatility (bps)
5
8
–
Credit
102
67
183
86
Present value techniques
Credit spread (bps)
2
8
11,054
364
Implied correlation
n/a
0.7
n/a
0.7
Jump rate (%)
12%
12%
12%
12%
Price based
Price (%)
n/a
n/a
n/a
n/a
–
Equity
42
68
50
54
Option pricing model
Equity volatility (%)
4%
4%
84%
94%
Equity/Equity correlation
-
0.2
-
0.9
Equity/FX correlation
-0.6
-0.80
0.6
0.5
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Valuation techniques and range of unobservable inputs (Level 3)
Assets
Liabilities
Valuation techniques
Significant unobservable inputs
Lower range
Upper range
2019
2018
2019
2018
2019
2018
2019
2018
Dividend yield (%)
0%
0%
13%
13%
–
Other
3
2
3
5
Option pricing model
Commodity volatility (%)
11%
12%
53%
79%
Com/Com correlation
0.3
0.3
0.9
0.9
Com/FX correlation
-0.5
-0.5
-0.3
-0.5
At fair value through other comprehensive
income
–
Debt
Price based
Price (%)
n/a
n/a
n/a
n/a
–
Loans and advances
1,680
2,379
Present value techniques
Prepayment rate (%)
6%
6%
6%
6%
–
Equity
282
317
Present value techniques
Credit spread (bps)
n/a
3.2
n/a
3.2
Inflation rate (%)
3%
3%
3%
3%
Price
1
-
187
-
Other
n/a
63
n/a
80
Total
4,768
5,387
490
910
Non-listed equity investments
Level
3 equity securities mainly include corporate investments, fund investments 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.
All non-listed equity investments, including investments in private equity funds, are subject to
a standard review
framework which ensures that valuations reflect fair values.
Price
For securities where market prices are
not available fair value is measured by comparison with
observable pricing data from similar instruments. Prices of 0% are distressed to the point that no
recovery is expected, while prices significantly in excess of 100% or par are expected to pay a good
yield.
Credit spreads
Credit spread is the premium
above a benchmark interest rate, typically LIBOR or relevant
Treasury
instrument, required by the market participant to accept a lower credit quality. Higher credit
spreads indicate lower credit
quality and a lower value of an asset.
Volatility
Volatility is a measure
for variation of the price of a financial instrument
or other valuation input
over time. Volatility
is one of the key inputs in option pricing models. Typically, the higher the
volatility, the higher value of the option. Volatility varies
by the underlying reference (equity,
commodity, foreign currency and interest
rates), by strike, and maturity of the option. The
minimum level of volatility is 0% and there is no theoretical maximum.
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Correlation
Correlation is a measure
of dependence between two underlying references
which is relevant for
valuing derivatives and other instruments which have more than one underlying reference.
For
example, correlation between underlying equity names may be a relevant
input parameter for
basket equity option pricing models. High positive correlation (close to 1) indicates strong positive
(statistical) relationship between underlyings, implying they typically move in the same direction.
High negative correlation, on the other hand, implies that underlyings typically move in opposite
directions.
Interest rates
Examples of interest rate
related unobservable inputs are prepayment rates,
reset rates and
inflation rates.
Prepayment rate and reset
spread are key inputs to mortgage linked prepayment swaps valuation.
Prepayment rate is the estimated rate
at which mortgage borrowers will repay their mortgages
early, e.g. 5% per year.
Reset spread is the future spread
at which mortgages will re-price at
interest rate reset
dates.
Inflation rate is a key input to inflation
linked instruments. Inflation
linked instruments protect
against price inflation
and are denominated and indexed to investment units. Interest payments
would be based on the inflation index and
nominal rate in order to receive/pay
the real rate of
return. A rise in nominal coupon payments is a result of an increase in inflation expectations, real
rates, or both. As markets for these inflation linked derivatives are illiquid, the valuation parameters
become unobservable.
Dividend yield
Dividend yield is an important input for equity option pricing models showing how much dividends
a company is expected to pay out each year relative to its share price. Dividend yields are generally
expressed as an annualised percentage of share price.
Sensitivity analysis of unobservable inputs (Level
3)
Where the fair value of a financial instrument is determined using inputs which are unobservable
and which have a more than insignificant impact on
the fair value of the instrument, the actual
value of those inputs at the balance date may be drawn from a range of reasonably
possible
alternatives. In line with market practice the upper and lower bounds of the range of alternative
input values reflect a 90% level of valuation certainty. The actual levels chosen for the
unobservable inputs in preparing the financial statements are consistent with the valuation
methodology used for fair valued financial instruments.
If ING had used input values from the upper and lower bound of this range of reasonably possible
alternative input values when valuing these instruments as of 31 December 2019, 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.
As ING has chosen to apply a 90% confidence level for its IFRS valuation of fair valued financial
instruments, the downward valuation uncertainty has become immaterial, whereas the potential
upward valuation uncertainty, reflecting a potential profit, has increased.
In practice valuation uncertainty is measured and managed per exposure to individual valuation
inputs (i.e. risk factors) at portfolio level across different product categories. Where
the disclosure
looks at individual Level 3 inputs the actual valuation adjustments may also reflect the benefits
of
portfolio offsets.
Because of the approach taken, the valuation uncertainty in the table below is broken down by
related risk class rather than by product.
In reality some valuation inputs are interrelated
and it would be unlikely that all unobservable
inputs would ever be simultaneously at the limits of their respective ranges of reasonably
possible
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alternatives. Therefore it can
be assumed that the estimates in the table below show a greater fair
value uncertainty than the realistic position at year end assuming normal circumstances/normal
markets.
Also, this disclosure does not attempt to indicate or predict future fair value movement.
The
numbers in isolation give limited information as in most cases these Level 3 assets and liabilities
should be seen in combination with other instruments (for example as a hedge) that are classified
as Level
2.
The possible impact of a change of unobservable inputs in the fair value of financial
instruments at
fair value through other comprehensive income are
estimated to be immaterial.
Sensitivity analysis of Level 3 instruments
Positive fair value
movements from
using reasonable
possible alternatives
Negative fair value
movements from
using reasonable
possible alternatives
2019
2018
2019
2018
Fair value through profit or loss
Equity (equity derivatives, structured notes)
35
60
4
Interest rates (Rates
derivatives, FX derivatives)
40
43
Credit (Debt securities, Loans, structured
notes, credit derivatives)
10
39
85
142
–
4
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:
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Methods applied in determining fair values of financial
assets and liabilities (carried at amortised cost)
Level 1
Level 2
Level 3
Total
2019
2018
2019
2018
2019
2018
2019
2018
Financial Assets
Loans and advances to banks
1
728
445
11,469
7,152
20,570
20,742
32,767
28,339
Loans and advances to customers
1
165
138
12,622
14,656
588,063
567,016
600,850
581,810
Securities at amortised cost
43,784
43,550
2,304
3,024
840
1,242
46,928
47,815
44,677
44,132
26,395
24,832
609,473
589,000
680,545
657,964
Financial liabilities
Deposits from banks
128
23,900
24,433
6,589
7,314
30,490
31,875
Customer deposits
5,666
6,695
18,003
26,645
20,760
22,172
44,429
55,512
Debt securities in issue
57,563
47,985
42,638
52,194
18,642
19,713
118,844
119,893
Subordinated loans
14,552
10,840
2,701
2,679
17,253
13,519
77,781
65,648
87,243
105,951
45,992
49,199
211,016
220,799
1
Financial assets and liabilities that are on demand are excluded from the fair value hierarchy as their fair value approximates the carrying value.
b) Non-financial assets and liabilities
ING Group’s non-financial assets comprise Investments in associates and joint ventures, Property in
own use, Investment property 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.
Investments in associates and joint ventures are
accounted for using the equity method. For
further information, reference is made to Note 8 ’Investments in associates and joint ventures’.
Other non-financial
assets (Property in own use, and Investment properties) are recognised
at fair
value at the balance sheet date.
As at 31 December 2019, the estimated fair value of Property in own use and Investment property
amounts to EUR
757 million (2018: EUR 780 million) and EUR
46 million (2018: EUR 54 million)
respectively and is categorised as Level
3 of the fair value hierarchy on the basis of methods
applied in determining the fair values.
Amounts recognised in the statement of profit or loss relating to unrealised gains and losses during
the year that relate to Level
3 non-financial
assets are included in the statement of profit or loss as
follows:
◾
Impairments on Property in own use are included in Other operating expenses - Impairments and
reversals on property and equipment and intangibles ; and
◾
Changes in the fair value of Investment property are included in Investment income.
Unrealised gains and losses on Property in own use are included in the Revaluation
reserve –
Property
in own use reserve.
For amounts recognised in the Statement of profit or loss and other changes in non-financial
assets
during the year, reference is made to Note 9 ‘Property and equipment’ and Note 11 ‘Other assets’.
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As at 31 December 2019, ING Group has no non-financial liabilities
measured at fair value (2018:
none).
39 Derivatives
and hedge
accounting
Use of derivatives
ING Group uses derivatives for economic hedging purposes to manage its asset and liability
portfolios and structural risk positions. The primary objective of ING Group’s hedging activities is to
manage the risks which arises from structural imbalances in the duration and other profiles of its
assets and liabilities. The objective of economic hedging is to enter into positions with an opposite
risk profile to an identified
risk exposure to reduce that exposure.
The main risks which are being
hedged are interest rate
risk and foreign currency exchange rate
risk. These risks are primarily
hedged with interest rate swaps cross
currency swaps and foreign exchange forwards/swaps.
ING Group uses credit derivatives to manage its economic exposure
to credit risk, including total
return swaps and credit default swaps, to sell or buy protection for credit
risk exposures in the loan,
investment,
and trading portfolios. Hedge accounting is not applied in relation to these credit
derivatives.
Hedge accounting
Derivatives that qualify for hedge accounting under IFRS are classified and accounted for in
accordance with the nature of the instrument hedged and the type of IFRS hedge model that is
applicable. The three models applicable under IFRS are: fair value
hedge accounting, cash flow
hedge accounting, and hedge accounting of a net investment in a foreign operation. How and to
what extent these models are applied are described under the relevant headings below.
The
company’s detailed accounting policies for these three hedge models are set out in paragraph
1.6
‘Financial instruments’ of Note 1 ‘Basis of preparation and accounting policies’.
IBOR transition
Following the decision by global regulators to seek alternatives for current
critical benchmarks in
use in various jurisdiction in order to comply with the EU Benchmarks Regulation, the IBOR
transition program
of ING was initiated in 2018 to prepare the Group
for the reform.
Reference is made to note Risk management/ IBOR Transition
for more information on to what
rates ING is exposed and on how ING is managing the transition to alternative benchmark rates.
At the reporting date, ING Group assessed the extent to which hedge relationships are subject to
uncertainties driven by the IBOR reform.
ING applies fair value and cash flow hedge accounting in accordance with IAS 39, and interest rate
and foreign currency risks are
designated as hedged risks in various micro and macro models.
Except for EONIA and EUR LIBOR all IBOR’s in scope of ING’s program
are a component of either
hedging instrument and/or hedged item where the interest rate
and/or foreign currency
risk are
the designated hedged risk. The hedged exposures are mainly loan portfolio’s, issued debt
securities and purchased debt instruments.
ING Group early adopted the amendments to IAS 39 issued in September 2019 to these hedging
relationships directly affected by IBOR reform. This excludes EURIBOR hedges as EURIBOR is
Benchmarks Regulation compliant.
LIBOR indexed fair value and cash flow hedges are expected to be directly affected by the
uncertainties arising from the IBOR reform. In particular, uncertainties over the timing and amount
of the replacement rate may impact the effectiveness and highly probable assessment.
For these affected fair value and cash flow hedge relationships ING Group assumes that the LIBOR
based cash flows from the hedging instrument and hedged item will remain unaffected.
The same assumption is used while assessing the likelihood of occurrence of the forecast
transaction that are subject to cash flow hedges. The cash flow
hedges directly impacted by the
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IBOR reform still meet the highly probable requirement
assuming the respective LIBOR benchmark
on which the hedged cash flows are based are not altered as a result of the reform.
The following table contains details of the gross notional amounts of hedging instruments as at 31
December 2019 that are used in the Group's hedge accounting relationships for which the
amendments to IAS39 were applied:
Hedging instruments in EUR
Benchmark
Notional
Amount
USD LIBOR
45,496
GBP LIBOR
2,184
JPY LIBOR
2,922
CHF LIBOR
313
Approximately 68% of the above notional amounts have a maturity date beyond 2021.
The notional amounts of the derivative hedging instruments (in above table) provide a close
approximation of the extent of the risk exposure ING manages through these hedging relationships.
Fair value hedge
accounting
ING Group’s fair value hedges principally consist of 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. ING Group’s approach to manage market risk, including interest
rate risk, is discussed in ‘Risk
management –Market risk’. ING Group’s exposure to interest rate
risk is disclosed in paragraph
‘Interest rate risk in banking book’.
By using derivative financial instruments
to hedge exposures to changes in interest rates, ING
Group also exposes itself to credit risk of the derivative counterparty, which is not offset by the
hedged item. ING Group minimises counterparty credit risk in derivative instruments by clearing
most of the derivatives through Central
Clearing Counterparties. In addition ING Group only enters
into transactions with high-quality counterparties and requires posting collateral.
ING Group applies fair value hedge accounting on micro level
in which one hedged item is hedged
with one or multiple hedging instruments. Micro fair value hedge accounting is mainly applied on
issued debt securities and purchased debt instruments for hedging interest rate risk.
Before fair value hedge accounting is applied by ING Group, ING Group
determines whether an
economic relationship between the hedged item and the hedging instrument exists based on an
evaluation of the quantitative characteristics of these items and the hedged risk that is supported
by quantitative analysis. ING Group considers whether the critical terms of the hedged item and
hedging instrument closely align when assessing the presence of an economic relationship. ING
Group evaluates whether the fair value of the hedged item and the hedging instrument respond
similarly to similar risks. In addition ING is mainly using regression analysis to assess whether the
hedging instrument is expected to be and has been highly
effective in offsetting
changes in the fair
value of the hedged item.
ING Group uses the following derivative financial instruments in a fair value hedge accounting
relationship:
Gross carrying value of derivatives designated under fair value hedge accounting
Assets
2019
Liabilities
2019
Assets
2018
Liabilities
2018
As at 31 December
Hedging instrument on interest rate
risk
– Interest rate swaps
5,133
5,486
3,222
4,085
– Other interest derivatives
87
70
78
65
The derivatives used for fair value hedge accounting are included in the statement of financial
position line-item ‘Financial assets at fair value through profit or loss – Non-trading derivatives’ for
EUR
524 million (2018: EUR: 650 million) respectively ‘Financial liabilities at fair value through profit
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or loss – Non-trading derivatives’ EUR 873 million (2018: EUR 1,035 million). The remaining
derivatives
are offset with other derivatives and collaterals paid or received.
For our main currencies the average
fixed rate for interest rate swaps used in fair value hedge
accounting are 2.98% (2018: 1.76%)for EUR and 3.55% (2018: 3.38%) for USD.
The following table shows the net notional amount of derivatives designated in fair value hedging,
split into the maturity of the instruments. The net notional amounts presented in the table are a
combination of payer (-) and receiver (+) swaps.
Maturity derivatives designated in fair value hedging
As at 31 December 2019
Less
than 1
month
1 to 3
months
3 to 12
months
1 to 2
year
2 to 3
years
3 to 4
years
4 to 5
years
>5 years
Total
Hedging instrument on
interest rate risk
– Interest rate swaps
–59
612
6,394
12,936
7,637
7,195
3,266
16,494
54,475
– Other interest
derivatives
–20
–22
58
–242
–404
–290
–44
1,075
110
As at 31 December 2018
Hedging instrument on
interest rate risk
- Interest rate swaps
467
511
869
13,531
8,826
6,806
8,337
9,983
49,331
– Other interest
derivatives
–11
–53
–101
–55
–228
–325
–325
–51
–1,148
Gains and losses on derivatives designated under fair value hedge accounting are recognised in the
statement of profit or loss. The effective portion
of the fair value change on the hedged item is also
recognised in the statement of profit or loss. As a result, only the net accounting ineffectiveness
has an impact on the net result.
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Hedged items included in a fair value hedging relationship
Carrying amount of the hedged items
Accumulated amount of fair value hedge
adjustment on the hedged item included in
the carrying amount of the hedged item
Change in fair value
used for measuring
ineffectiveness for the
period
Change in fair value
hedge instruments
Hedge ineffectiveness
recognised in the
statement of profit or
loss gain (+) / loss (-)
Assets
Liabilities
Assets
Liabilities
As at 31 December 2019
– Amounts due from banks
–0
– Debt securities at fair value through other comprehensive
income
23,281
n/a
357
– Loans at FVOCI
n/a
– Loans and advances to customers
959
75
31
– Debt instruments at amortised cost
6,133
429
356
– Debt securities in issue
62,236
2,706
–1,018
– Subordinated loans
14,970
261
–201
– Amounts due to banks
8,783
38
1
– Customer deposits and other funds on deposit
299
2
–12
– Discontinued hedges
688
7
Total
30,373
86,288
1,192
3,014
–487
504
18
As at 31 December 2018
Interest rate risk
– Amounts due from banks
–1
– Debt securities at fair value through other comprehensive
income
18,471
n/a
1
– Loans at FVOCI
–0
n/a
– Loans and advances to customers
2,909
273
–134
– Debt instruments at amortised cost
16,843
687
–91
– Debt securities in issue
55,081
1,659
53
– Subordinated loans
12,799
53
57
– Amounts due to banks
17,717
55
–52
– Customer deposits and other funds on deposit
193
–0
–11
– Discontinued hedges
272
Total
38,223
85,790
1,232
1,767
–176
185
8
The main sources of ineffectiveness are:
◾
differences in maturities of the hedged item(s) and hedging instrument(s);
◾
different interest rate
curves applied to discount the hedged item(s) and hedging instrument(s);
◾
differences in timing of cash flows of the hedged item(s) and hedging instrument(s).
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Additionally, for portfolio (macro) fair value hedges of ING Group’s fixed rate mortgage portfolio,
ineffectiveness also arises from the disparity between expected and actual prepayments
(prepayment risk).
There were no other sources
of ineffectiveness in these hedging relationships.
Cash flow hedge accounting
ING Group’s cash flow hedges mainly consist of interest rate swaps and cross-currency
swaps that
are used to protect against the exposure to variability in future cash flows on non-trading assets
and liabilities that bear interest at variable rates or are
expected to be refunded or reinvested in the
future. The amounts and timing of future cash flows, representing both principal and interest flows,
are projected for each portfolio of financial assets and liabilities, based on contractual terms and
other variables including estimates of prepayments. These projected cash flows form the basis for
identifying the notional amount subject to interest rate risk or foreign currency exchange rate
risk
that is designated under cash flow hedge accounting.
ING Group’s approach to manage market risk, including interest rate
risk and foreign currency
exchange rate risk, is discussed in ‘Risk management – Credit risk and Market risk’. ING Group
determines the amount of the exposures to which it applies hedge accounting by assessing the
potential impact of changes in interest rates and foreign currency exchange rates
on the future
cash flows from its floating-rate assets and liabilities. This
assessment is performed using analytical
techniques.
As noted above for fair value hedges, by using derivative financial instruments to hedge exposures
to changes in interest rates and foreign currency
exchange rates, ING Group exposes itself to credit
risk of the derivative counterparty, which is not offset by the hedged
items. This exposure is
managed similarly to that for fair value hedges.
Gains and losses on the effective portions
of derivatives designated under cash flow hedge
accounting are recognised in Other Comprehensive
Income. 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 forecasted 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 in
‘Valuation results
and net trading income’.
ING Group determines an economic relationship between the cash flows of the hedged item and
the hedging instrument based on an evaluation of the quantitative characteristics of these items
and the hedged risk that is supported by quantitative analysis. ING Group considers whether the
critical terms of the hedged item and hedging instrument closely align when assessing the
presence of an economic relationship. ING Group
evaluates whether the cash flows of the hedged
item and the hedging instrument respond similarly to the hedged risk, such as the benchmark
interest rate of foreign
currency. In addition (for macro FX hedging relationships) a regression
analysis is performed to assess whether the hedging instrument is expected
to be and has been
highly effective in offsetting
changes in the fair value of the hedged item.
ING Group uses the following derivative financial instruments in a cash flow
hedge accounting
relationship:
Gross carrying value of derivatives used for cash flow hedge accounting
Assets
Liabilities
Assets
Liabilities
2019
2019
2018
2018
As at 31 December 2019
Hedging instrument on interest rate
risk
– Interest rate swaps
2,615
2,848
5,757
3,664
Hedging instrument on combined interest and FX rate
risk
– Cross currency interest
rate derivatives
358
158
204
154
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2019 ING Group Annual Report on Form 20-F
F - 109
The derivatives used for cash flow hedge accounting are included in the statement of financial
position line-item ‘Financial assets at fair value through profit or loss – Non-trading derivatives’ EUR
677 million (2018: EUR
1,012 million) respectively ‘Financial liabilities at fair value through profit or
loss – Non-trading derivatives’ EUR
339 million (2018: EUR
458 million). The remaining derivatives
are offset with other derivatives and collaterals paid or received.
For the main currencies the average
fixed rate for interest rate swaps used in cash flow hedge
accounting are 0.54% (2018: 1.21%)for EUR, 2.38% (2018: 2.53%)for PLN, 2.51% (2018: 2.49%) for
USD and 1.50% (2018: 1.97%) for AUD. The average currency exchange
rates for cross currency
swaps used in cash flow hedge accounting is for EUR/USD
1.11 (2018: 1.14) and for EUR/AUD 1.55
(2018: 1.52).
The following table shows the net notional amount of derivatives designated in cash flow hedging
split into the maturity of the instruments. The net notional amounts presented in the table are a
combination of payer (+) and receiver (-) swaps.
Maturity derivatives designated in cash flow hedging
As at 31 December 2019
Less than
1
month
1 to 3
months
3 to 12
months
1 to 2
year
2 to 3
years
3 to
4
years
4 to 5
years
>5 years
Total
Hedging instrument on
interest rate risk
– Interest rate swaps
–401
580
–2,591
–6,512
–5,541
–5,788
–5,364
–23,009
–48,627
Hedging instrument on
combined interest and FX
rate risk
– Cross currency interest
rate derivatives
–1,098
–2,068
–5,044
–2,509
–1,473
3
104
–12,086
As at 31 December 2018
Hedging instrument on
interest rate risk
– Interest rate swaps
–107
–2,546
–7,107
–5,591
–9,883
–7,928
–8,980
–29,629
–71,771
Hedging instrument on
combined interest and FX
rate risk
– Cross currency interest
rate derivatives
5
48
–601
–4,461
–5,622
–2,647
–793
–239
–14,311
The following table shows the cash flow hedge accounting impact on profit
or loss and
comprehensive income:
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2019 ING Group Annual Report on Form 20-F
F - 110
Cash flow hedging – impact of hedging instruments on
the statement of profit or loss and other comprehensive income
Change in value used
for calculating hedge
ineffectiveness for the
period
Carrying amount
cash flow hedge
reserve at the end of
the reporting period
Amount reclassified
from CFH reserve to
profit or loss
Cash flow is no
longer expected
to occur
Change in value of
hedging instrument
recognised in OCI
Hedge ineffectiveness
recognised in the
statement of profit or
loss, gain (+) / loss (-)
As at 31 December 2019
Interest rate risk on;
– Floating rate lending
–940
1,395
357
– Floating rate borrowing
133
–198
–201
– Other
–211
169
53
– Discontinued hedges
316
–112
Total
interest rate risk
–1,018
1,682
97
851
44
Combined interest and FX rate
risk on;
– Floating rate lending
–22
–42
–498
– Floating rate borrowing
12
15
–12
–1
– Other
1
–1
–4
– Discontinued hedges
–3
Total
combined interest and Fx
–10
–28
–517
–1
475
3
Total
cash flow hedge
–1,028
1,654
–420
–1
1,326
47
As at 31 December 2018
Interest rate risk on;
– Floating rate lending
–540
730
280
–2
– Floating rate borrowing
51
5
–47
– Financial assets at FVOCI
– Highly probable forecast
transaction
– Other
–72
101
34
– Discontinued hedges
–25
2
Total
interest rate risk
–561
836
242
–1
231
–18
Combined interest and FX rate
risk on;
– Floating rate lending
53
–60
–377
– Floating rate borrowing
–35
47
–1
– Financial assets at FVOCI
– Highly probable forecast
transaction
– Other
–0
–1
– Discontinued hedges
Total
combined interest and Fx
18
–13
–378
347
–1
Total
cash flow hedge
–543
823
–137
–1
578
–19
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 111
The main sources of ineffectiveness for cash flow hedges are:
◾
differences in timing of cash flows of the hedged item(s) and hedging instrument(s);
◾
mismatches in reset frequency between hedged item and hedging instrument.
As a result of interest rate
developments in 2019 ING Group de-designated cash flow hedge
accounting portfolios with a total notional value of approximately EUR 25 billion.
Hedges of net investments in foreign
operations
A foreign currency exposure
arises from a net investment in subsidiaries that have a different
functional currency from
that of ING Group. The risk arises from the fluctuation in spot exchange
rates between the functional currency of the subsidiaries and ING Group’s functional currency,
which causes the amount of the net investment to vary in the consolidated financial statements
of
ING Group. This risk may have a significant impact on ING Group’s financial
statements. ING Group’s
policy is to hedge these exposures only when not doing so be expected to have a significant
impact
on the regulatory capital ratios of ING Group
and its subsidiaries.
ING Group’s net investment hedges principally consist of derivatives (including currency forwards
and swaps) and non-derivative financial instruments such
as foreign currency denominated
funding. When the hedging instrument is foreign currency denominated debt, ING Group assesses
effectiveness by comparing past changes in the carrying amount of the
debt that are attributable
to a change in the spot rate with past changes in the investment in the foreign operation due to
movement in the spot rate (the offset method).
Gains and losses on the effective portions
of derivatives designated under net investment hedge
accounting are recognised in Other Comprehensive
Income.
The balance in equity is recognised in
the statement of profit or loss when the related foreign subsidiary is disposed. The gains and losses
on ineffective portions are recognised immediately in the statement of profit or loss.
ING Group has the following derivative financial instruments used for net investment hedging;
Gross carrying value of derivatives used for net investment hedging
Assets
Liabilities
Assets
Liabilities
2019
2019
2018
2018
As at 31 December
– FX forwards and futures
23
51
41
16
– Other FX derivatives
0
-
0
0
The derivatives used for net investment hedge accounting are included in the statement of
financial position line-item
‘Financial assets at fair value through profit or loss – Non-trading
derivatives’ EUR 23 million (2018: EUR 41 million) respectively ‘Financial liabilities at fair value
through profit or loss
– Non trading derivatives’ EUR 51 million (2018: EUR 17 million). The
remaining derivatives are
offset with other derivatives and collaterals paid or received.
For ING Group’s main currencies
the average exchange rates used in net investment
hedge
accounting for 2018 are EUR/USD 1.12 (2018: 1.18), EUR/PLN 4.30 (2018: 4.26), EUR/AUD 1.61 (2018:
1.58) and EUR/THB 34.79 (2018: 38.15).
The following table shows the notional amount of derivatives designated in net investment hedging
split into the maturity of the instruments:
Maturity derivatives designated in net investment hedging
As at 31 December 2019
Less
than 1
month
1 to 3
months
3 to 12
months
1 to 2
year
2 to 3
years
3 to
4
years
4 to 5
years
>5 years
Total
– FX forwards and futures
–3,179
–999
–54
–4,232
– Other FX derivatives
As at 31 December 2018
1
– FX forwards and futures
–3,444
–853
–54
–4,351
– Other FX derivatives
–0
–0
1
The prior period has been updated to improve consistency and comparability.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 112
The effect of the net investment hedge accounting in the statement of profit
or loss and other
comprehensive income is as follows:
Net investment hedge accounting – Impact on statement of profit or loss and other
comprehensive income
As at 31 December 2019
Change in value
used for
calculating
hedge
ineffectiveness
for the period
Carrying
amount net
investment
hedge reserve
at the end of
the reporting
period
Hedged item
affected
statement of
profit or loss
Change in value
of hedging
instrument
recognised in
OCI
Hedge
ineffectiveness
recognised in
the statement
of profit or loss,
gain(+) / Loss(-)
Investment in foreign
operations
134
440
44
–134
0
Discontinued hedges
–210
As at 31 December 2018
Investment in foreign
operations
–71
540
71
2
Discontinued hedges
0
-210
0
0
40 Assets
by contractual
maturity
Amounts presented in these tables by contractual maturity are the amounts as presented in the
statement of financial
position and are discounted cash flows. Reference is made to ‘Risk
Management – Funding and liquidity risk’.
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2019 ING Group Annual Report on Form 20-F
F - 113
Assets by contractual maturity
2019
Less then 1 month
1-3 months
3-12 months
1-5 years
Over 5 years
Maturity not applicable
Total
Cash and balances with central banks
53,202
53,202
Loans and advances to banks
22,820
3,100
5,090
3,729
397
35,136
Financial assets at fair value through profit or loss
–
Trading
assets
12,754
6,589
8,469
8,240
13,203
49,254
–
Non-trading derivatives
110
161
215
998
773
2,257
–
Mandatorily at fair value through profit or loss
22,645
13,784
2,357
1,010
1,645
159
41,600
–
Designated as at fair value through profit or loss
259
126
1,004
442
1,245
3,076
Financial assets at fair value through
other comprehensive income
–
Equity securities
2,306
2,306
–
Debt securities
216
175
1,146
14,528
14,419
30,483
–
Loans and advances
26
36
202
627
788
1,680
Securities at amortised cost
1,005
916
5,930
24,556
13,701
46,108
Loans and advances to customers
55,138
18,586
45,871
180,972
307,462
608,029
Intangible assets
127
506
1,283
1,916
Other assets
4,618
369
1,049
1,177
1,251
46
8,511
Remaining assets (for which maturities are not applicable)
4,962
4,962
Total
assets
172,793
43,842
71,460
236,784
354,885
8,756
888,520
1
Includes assets on demand.
2
Includes Other assets, Assets held for sale, and Current and Deferred tax assets as presented in the Consolidated statement of financial
position.
3
Included in remaining assets for which maturities are not applicable are property and equipment, and investments in associates and joint ventures. Due to their nature remaining assets consist mainly of assets expected to be recovered after more than 12
months.
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2019 ING Group Annual Report on Form 20-F
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Assets by contractual maturity
2018
Less then 1 month
1-3 months
3-12 months
1-5 years
Over 5 years
Maturity not applicable
Total
Cash and balances with central banks
49,987
49,987
Loans and advances to banks
15,864
3,693
4,830
5,599
437
30,422
Financial assets at fair value through profit or loss
–
Trading
assets
15,815
6,032
8,123
9,276
10,906
50,152
–
Non-trading derivatives
274
323
173
1,059
835
2,664
- Mandatorily at fair value through profit or loss
48,240
9,047
5,325
1,238
723
210
64,783
- Designated at fair value through profit or loss
265
208
784
635
994
2,887
Financial assets at fair value through other comprehensive
income
- Equity securities
3,228
3,228
- Debt securities
272
234
1,597
13,409
10,103
25,616
- Loans and advances
42
97
254
1,023
962
2,379
Securities at amortised cost
1,126
2,537
2,737
22,169
18,708
47,276
Loans and advances to customers
55,736
17,689
39,213
176,448
300,567
589,653
Intangible assets
120
481
1,238
1,839
Other assets
6,894
165
2,447
637
497
214
10,854
Remaining assets (for which maturities are not applicable)
2,861
2,861
Total
assets
194,516
40,024
65,604
231,974
344,732
7,751
884,603
1
Includes assets on demand.
2
Includes Other assets, Assets held for sale, and Current and Deferred tax assets as presented in the Consolidated statement of financial
position.
3
Included in remaining assets for which maturities are not applicable are property and equipment, and investments in associates and joint ventures. Due to their nature remaining assets consist mainly of assets expected to be recovered after more than 12
months.
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41 Liabilities
by maturity
The tables below include all financial
liabilities by maturity based on contractual, undiscounted cash flows.
Perpetual liabilities are included in column ‘Maturity not applicable’. Furthermore, the undiscounted
future coupon interest on financial liabilities payable is included in a separate line and in the relevant maturity bucket. Derivative liabilities are included on a net basis if cash flows are settled net. For other
derivative liabilities the contractual gross cash flow payable is included.
Non-financial liabilities
are included based on a breakdown of the amounts per the statement of financial position,
by expected maturity. Reference is made to the liquidity risk paragraph in ‘Risk
Management – Funding and liquidity risk’ for a description on how liquidity risk is managed.
Liabilities by maturity
2019
Less than 1 month
1–3 months
3–12 months
1–5 years
Over 5 years
Maturity not applicable
Adjustment
Total
Deposits from banks
9,903
847
12,011
10,280
1,965
–180
34,826
Customer deposits
540,544
13,892
13,784
3,646
2,381
108
574,355
Financial liabilities at fair value through profit or loss
–
Other trading liabilities
4,666
646
436
568
333
68
6,717
–
Trading
derivatives
1,589
1,492
3,312
7,771
7,011
151
21,325
–
Non-trading derivatives
379
91
152
616
440
539
2,215
–
Designated at fair value through profit or loss
27,048
10,467
1,885
2,938
5,089
7
251
47,684
Debt securities in issue
2,616
13,278
35,915
36,895
26,592
3,231
118,528
Subordinated loans
1,780
7,455
6,941
411
16,588
Lease liabilities
16
39
161
668
643
–
–21
1,507
Financial liabilities
586,762
40,753
67,656
65,160
51,909
6,948
4,557
823,745
Other liabilities
7,916
820
2,361
728
1,061
12,886
Non-financial liabilities
7,916
820
2,361
728
1,061
-
-
12,886
Total
liabilities
594,677
41,573
70,017
65,888
52,970
6,948
4,557
836,631
Coupon interest due on financial liabilities
574
692
1,482
5,790
4,355
379
13,271
1
Includes liabilities on demand.
2
This column reconciles the contractual undiscounted cash flows on financial
liabilities to the statement of financial
position values. The adjustments mainly relate to the impact of discounting, and for derivatives, to the fact
that the contractual cash flows are
presented on a gross basis (unless the cash flows are actually settled net).
3
Includes Other liabilities, Current and deferred tax liabilities, and Provisions as presented in the Consolidated statement of financial position.
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Liabilities by maturity
2018
Less than 1 month
1–3 month
3–12 months
1–5 years
Over 5 years
Maturity not applicable
Adjustment
Total
Deposits from banks
10,506
1,068
1,940
21,571
2,242
2
37,330
Customer deposits
4
515,094
17,354
16,086
4,695
2,500
555,729
Financial liabilities at fair value through profit or loss
–
Other trading liabilities
4,075
1,318
1,465
888
1,655
286
9,687
–
Trading
derivatives
1,711
1,873
3,680
6,855
6,035
1,374
21,528
–
Non-trading derivatives
458
312
252
988
866
–577
2,299
–
Designated at fair value through profit or loss
34,914
11,753
4,115
3,519
4,921
–43
59,179
Debt securities in issue
4,066
20,961
30,282
41,068
21,413
1,961
119,751
Subordinated loans
0
1,713
6,497
5,339
176
13,724
Lease liabilities
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Financial liabilities
570,824
54,639
57,820
81,297
46,129
5,339
3,180
819,228
Other liabilities
10,560
899
2,455
1,044
566
15,524
Non-financial liabilities
10,560
899
2,455
1,044
566
-
-
15,524
Total
liabilities
581,384
55,538
60,275
82,341
46,695
5,339
3,180
834,751
Coupon interest due on financial liabilities
4
842
659
1,719
5,626
3,839
287
12,971
1
Includes liabilities on demand.
2
This column reconciles the contractual undiscounted cash flows on financial
liabilities to the statement of financial
position values. The adjustments mainly relate to the impact of discounting, and for derivatives, to the fact
that the contractual cash flows are
presented on a gross basis (unless the cash flows are actually settled net).
3
Includes Other liabilities, Current and deferred tax liabilities, and Provisions as presented in the Consolidated statement of financial position
4
Prior period amounts for coupon interest have been updated to improve consistency and comparability.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 117
42 Assets
not freely
disposable
The assets not freely disposable consist primarily of Loans and advances to customers pledged to
secure Debt securities in issue, deposits from the Dutch Central
Bank and other banks. They serve
to secure margin accounts and are
used for other purposes required by law.
The assets not freely
disposable are as follows:
Assets not freely disposable
2019
2018
Banks
–
Cash and balances with central
banks
1,382
1,471
–
Loans and advances to banks
6,337
4,373
Financial assets at fair value through profit or loss
614
449
1
Financial assets at fair value through OCI
240
253
1
Securities at amortised cost
189
627
1
Loans and advances to customers
75,755
74,352
Other assets
908
734
85,425
82,258
1
The prior period amounts have been updated to improve consistency and comparability.
In addition, in some jurisdictions ING Bank N.V.
has an obligation to maintain a reserve with central
banks. As at 31 December 2019, the minimum mandatory reserve deposits with various central
banks amount to EUR 9,975 million (2018: EUR 9,359 million).
Loans and advances to customers that have been pledged as collateral
for Debt securities in issue
and for liquidity purposes, amount in The Netherlands to EUR 45,530 million (2018: EUR
46,320
million), in Germany to EUR 13,222 million (2018: EUR 12,143 million), in Belgium EUR 11,298
million
(2018: EUR 11,894 million), in Australia to EUR 4,150 million (2018: EUR 2,638 million) and in the
United States to EUR 1,010 million (2018: EUR 1,183 million).
The table does not include assets relating to securities lending as well as sale and repurchase
transactions. Reference is made to Note 43 ‘Transfer
of financial
assets’.
43 Transfer
of financial
assets
The majority of ING's financial
assets that have been transferred, but do not qualify for
derecognition are debt instruments used in securities lending or sale and repurchase transactions.
Transfer
of financial assets not qualifying for derecognition
Securities lending
Sale and repurchase
Equity
Debt
Equity
Debt
2019
2018
2019
2018
2019
2018
2019
2018
Transferred
assets at carrying amount
Financial assets at fair value through
profit or loss
2,542
2,962
1,974
1,170
1,682
2,396
9,538
7,134
2
Financial assets at fair value through
other comprehensive income
193
168
6
325
Loans and advances to customers
Securities at amortised cost
195
142
734
910
Associated liabilities at carrying
amount
1
Deposits from banks
n/a
n/a
n/a
n/a
Customer deposits
n/a
n/a
n/a
n/a
Financial liabilities at fair value through
profit or loss
n/a
n/a
n/a
n/a
1,619
2,373
3,805
2,225
1
The table includes the associated liabilities which are reported after offsetting,
compared to the gross positions of the
encumbered assets.
2
The prior period amount has been updated to improve consistency and comparability.
Included in the table above, are the carrying amounts of transferred
assets under repurchase
agreements, and securities lending that do not qualify for derecognition.
The table above does not include assets transferred to consolidated securitisation entities as the
related assets remain recognised in
the consolidated statement of financial
position.
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Financial Statements
2019 ING Group Annual Report on Form 20-F
F - 118
44 Offsetting
financial
assets
and liabilities
The following tables include information about rights to offset and the related arrangements. The
amounts included consist of all recognised financial instruments
that are presented net in the
statement of financial
position under the IFRS offsetting requirements (legal right to offset and
intention to net settle) and amounts presented gross in the statement of financial position but
subject to enforceable master netting arrangements or similar arrangement.
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Financial Statements
2019 ING Group Annual Report on Form
20-F
F - 119
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
2019
Gross amounts of
recognised financial assets
Gross amounts of recognised
financial liabilities offset in the
statement of financial
position
Net amounts of financial assets
presented in the statement of
financial
position
Related amounts not offset
in the statement of financial position
Net amount
Financial instruments
Cash and financial instru-ments
received as collateral
Statement of financial position
line item
Financial instrument
Loans and advances to banks
Reverse repurchase,
securities
borrowing and similar agreements
868
868
21
738
109
868
–
868
21
738
109
Financial assets at fair value
through profit or loss
Trading
assets
Derivatives
19,766
–3,851
15,914
13,725
3
2,186
Trading
and Non-trading
Reverse repurchase,
securities
borrowing and similar agreements
57,328
–20,545
36,783
50
36,553
181
77,094
–24,396
52,698
13,774
36,556
2,368
Non-trading derivatives
Derivatives
54,689
–53,321
1,368
1,167
–
201
54,689
–53,321
1,368
1,167
–
201
Loans and advances to customers
Debit balances on customer accounts
169,313
–166,624
2,689
1,422
813
454
169,313
–166,624
2,689
1,422
813
454
Other items where offsetting is applied
in the statement of financial position
9,787
–9,423
364
15
349
Impact of enforceable master netting
arrangements or similar arrangements
Derivatives
–4,380
3,965
415
Other
–3
3
–4,383
3,965
418
Total financial assets
311,750
–253,764
57,986
12,016
42,072
3,898
1
The line ‘Impact of enforceable master netting agreements or similar arrangements’ contains derivative positions under the same master netting arrangements being presented in different statement of financial
position line items.
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Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
2018
Gross amounts of
recognised financial assets
Gross amounts of recognised
financial liabilities offset in the
statement of financial
position
Net amounts of financial assets
presented in the statement of
financial
position
Related amounts not offset
in the statement of financial position
Net amount
Financial instruments
Cash and financial instru-
ments received as collateral
Statement of financial position line item
Financial instrument
Loans and advances to banks
Reverse repurchase,
securities
borrowing and similar agreements
1,947
1,947
1,838
109
Other
0
–0
0
0
1,947
–0
1,947
1,838
109
Financial assets at fair value through
profit or loss
Trading
assets
Derivatives
17,181
–1,012
16,168
14,664
2
1,502
Trading
and non-trading
Reverse repurchase,
securities
borrowing and similar agreements
76,983
–18,337
58,647
1,102
57,304
240
94,164
–19,349
74,815
15,766
57,307
1,742
Non-trading derivatives
Derivatives
41,263
–39,648
1,615
1,520
–0
96
Loans and advances to customers
Reverse repurchase,
securities
borrowing
and similar agreements
223
–223
Debit balances on customer accounts
161,730
–159,596
2,134
1,166
605
363
161,953
–159,819
2,134
1,166
605
363
Other items where offsetting is applied in the
statement of financial position
5,705
–5,193
512
1
510
Impact of enforceable master netting arrangements
or
similar arrangements
1
Derivatives
–5,041
3,518
1,523
Other
–0
0
–5,041
3,518
1,523
Total financial assets
305,032
–224,008
81,023
13,412
63,267
4,344
1
The line ‘Impact of enforceable master netting agreements or similar arrangements’ contains derivative positions under the same master netting arrangements being
presented in different statement of financial
position line items.
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Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
Related amounts not offset in the statement
of financial position
2019
Gross amounts of
recognised financial
liabilities
Gross amounts of recognised
financial assets offset
in the
statement of financial position
Net amounts of financial
liabilities
presented in the statement of
financial position
Financial instruments
Cash and financial instruments
pledged as collateral
Net amount
Statement of financial position line
item
Financial instrument
Deposits from banks
Repurchase, securities lending and
similar agreements
26
26
26
21
–21
26
26
26
21
–21
Customer deposits
Repurchase, securities lending and
similar agreements
Corporate deposits
5,783
–5,432
351
351
Credit balances on customer
accounts
175,490
–161,193
14,297
1,419
12,878
181,273
–166,624
14,649
1,419
13,230
Financial liabilities at fair value through profit or loss
Trading liabilities
Derivatives
20,935
–3,842
17,093
16,073
6
1,014
Trading and Non-trading
Repurchase, securities lending and
similar agreements
56,818
–20,545
36,273
50
35,787
436
77,752
–24,386
53,366
16,123
35,793
1,450
Non-trading derivatives
Derivatives
55,194
–53,823
1,371
1,177
191
3
Other items where offsetting is applied in the
statement of
financial position
9,200
–8,930
269
11
258
Impact of enforceable master netting arrangements or
similar arrangements
Derivatives
–6,731
7,620
–889
Other
–8
8
–6,739
7,620
–881
Total financial liabilities
323,445
–253,764
69,681
12,016
43,625
14,040
1
The line ‘Impact of enforceable master netting agreements or similar arrangements’ contains derivative positions under the same master netting arrangements being presented in different statement of financial
position line items.
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Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
Related amounts not offset in the statement of financial position
2018
Gross amounts
of
recognised
financial liabilities
Gross amounts of recognised
financial assets offset in the
statement of financial position
Net amounts of financial
statement of financial position
Financial instruments
Cash and financial instruments
pledged as collateral
Net amount
Statement of financial position line item
Financial instrument
Deposits from banks
Repurchase, securities lending and
similar agreements
36
–36
–0
–0
Other
0
–
0
0
–
37
–36
0
0
–0
Customer deposits
Repurchase, securities lending and
similar agreements
224
–186
37
37
Corporate deposits
9,567
–9,078
489
489
Credit balances on customer
accounts
161,552
–150,518
11,034
1,166
4
9,864
171,343
–159,782
11,561
1,166
42
10,353
Financial liabilities at fair value through
profit or loss
Trading
liabilities
Derivatives
17,105
–1,021
16,084
15,301
2
781
Repurchase, securities lending and
similar agreements
64,324
–18,337
45,987
1,102
44,801
85
Other
81,429
–19,357
62,071
16,403
44,803
866
Non-trading derivatives
Derivatives
42,675
–41,198
1,477
1,312
178
–13
Other items where offsetting is applied in the statement
of
financial position
4,353
–3,634
718
–4
723
Impact of enforceable master netting arrangements
or similar
arrangements
Derivatives
–5,464
5,773
–309
Other
–0
0
–5,464
5,773
–309
Total financial liabilities
299,836
–224,008
75,827
13,412
50,796
11,619
1
The line ‘Impact of enforceable master netting agreements or similar arrangements’ contains derivative positions under the same master netting arrangements being presented in different statement of financial
position line items.
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45 Contingent
liabilities
and commitments
In the normal course of business, ING Group is party to activities where risks are not reflected in
whole or in part in the consolidated financial
statements. In response to the needs of its customers,
the Group offers financial products related to loans. These products include traditional off-balance
sheet credit-related financial instruments.
Contingent liabilities and commitments
Less than 1
month
1–3 months
3–12 months
1–5 years
Over 5 years
Maturity not applicable
Total
2019
2018
2019
2018
2019
2018
2
2019
2018
2019
2018
2019
2018
2019
2018
2
Contingent liabilities in respect of
–
Guarantees
1
11,441
12,644
1,187
891
3,373
3,475
6,355
3,536
5,146
5,710
27,502
26,256
–
Irrevocable letters
of credit
9,770
10,346
4,987
4,499
1,259
998
322
374
3
3
16,340
16,220
–
other
57
53
75
115
131
168
21,268
23,043
6,174
5,389
4,631
4,473
6,752
4,026
5,149
5,713
43,974
42,644
Guarantees issued by ING Groep N.V.
319
364
319
364
Irrevocable facilities
64,036
63,499
2,289
2,699
16,766
13,731
30,152
32,717
6,760
6,876
120,002
119,522
85,304
86,541
8,462
8,088
21,397
18,204
36,905
36,743
12,228
12,954
164,296
162,530
1
The prior period has been updated to improve consistency and comparability of the amounts per maturity of guarantees.
2
ING in the Netherlands offers credit facilities to clients, linked to ING current accounts. After a review of the product
conditions in 2019, it has been concluded that these facilities are irrevocable and therefore reported as such above.
The
prior period has been updated to improve consistency and comparability.
Guarantees relate both to credit
and non-credit substitute guarantees. Credit substitute
guarantees are guarantees
given by ING Group in respect of credit granted
to customers by a third
party. Many of them are expected to expire without being drawn on and therefore do not
necessarily represent future
cash outflows. In addition to the items included
in contingent liabilities,
ING Group has issued guarantees as a participant in collective arrangements of national industry
bodies and as a participant in government required collective guarantee schemes which apply in
different countries.
Irrevocable letters of credit
mainly secure payments to third parties for a customer’s foreign and
domestic trade transactions in order to finance a shipment of goods. ING Group’s credit risk in these
transactions is limited since these transactions are collateralised by the commodity shipped and
are of a short duration.
Other contingent liabilities include acceptances of bills and are of a short-term nature. Other
contingent liabilities also include contingent liabilities resulting from the operations of the Real
Estate business including obligations under development and construction contracts. Furthermore
other contingent liabilities include a contingent liability in connection with
a possible Dutch tax
obligation that relates to the deduction from Dutch taxable profit for losses incurred by ING Bank in
the United Kingdom in previous years. The existence of this obligation will be confirmed only by
the
occurrence of future profits in the United Kingdom.
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ING Group has issued certain guarantees as participant in collective arrangements of national
banking funds and as a participant in required collective guarantee schemes. For example,
ING
Bank N.V.
provided a guarantee to the German Deposit Guarantee Fund
(‘Einlagensicherungsfonds’
or ESF) under section 5 (10) of the by-laws of this fund, where ING Bank N.V.
indemnifies the
Association of German Banks Berlin against any losses it might incur as result of actions taken with
respect to ING Germany. The ESF is a voluntary collective guarantee scheme for retail savings and
deposits in excess of EUR 100,000.
As at 31 December 2019, ING Groep N.V.
guarantees various US dollar debentures (that mature
between 2023 and 2036) which were issued by a subsidiary of Voya
Financial Inc. In the
Shareholder’s agreement between ING Groep
N.V.
and Voya Financial Inc. it is agreed
that the
aggregate outstanding principal amount of the debentures will be reduced to nil as at 31 December
2019 (2018: EUR 87 million).
Per the Shareholder’s agreement, the decrease
in the aggregate outstanding principal shall be
deemed to have been reduced to the extent of collateral deposited by Voya
Financial Inc. As at 31
December 2019, EUR
331 million (2018: EUR
233 million) was pledged to ING Groep N.V.
as
collateral.
Irrevocable facilities mainly constitute unused portions of irrevocable
credit facilities granted to
corporate clients. Many of these facilities are for a fixed duration and bear interest at a floating
rate. ING Group’s
credit risk and interest rate
risk in these transactions is limited. The unused
portion of irrevocable credit facilities is partly secured by customers’ assets or counter-guarantees
by the central governments and exempted bodies under the regulatory requirements.
Irrevocable
facilities also include commitments made to purchase securities to be issued by governments and
private issuers.
46 Legal
proceedings
ING Group and its consolidated subsidiaries are involved
in governmental, regulatory, arbitration
and legal proceedings and investigations in the Netherlands and in a number of foreign
jurisdictions, including the U.S., involving claims by and against them which arise in the ordinary
course of their businesses, including in connection with their activities
as lenders, broker-dealers,
underwriters, issuers of securities and investors and their position as employers and taxpayers. In
certain of such proceedings, very large or indeterminate amounts are sought, including punitive
and other damages. While it is not feasible to predict or determine the ultimate outcome of all
pending or threatened governmental, regulatory, arbitration
and legal proceedings and
investigations, ING is of the opinion that some of the proceedings and investigations set out below
may have or have in the recent past had a significant effect on
the financial
position, profitability or
reputation of ING and/or ING and its consolidated subsidiaries.
Settlement Agreement:
settlement agreement with the Dutch Public Prosecution Service relating to previously
disclosed
investigations regarding various
requirements for client on-board
ing and the prevention of money
laundering and corrupt practices. Under the terms of the settlement agreement ING paid a fine
of
€675 million and €100 million for disgorgement. In connection with the investigations, ING had also
received information reques
ts from the US Securities and Exchange Commission (SEC). As ING
announced on 5 September 2018, ING has received a formal notification from the SEC that it has
concluded its investigation. In the letter dated 4 September 2018 the Division of Enforcement
states that, based on information as of the date thereof, it does not intend to recommend an SEC
enforcement action against ING. Following the entry into the settlement agreement, ING has
experienced heightened scrutiny from authorities in various countries. ING is also aware, including
as a result of media reports, that other parties may, among other things, seek to commence legal
proceedings against ING in connection with the subject matter of the settlement, have filed
or may
file requests to reconsider the prosecutor’s decision to enter into the settlement agreement with
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ING and not to prosecute ING or (former) ING employees in court, or have filed
or may file requests
for disciplinary proceedings against ING employees based on the Dutch “Banker’s oath.
Findings regarding AML processes:
with Dutch authorities concerning Anti-Money Laundering matters, and in the context of
significantly increased attention on the prevention of financial economic
crime, ING has
experienced heightened scrutiny by authorities in various countries. The interactions with such
regulatory and judicial authorities have included, and can be expected to continue to include,
onsite visits, information requests, investigations and other enquiries. Such interactions, as well as
ING’s internal assessments in connection with its global enhancement programme, have in some
cases resulted in satisfactory outcomes, and also have resulted in, and may continue to result
in,
findings, or other
conclusions which may require appropriate remedial
actions by ING, or may have
other consequences. ING intends to continue to work in close cooperation with authorities as it
seeks to improve its management of non-financial risks in terms of policies,
tooling, monitoring,
governance, knowledge and behaviour.
Also as previously disclosed in March 2019, ING Italy was informed by the Banca d’Italia of their
report containing their conclusions regarding shortcomings in AML processes at ING Italy, which
was prepared based on an inspection conducted from October 2018 until January 2019. ING Italy
has been engaged in discussions with Banca d’Italia and Italian judiciary authorities. In February
2020 the Italian court confirmed
and approved a plea bargain agreement with the Italian judiciary
authorities. As a consequence, ING Italy has paid an administrative fine and disgorgement of profit.
In addition, in February 2020 the Banca d’Italia imposed an administrative fine on ING Italy. Both
amounts were already provisioned
for in 2019.
In line with the enhancement programme announced in 2018, ING Italy is taking steps intended to
improve processes
and management of compliance risks as required by the Banca d’Italia. In
consultation and in agreement with the Banca d’Italia, ING Italy has agreed that it will refrain
from
taking on new customers during further discussions on the enhancement plans
with the Banca
d’Italia. ING Italy will continue to fully serve existing clients in Italy and is working hard to address
the shortcomings
and resolve the issues identified.
ING announced steps in September 2018 to enhance its management of compliance risks and
embed stronger awareness across
the whole organisation. This programme started in 2017 and
includes enhancing KYC files and working on various structural improvements in compliance
policies, tooling, monitoring, governance, knowledge and behaviour.
Tax
cases:
investigations and procedures in
numerous jurisdictions at any point in time. Although ING believes
that it has adequately provided for all its tax positions, the ultimate resolution of these audits,
investigations and procedures may result
in liabilities which are different from the amounts
recognised. ING has also identified issues in connection
with its U.S. tax information reporting and
withholding obligations in respect of prior periods. ING has agreed with the US Internal Revenue
Service (“IRS”) to resolve these issues by paying the tax owed. ING has made the payment out of
the provision it had already recognised.
Litigation regarding products of a former subsidiary in Mexico:
involved include complaints and lawsuits concerning the performance of certain interest sensitive
products that were sold by a former subsidiary of ING in Mexico. A provision
has been taken in the
past.
SIBOR – SOR litigation:
Rate (“SIBOR”) filed a U.S. class action complaint in the New York District Court alleging that several
banks, including ING, conspired to rig the prices of derivatives tied to SIBOR and the Singapore Swap
Offer Rate (“SOR”). The lawsuit refers to investigations by the Monetary Authority of Singapore
(“MAS”) and other regulators, including the U.S. Commodity Futures
Trading
Commission (“CFTC”),
in relation to rigging prices of SIBOR-
and SOR based derivatives. In October 2018, the New York
District Court issued a decision dismissing all claims against ING Group and ING Capital Markets LLC,
but leaving ING Bank, together with several other banks, in the case, and directing plaintiffs to file
an amended complaint consistent with the Court's rulings. In October 2018, plaintiffs
filed such
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amended complaint, which asserts claims against a number of defendants
but none against ING
Bank (or any other ING entity), effectively dismissing ING
Bank from the case. In December 2018,
plaintiffs sought permission from the Court to file
a further amended complaint that names ING
Bank as a defendant. In July 2019, the New York District Court granted the defendants’ motion to
dismiss and denied leave to further amend the complaint, effectively
dismissing all remaining
claims against ING Bank. In November 2019, plaintiffs filed
an appeal against this judgment.
Claims regarding accounts with predecessors
of ING Bank Turkey: ING Bank Turkey
has received
numerous claims from (former) customers of legal predecessors of ING Bank Turkey.
The claims are
based on offshore accounts held with these banks, which banks were seized by the Savings Deposit
Insurance Fund
(SDIF) prior to the acquisition of ING Bank Turkey in 2007 from OYAK.
SDIF has also
filed various lawsuits against ING
Bank Turkey to claim compensation from ING Bank Turkey,
with
respect to amounts paid out to offshore account holders so far.
At this moment it is not possible to
assess the outcome of these procedures nor to provide
an estimate of the (potential) financial
effect of these claims.
Interest rate derivatives
claims:
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. Where appropriate a provision
has been taken.
The aggregate financial impact of the
current and future litigation could become material.
As requested by the AFM, ING has reviewed
a significant
part of the files
of clients who bought
interest rate derivatives.
In December 2015, the AFM concluded that Dutch banks may have to re-
assess certain client files,
potentially including certain derivative contracts that were terminated
prior to April 2014 or other client files.
As advised by the AFM, the Minister of Finance appointed a
Committee of independent experts (the “Committee”) which has established a uniform recovery
framework for Dutch SME clients with interest rate
derivatives. ING has adopted this recovery
framework and has reassessed individual files against this framework. ING has taken an additional
provision for the financial consequences of the recovery framework. In 2017, ING has informed the
majority of the relevant clients whether they are in scope of the recovery
framework, and thus
eligible for compensation, or not. Because implementation by ING of the uniform recovery
framework encountered
delay, ING has previously offered advance payments to customers out of
the existing provision. As of December 2018, all customers in scope of the uniform recovery
framework have received
an offer of compensation from ING (including offers of no compensation).
As of 1 July 2019, the required process
under the uniform recovery
framework had been completed
for approximately 99% of all customers in scope.
ING is awaiting feedback from the independent dispute committee on one file for which the
relevant client opted for a 'binding advice' procedure.
Hearings with the independent dispute
committee took place in November and December 2019. It is not clear when the committee will
present its verdict.
Interest surcharges claims:
persons (natuurlijke personen) in the Netherlands regarding increases in interest surcharges
with
respect to several credit
products, including but not limited to commercial property (commercieel
verhuurd onroerend
goed). ING has reviewed the relevant
product portfolio. The provision
previously taken has been reversed
for certain of these complaints. All claims are dealt with
individually. Thus far, the courts have ruled in favour of ING in each case, ruling that ING was
allowed to increase the interest surcharged
based upon the essential obligations in the contract.
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Criminal proceedings regarding cash company financing:
ruled that ING Luxembourg
assisted third parties in 2000 to commit a tax fraud in the context of
the purchase of the shares of a cash company. The Court convicted ING Luxembourg,
among
others, and ordered ING to pay a penal fine of EUR 120,000 (suspended for half of the total
amount). The court also ordered ING Luxembourg
jointly and severally with other parties, to pay
EUR 31.48 million (together with any interest payable under applicable law) to the bankruptcy
trustee of the cash company. In July 2017, ING Luxembourg filed an appeal against this judgment.
A settlement with all the civil parties involved was reached in mid-2018. However, this settlement
does not apply to the criminal conviction of ING Luxembourg. In January 2020, the Court of Appeal
of Antwerp reformed the first judgment: ING Luxemburg benefitted from an "opschorting van de
uitspraak/suspension du prononcé" which means that the conviction has been upheld, but no penal
sanction has been pronounced (penalties suspended). ING Luxembourg is analyzing the judgement.
Mortgage expenses claims:
customers regarding reimbursement
of expenses associated with the formalisation of mortgages.
In most court proceedings in first instance the expense clause of the relevant mortgage contract
has been declared null and ING Spain has been ordered to reimburse
all or part of the applicable
expenses. The courts in first
instance have applied in their rulings different criteria regarding the
reimbursement of expenses. ING Spain has filed
an appeal against a number of these court
decisions. ING Spain has also been included, together with
other Spanish banks, in two class actions
filed by customer
associations. The outcome of the pending litigation and similar cases that may
be brought in the future is uncertain. A provision has been taken. However,
the aggregate financial
impact of the current and future litigation could change. In February 2018, the Spanish Supreme
Court ruled that Stamp Duty (Impuesto de Actos Jurídicos Documentados) expenses are
chargeable to the customer, while in October 2018 it ruled that Stamp Duty is chargeable to the
banks. In November 2018, the Spanish Supreme Court clarified the issue regarding Stamp Duty by
stating that this tax should be borne by the customer.
As for the remaining types of the expenses,
in January 2019, the Spanish Supreme Court issued several decisions that stated that the client and
the bank each have to bear half of the notary and management company costs and that registry
costs have to be borne in full by the bank. Allocation of valuation costs between the bank and the
customer were not addressed by the Spanish Supreme Court decisions and remain uncertain.
Imtech claim:
Imtech Shareholders Action Group B.V.
on behalf of certain (former) shareholders of Imtech N.V.
(“Imtech”). Furthermore,
on 28 March 2018, ING Bank received another claim on the same subject
matter from the Dutch Association of Stockholders (Vereniging
van Effectenbezitters, “VEB”). Each
of the claimants allege inter alia that shareholders were misled by the prospectus of the rights
issues of Imtech in July 2013 and October 2014. ING Bank, being one of the underwriters of
the
rights issues, is held liable by the claimants for the damages that investors in Imtech would have
suffered. ING Bank responded to the claimants denying any and all responsibility in relation to the
allegations made in the relevant letters. In September 2018, the trustees in the bankruptcy of
Imtech claimed from various financing parties, including
ING, payment of what the security agent
has collected following bankruptcy or intends to collect, repayment of all that was repaid to the
financing parties,
as well as compensation for the repayment of the bridge financing. At this
moment it is not possible to assess the outcome of these claims nor to provide an estimate of the
(potential) effect of these claims.
Mexican Government Bond litigation:
Groep N.V.,
ING Bank Mexico S.A. and ING Financial Markets LLC (“ING”) as defendants to a
complaint that had previously been filed against multiple other financial
institutions. The complaint
alleges that the defendants conspired to fix the prices of Mexican Government Bonds. ING is
defending itself against the allegations. Currently, it is not possible to provide an estimate of the
(potential) financial
effect of this claim. On 30 September 2019, the relevant court dismissed the
antitrust complaint, finding
that the plaintiffs had failed to identify any facts
that links each
defendant to the alleged conspiracy. On 9 December 2019, the plaintiffs filed
an amended
complaint removing all ING entities as defendants on the condition that the ING entities enter into
a tolling agreement for the duration of two
years. The relevant ING entities subsequently entered
into a tolling agreement, which provides that the statute of limitations will not be tolled for the two
year duration of the agreement. Should the plaintiffs discover any evidence of potential
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involvement by ING in the activities alleged in the complaint, ING could be brought back into the
litigation.
47 Consolidated
companies
and businesses
acquired
and divested
Acquisitions
In May 2019 ING acquired 80% of the shares of Intersoftware Group
B.V.,
Findata Access B.V.
and
Unitrust B.V.
(ISW Group) for a total consideration of EUR 18 million. The acquisition of ISW Group
resulted in the recognition of goodwill of EUR 17 million.
In 2018 ING Bank obtained control over Payvision Holding B.V.
(Payvision) by acquiring 75% of its
shares. The share purchase agreement
included a put option exercisable by the original
shareholders and a call option exercisable by ING for the remaining
25% shares. The put and call
option led to the recognition of a financial liability with initial recognition through shareholders’
equity of EUR 87 million. In November 2019 ING Bank agreed to purchase the remaining 25%
shares in three tranches
between November 2019 and April 2020 for a total consideration of EUR
90 million. This resulted in the remeasurement
of the financial
liability to EUR 90 million. A stake of
23% was purchased in 2019 which reduced the outstanding financial liability. As at 31 December
2019 the ownership interest of ING Bank was 98% with an outstanding financial liability of EUR
7
million to acquire the remaining shares. Given
that ING Bank already had control over Payvision,
the acquisition of the shares in 2019 represents a shareholder
transaction and resulted in a transfer
between Non-controlling interest
and Shareholders equity of EUR 24 million.
The purchase price of Payvision in 2018 included contingent consideration in the form of future
milestone payments. A total of EUR 16 million was paid in 2019.
Divestments
In July 2019 ING completed the sale of part of the ING Lease Italy business. The settlement price
amounted to EUR 1.162 million, consisted of a EUR 368 million cash settlement, a EUR 20 million
Deferred Purchase Price and a EUR 774 million Senior Loan
facility for the portfolio of lease
receivables. The deferred purchase
price is linked to the performance of the sold portfolio and is
reported under the financial assets mandatorily
measured at fair value through profit and loss. The
additional loss in 2019 amounted EUR -2 million (2018: EUR -123 million).
The Italian lease business
was reported as Assets Held for Sale as at 31 December 2018 and previously included in the
business line segment Wholesale Banking and geographical segment Other Challengers.
Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 25 ‘Result on the
disposal of group companies’.
48 Principal
subsidiaries,
investments
in associates
and joint
ventures
For the majority of ING’s principal subsidiaries, ING Groep N.V.
has control because it either directly
or indirectly owns more than half of the voting power.
For subsidiaries in which the interest held is
below 50%, control exists based on the combination of ING’s financial interest and its rights from
other contractual arrangements which result in control
over the operating and financial policies of
the entity.
For each of the subsidiaries listed, the voting rights held equal the proportion of ownership interest
and consolidation by ING is based on the majority of ownership.
For the principal investments in associates and joint ventures
ING Group has significant influence
but not control. Significant influence
generally results from
a shareholding of between 20% and
50% of the voting rights, but also the ability to participate in the financial
and operating policies
through situations including, but not limited to one or more of the following:
◾
Representation on the board of directors;
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◾
Participation in the policymaking process; and
◾
Interchange of managerial personnel.
The principal subsidiaries, investments in associates and joint ventures of ING Groep N.V.
and their
statutory place of incorporation or primary place of business are as follows:
Principal subsidiaries, investments in associates and joint ventures
Proportion of ownership
and interest held
by the group
2019
2018
Subsidiary
Statutory place of Incorporation
Country of operation
ING Bank N.V.
Amsterdam
the Netherlands
100%
100%
Bank Mendes Gans N.V.
Amsterdam
the Netherlands
100%
100%
ING Belgium S.A./N.V.
Brussels
Belgium
100%
100%
ING Luxembourg
S.A.
Luxembourg
City
Luxembourg
100%
100%
ING-DiBa AG
Frankfurt am Main
Germany
100%
100%
ING Bank Slaski S.A.
1
Katowice
Poland
75%
75%
ING Financial Holdings Corporation
Delaware
United States of America
100%
100%
ING Bank A.S.
Istanbul
Turkey
100%
100%
ING Bank (Australia) Ltd
Sydney
Australia
100%
100%
ING Commercial Finance B.V.
Amsterdam
the Netherlands
100%
100%
ING Groenbank N.V.
Amsterdam
the Netherlands
100%
100%
Investments in associates and joint ventures
TMB Bank Public Company Ltd
2
Bangkok
Thailand
23%
30%
1 The shares of the non-controlling interest stake of 25% are listed on the Warsaw Stock Exchange, for summarised financial
information we refer to ‘Note 35 ‘Information on geographical areas.
2 Reference is made to Note 8 Investments in Associates and Joint Ventures.
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49 Structured
entities
ING Group’s activities involve transactions with various structured entities (SE) in the normal course
of its business. A structured entity is an entity that has been designed so that voting or similar
rights are not the dominant factor in deciding who controls the entity, such as when any voting
rights relate to administrative tasks only and the relevant
activities are directed by means of
contractual arrangements. ING Group’s involvement
in these entities varies and includes both debt
financing and
equity financing
of these entities as well as other relationships. Based on its
accounting policies, as disclosed in the section Principles of valuation and determination of results
of these financial
statements, ING establishes whether these involvements result in no significant
influence, significant
influence, joint control or control over the structured entity.
The structured entities over which ING can exercise control
are consolidated. ING may provide
support to these consolidated structured entities as and when appropriate. However, this is fully
reflected in the consolidated financial
statements of ING Group as all assets and liabilities of these
entities are included and off-balance sheet commitments are disclosed.
ING’s activities involving structured entities are explained below in the following categories:
1.
Consolidated ING originated securitisation programmes;
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.
1. Consolidated ING originated
securitisation programmes
ING Group enters into liquidity management securitisation programmes in order to obtain funding
and improve liquidity. Within the programme
ING Group sells ING originated assets to a structured
entity. The underlying exposures include residential mortgages in the Netherlands, Belgium, Spain,
Italy and Australia and SME Loans in Belgium.
The structured entity issues securitised notes (traditional securitisations) which are eligible
collateral for central
bank liquidity purposes. In most programmes ING Group acts as investor of the
securitised notes. ING Group continues to consolidate these structured entities if it is deemed to
control the entities.
The structured entity issues securitisation notes in two or more tranches, of which the senior
tranche obtains a high rating (AAA or AA) by a rating agency. The tranche
can subsequently be
used by ING Group as collateral in the money market for secured borrowings.
ING Group originated various securitisations, as at 31 December 2019, these consisted of
approximately EUR 57 billion (2018: EUR 66 billion) of senior and subordinated notes, of which
approximately EUR 4 billion (2018: EUR 5 billion) were issued externally. The underlying exposures
are residential mortgages and SME loans. Apart from the third party funding, these securitisations
did not impact ING Group’s Consolidated statement of financial position and profit
or loss.
In 2019, there are no non-controlling
interests as part of the securitisation structured entities that
are significant to ING Group. ING Group for the majority of the securitisation vehicles provides the
funding for the entity except for EUR 4 billion (2018: EUR 5 billion).
In addition ING Group originated various securitisations for liquidity management optimisation
purposes. As at 31 December 2019, these consisted of approximately EUR 3 billion (2018: EUR 4
billion) of senior secured portfolio loans, which have been issued to ING subsidiaries in Germany.
The underlying exposures are senior loans to large corporations
and financial
institutions, and real
estate finance loans, mainly
in the Netherlands. These securitisations did not impact ING
Group’s
consolidated statement of financial position
and profit or loss.
2. Consolidated ING originated
Covered
bond programme (CBC)
ING Group has entered into a covered
bond programme. Under the covered
bond programme ING
issues bonds. The payment of interest and principal is guaranteed by the ING administered
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structured entities, ING Covered
Bond Company B.V.,
and ING SB Covered Bond Company
B.V.
In
order for these entities to fulfil their guarantee, ING legally transfers mainly Dutch mortgage loans
originated by ING. Furthermore ING offers protection against deterioration of the mortgage loans.
The entities are consolidated by ING Group.
Covered
bond programme
Fair value pledged
mortgage loans
2019
2018
Dutch Covered
Bond Companies
24,297
24,336
24,297
24,336
In addition, subsidiaries of ING in Germany, Belgium and Australia also issued covered bonds with
pledged mortgages loans of approximately EUR 16 billion (2018: EUR 14 billion) in total.
In general, the third-party investors in securities issued by the structured entity have recourse only
to the assets of the entity and not to the assets of ING Group.
3. Consolidated ING sponsored
Securitisation programme
(Mont Blanc)
In the normal course of business, ING Group structures financing transactions for its clients by
assisting them in obtaining sources of liquidity by selling the clients’ receivables or other financial
assets to a Special Purpose Vehicle (SPV). The senior positions in these transactions may be funded
by the ING administered multi seller Asset Backed Commercial Paper (ABCP) conduit Mont Blanc
Capital Corp. (rated
A-1/P-1). Mont Blanc Capital Corp. funds itself externally
in the ABCP markets.
In its role as administrative agent, ING Group
facilitates these transactions by acting as
administrative agent, swap counterparty and liquidity provider to Mont Blanc Capital Corp.
ING
Group also provides support facilities (i.e.
liquidity) backing the transactions funded by the conduit.
The types of asset currently in the Mont Blanc conduit include trade receivables, consumer finance
receivables, car leases and residential mortgages.
ING Group supports the commercial paper programmes
by providing Mont Blanc Capital Corp.
with
short-term liquidity facilities. Once drawn these facilities bear normal credit risk.
The liquidity facilities, provided to Mont Blanc are EUR 1,631 million (2018: EUR 1,173 million). The
drawn liquidity amount is nil as at 31 December 2019 (2018: nil).
The standby liquidity facilities are reported under irrevocable
facilities. All facilities, which vary in
risk profile, are granted to the Mont Blanc Capital Corp. subject to normal ING Group credit
and
liquidity risk analysis procedures. The fees received
for services provided and for facilities are
charged subject to market conditions.
4. Unconsolidated Securitisation programme
In 2013 ING transferred financial assets (mortgage loans) for an amount of approximately EUR 2
billion to a newly established special purpose vehicle (SPV). The transaction resulted in full
derecognition of the financial assets from ING’s statement of financial
position. The derecognition
did not have a significant impact
on net result. Following
this transfer ING continues to have two
types of on-going involvement in the transferred
assets: as counterparty to the SPE of a non-
standard interest rate
swap and as servicer of the transferred assets. ING has an option to unwind
the transaction by redeeming all notes at their principal outstanding amount, in the unlikely event
of changes in accounting and/or regulatory
requirements that significantly impact the transaction.
The fair value of the swap held by ING at 31 December 2019 amounted to EUR
(45) million (2018:
EUR
(33) million); fair value changes on this swap recognised in the statement of profit or loss in
2019 were EUR 12 million (2018: EUR 8 million). Service fee income recognised, for the role as
administrative agent, in the statement of profit or loss in 2019 amounted to EUR 2 million (2018:
EUR 2 million). The cumulative income recognised in profit or loss since derecognition amounts to
EUR 15 million.
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5. Other structured entities
In the normal course of business, ING Group enters into transactions with structured entities as
counterparty. Predominantly in its structured finance operations, ING can be instrumental in
facilitating the creation of these structured entity counterparties. These entities are generally not
included in the consolidated financial
statements of ING Group, as ING facilitates these transactions
as administrative agent by providing structuring, accounting, funding, lending, and operation
services.
ING Group offers various investment fund products to its clients. ING Group does not invest in these
investment funds for its own account nor acts as the fund manager.
50 Related
parties
In the normal course of business, ING Group enters into various transactions with related parties.
Parties are considered to be related
if one party has the ability to control or exercise significant
influence over the other party in making
financial or operating decisions. Related parties of ING
Group include, among others, its subsidiaries, associates, joint ventures, key management
personnel, and various defined
benefit and
contribution plans. For post-employment benefit plans,
reference
is made to Note 36 ‘Pension and other postemployment benefits’.
Transactions
between
related parties include rendering or receiving of services, leases, transfers
under finance
arrangements and provisions of guarantees
or collateral. All transactions with related parties took
place at conditions customary in the market. There are no significant provisions for doubtful debts
or individually significant bad
debt expenses recognised on outstanding balances with related
parties.
Subsidiaries
Transactions with ING Groep N.V.'s
main subsidiaries
2019
2018
Assets
44,242
34,902
Liabilities
163
140
Income received
1,103
629
Expenses paid
9
26
Transactions
between ING Groep N.V.
and its subsidiaries are eliminated on consolidation.
Reference is made to Note 48 ‘Principal subsidiaries’ for a list of principal subsidiaries and their
statutory place of incorporation.
Assets from ING’s subsidiaries mainly comprise long-term funding. Liabilities to ING’s subsidiaries
mainly comprise short-term deposits.
Associates and joint ventures
Transactions with ING Group’s main associates and joint ventures
Associates
Joint ventures
2019
2018
2019
2018
Assets
96
54
–0
Liabilities
97
98
6
1
Off-balance sheet commitments
29
120
–
Income received
11
2
Assets, liabilities, commitments, and income related to Associates and joint ventures result from
transactions which are executed as part of the normal Banking business.
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Key management personnel compensation
Transactions
with key management personnel (Executive Board, Management Board Banking and
Supervisory Board) are transactions with related parties.
In 2019 and 2018, three members of the Executive Board of ING Groep
N.V.
were also members of
the Management Board Banking. The members of the Management Board Banking are considered
to be key management personnel and their compensation is therefore included in the tables below.
Key management personnel compensation (Executive Board and Management Board Banking)
Executive
Board of ING
Groep N.V.
Management
Board
Banking
1,4
Total
2019
in EUR thousands
Fixed Compensation
–
Base salary
4,587
3,847
8,434
–
Collective fixed allowances
1,167
937
2,104
–
Pension costs
78
94
172
–
Severance benefits
Variable compensation
–
Upfront cash
361
361
–
Upfront shares
247
378
625
–
Deferred cash
541
541
–
Deferred shares
371
566
937
–
Other
Total
compensation
6,450
6,724
13,174
1
Excluding members that are also members of the Executive Board of ING Groep N.V.
One Management Board Banking
member was appointed to the Executive Board during the year .
2
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 107,539.
3
In 2019 one member of the Executive Board left and one member joined. The table includes
their compensation earned in
the capacity as board member and in addition an advisor fee for the period in which the activities
were transferred
to the
successor.
4
One member left ING during the year. The table includes compensation earned in the capacity as board member..
In addition to above remuneration the members of the Executive
Board and Management Board
Banking receive other emoluments, such as Company Car, Travel
and Accident Insurance,
personnel discount on financial
products, of EUR 0.4 million in total (2018: EUR 0.3 million).
Key management personnel compensation (Executive Board and Management Board Banking)
Executive
Board of ING
Groep N.V.
Management
Board
Banking
Total
2018
in EUR thousands
Fixed Compensation
–
Base salary
4,157
3,672
7,829
–
Collective fixed allowances
1,191
990
2,181
–
Pension costs
78
103
181
–
Severance benefits
3
602
602
Variable compensation
4
–
Upfront cash
–
Upfront shares
–
Deferred cash
–
Deferred shares
–
Other
Total
compensation
6,028
4,765
10,793
1
Excluding members that are also members of the Executive Board of ING Groep N.V
2
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 105,075.
3
Following the settlement agreement and in consultation with the Supervisory Board, the CFO stepped down from his
position as member of the Executive Board of ING Group on 7 February 2019. In line with applicable regulations a severance
payment was granted. The Supervisory Board has set the severance pay at a level of 50% of fixed annual pay.
4
No variable remuneration for 2018, as the members of the Executive Board and Management Board Banking volunteered to
forfeit their entitlement to variable remuneration immediately, following the settlement agreement with the Dutch Public
Prosecution Service as announced by ING on 4 September 2018.
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Key management personnel compensation (Supervisory Board)
in EUR thousands
2019
2018
Total
compensation
1,045
1,032
The table above shows the fixed remuneration, expense allowances and attendance fees for the
Supervisory Board for 2019 and 2018.
Loans and advances to key management personnel
Amount outstanding
31 December
Weighted average
interest rate
Repayments
in EUR thousands
2019
2018
2019
2018
2019
2018
Executive Board members
2,402
2,681
1.4%
1.8%
97
Management Board Banking
350
550
2.6%
2.3%
Supervisory Board members
Total
2,752
3,231
97
Number of ING Groep N.V.
shares and stock options to key management personnel
ING Groep N.V.
shares
Stock options on
ING Groep N.V.
shares
in numbers
2019
2018
2019
2018
Executive Board members
172,523
226,639
46,198
68,467
Management Board Banking
147,713
159,393
–
27,240
Supervisory Board members
54,065
54,065
–
Total
number of shares and stock options
374,301
440,097
46,198
95,707
Key management personnel compensation is generally included in Staff expenses in the statement
of profit or loss. The total remuneration of the Executive Board and Management Board Banking is
disclosed in the table above. Under IFRS, certain components of variable remuneration are
not
recognised in the statement of profit or loss directly, but are allocated over the vesting period of
the award. The comparable amount recogni
sed in Staff expenses in 2019 and included
in Total
expenses in 2019, relating to the fixed expenses of 2019 and the vesting of variable remuneration
of earlier performance years, is EUR 11 million in 2019 (2018: EUR 12 million).
51 Subsequent
events
There are no subsequent events to report.
52 Capital
management
Objectives
Group Treasury
(“GT”) Capital Management, part of Balance Sheet & Capital Management, is
responsible for maintaining the adequate capitalisation of ING Group and ING Bank entities, to
manage the risk associated with ING’s business activities. This involves not only managing, planning
and allocating capital within ING Group, ING Bank and its various entities, but also helping to
execute 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 operating environment. This means GT Capital Management takes into
account both regulatory and internal, economic based metrics and requirements as well as the
interests of key stakeholders such as shareholders and rating agencies.
ING applies the following main capital definitions:
◾
Common Equity Tier 1 capital (CET1) - is defined as shareholders’ equity less regulatory
adjustments. CET1 capital divided by risk-weighted assets equals the CET1 ratio.
◾
Tier 1 capital – is defined as CET1 capital including Additional
Tier 1 (hybrid) securities and other
regulatory adjustments. Tier 1 capital divided by risk-weighted assets equals the Tier 1 capital
ratio.
◾
Total
capital – is Tier 1 capital including subordinated Tier 2 liabilities and regulatory
adjustments. Total capital
divided by risk-weighted assets equals the Total capital ratio.
◾
Common Equity Tier 1 ratio ambition –is built on potential impact of a standardised and pre-
determined 1-in-10-year stress event (i.e.
at a 90% confidence level with a 1-year horizon).
◾
Leverage
ratio – is defined as Tier 1 capital divided by the total exposure amount.
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Capital Developments
The capital position remained robust in 2019 reflecting strong profitability with a lower risk weight
and complemented with the optimisation of the capital structure. At both the consolidated and
entity level, ING has sufficient
buffers to withstand certain adverse scenarios without breaching
currently
applicable and likely future requirements.
The CET1 ratio at the end of the year improved as risk-weighted assets increased due to volume
growth and model impacts, effects that were offset by profit
retention and positive risk migration.
ING continues to maintain a strong and high quality capital level. ING Groep N.V.
has a Common
Equity Tier 1 ratio of 14.6% as at 31 December 2019 versus a current CRR/CRD IV solvency
requirement of 11.83%.
The Group’s Tier 1 ratio (including grandfathered
securities) increased to 16.7%, as of 31 December
2019. Compared with previous
year, the Total
capital ratio (including grandfathered
securities)
increased from 18.4% to 19.1%.
ING Bank N.V.
has a CET1 ratio of 13.1%, thereby complying with CRR/CRD IV solvency
requirements. ING Bank N.V.
paid EUR 2,819 million of dividend to ING Group in 2019. The Tier 1
ratio (including grandfathered
securities) increased from 14.5% to 15.1%, primarily reflecting
developments in ING Bank’s CET1 ratio. The Banks’s total capital ratio
(including grandfathered
securities) increased from 17.2% to 17.9%.
ING Group capital position according to CRR/CRD IV
2019
2018
Shareholders’ equity
4
53,769
50,932
Interim profit not included in CET1 capital
–1,754
–1,712
Other adjustments
–4,464
–3,776
Regulatory adjustments
–6,217
–5,489
Available common equity Tier 1 capital
47,552
45,443
Additional Tier 1 securities
6,916
5,339
Regulatory adjustments additional Tier 1
51
48
Available Tier 1 capital
54,519
50,831
Supplementary capital Tier 2 bonds
8,943
8,248
Regulatory adjustments Tier
–1,158
–1,136
Available Total
capital
62,303
57,943
Risk weighted assets
326,414
314,149
Common equity Tier 1 ratio
14.57%
14.47%
Tier 1 ratio
16.70%
16.18%
Total
capital ratio
19.09%
18.44%
1) The interim profit not included in CET1 capital as
per 31 December 2019 (EUR 1,754 million) includes EUR 42 million for 4Q
2019.(Full Year
2019: EUR 2,689 million).
2) Including EUR 5,312 million which is CRR/CRD IV-compliant (2018: EUR
2,833 million) and EUR 1,604 million to be replaced as
capital recognition is subject to CRR/CRD IV grandfathering rules (2018: EUR 2,506 million).
3) Including EUR 8,789 million which is CRR/CRD IV-compliant (2018: EUR
8,079 million), and EUR 153 million to be replaced as
capital recognition is subject to CRR/CRD IV grandfathering rules (2018: EUR 168 million).
4) Shareholders' equity is determined in accordance with IFRS-EU.
In accordance with the applicable regulation, credit
and operational risk models used in the capital
ratios calculations are not audited.
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Dividend
ING Group’s dividend policy aims to pay a progressive
dividend that will reflect
considerations
including expected future capital requirements, growth
opportunities available to the Group, net
earnings, and regulatory developments. The Executive Board
proposes to pay a total cash dividend
of EUR 2,689 million, or EUR 0.69 per ordinary share, over the financial year 2019. This is subject
to
the approval of shareholders
at the Annual General Meeting in April 2020.
Taking
into account the interim dividend of EUR 0.24 per ordinary share paid in August 2019, the
final dividend
will amount to EUR 0.45 per ordinary share and will be paid fully in cash. The total
amount of EUR 1,754 million is completely covered by the remaining balance of ”interim profits not
included in CET1 capital” at year-end 2019.
Processes for
managing capital
Besides assessing capital adequacy, ING also ensures the availability of sufficient
capital above the
set targets and limits for ING Group and ING Bank. Additionally, GT Capital Management ensures
adherence to the set limits and targets by planning and executing capital management
transactions. The ongoing assessment and monitoring of capital adequacy is embedded
in the
capital planning process within the ICAAP framework. As part of the dynamic business planning
process, ING prepares
a capital and funding plan on a regular basis for all its material businesses
and assesses continuously the timing, need and feasibility for capital management actions in
scope of its execution strategy. Sufficient financial
flexibility should be preserved to meet important
financial objectives.
ING’s risk appetite statements set targets and are at the foundation of the
capital plan. These limits are cascaded to the different businesses in line with our risk management
framework.
Adverse planning and stress testing are integral components of ING’s risk and capital management
framework. It allows us to (i) identify and assess potential vulnerabilities in our businesses, business
model, portfolios or operating environment; (ii) understand the sensitivities of the core assumptions
used in our strategic and capital plans; and (iii) improve
decision-making and business steering
through balancing risk and return following a foresighted
and prudent management approach. In
addition to internal stress test scenarios reflecting the outcomes of the annual risk assessment, ING
also participates in regulatory stress test exercises. ING participated in the 2018 EU-wide stress test
conducted by EBA.
Regulatory requireme
nts
Capital adequacy and the use of required regulatory
capital are based on the guidelines developed
by the Basel Committee on Banking Supervision (The Basel Committee) and the European Union
Directives, as implemented by the Dutch Central Bank (Dutch Central
Bank until 3 November 2014,
the ECB thereafter) for supervisory purposes. In 2010, the Basel Committee issued new solvency
and liquidity requirements that superseded Basel II. The minimum requirements, excluding buffers,
for the CET 1 ratio is 4.5%, the minimum Tier 1 requirement is 6% and the Total
capital ratio is 8%
of risk-weighted assets.
The CET1 requirement for ING Group
at a consolidated level was set at 11.83% in 2019. This
requirement is the sum of a 4.5% Pillar I requirement,
a 1.75% Pillar II requirement, a 2.5% Capital
Conservation Buffer (CCB), a 0.08% Countercyclical Buffer (based on December 2019 positions) and
the 3.0% Systemic Risk Buffer (SRB) that are set separately for Dutch systemic banks by the Dutch
Central Bank (De Nederlandsche Bank). Due to changes in the Countercyclical Buffer setting in
some jurisdictions, ING expects an increase to 0.24% in 2020 (based on 4Q
2019 positions). This
requirement excludes the Pillar II capital guidance, which is not disclosed.
The Maximum Distributable Amount (MDA) trigger level stood at 11.83% in 2019, based on stable
Pillar II capital requirements. In the event that ING Group
breaches the MDA level, ING may face
restrictions on dividend payments, AT1 instruments coupons and bonus payments.
Contents
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Additional Information
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Financial Statements
2019 ING Group Annual Report on Form
20-F
F - 137
Ratings
Main credit ratings of ING at 31 December 2019
Standard & Poor’s
Moody’s
Fitch
Rating
Outlook
Rating
Outlook
Rating
Outlook
ING Groep N.V.
Long-term
A-
Stable
Baa1
Stable
A+
Stable
ING Bank N.V.
Long-term
A+
Stable
Aa3
Stable
AA-
Stable
Short-term
A-1
P-1
F1+
ING’s key credit ratings and outlook are shown in the table above.
Each of these ratings reflects
only the view of the applicable rating agency at the time the rating was issued, and any
explanation of the significance of a rating may be obtained only
from the rating agency.
A security rating is not a recommendation to buy, sell or hold securities and each rating should be
evaluated independently of other ratings. There is no assurance
that any credit rating will remain
in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn
entirely by the rating agency if, in the rating agency’s judgment, circumstances so warrant.
ING
accepts no responsibility for the accuracy or reliability
of the ratings.