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ING Bank
Annual Report 2021
Contents
Introduction
Report of Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
Contents
Introduction
About this report
3
Report of Management Board
World around us
4
Our strategy
8
Our business
13
Our performance
& capital management
32
Our people
37
Risk management
Risk management at ING Bank
45
Solvency risk
62
Credit risk
65
Market risk
108
Funding and liquidity risk
125
Environmental, social and governance risk
129
Non-financial risk
136
Compliance risk
139
Model risk
147
Business risk
150
Corporate governance
Supervisory Board report
151
Corporate governance
164
Conformity Statement
171
Consolidated financial statements
Consolidated statement of financial position
174
Consolidated statement of profit or loss
175
Consolidated statement of comprehensive income
176
Consolidated statement of changes in equity
177
Consolidated statement of cash flows
180
Notes to the consolidated financial statements
182
Parent company financial statements
Parent company financial statements
290
Other information
Independent auditor’s report
312
Articles of Association – Appropriation of results
3
19
Contents
Introduction
Report of Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
About this report
ING Bank Annual Report 2021
3
About this report
ING’s purpose is empowering people to stay
a step ahead in life and in business. In this
report we
describe how we live up to our purpose and
create value as a bank, as an employer
and in society.
In this report, the sections Strategy
and performance, Risk management, Corporate
governance and
Dutch Corporate governance statement by
the Management Board Banking together
form the Report
of the Management Board Banking. This
annual report also contains ING Bank
N.V. consolidated and
parent company financial statements, and
other information.
This report is intended to inform stakeholder
groups that have an impact on or are impacted
by our
business. This includes customers, investors
and shareholders, regulators and supervisors,
employees,
government authorities and non-governmental
organisations.
It aims to give our stakeholders a balanced
overview of our activities and ING’s
ability to create and
sustain value.
Contents
Introduction
Report of Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
World around us
ING Bank Annual Report 2021
4
World around us
Our business is largely shaped by what’s happening in the world around
us, from economic and political developments to the changing
regulatory environment, global trends and social issues. And of course,
in 2021 the Covid-19 pandemic continued to have an impact on people,
businesses and the economy.
All these factors provide both challenges
and opportunities for ING as we navigate the
ever-changing
world around us to deliver on our purpose and
create long-term value for our stakeholders.
Our operating environment
Economic growth picked up this year, helped
by strong policy support, the deployment
of vaccine
programmes
and the reversal of lockdown measures,
although these were reintroduced in some
countries at the end of the year prompted by
an increase in infections, and the emergence
of a new
variant of the Covid-19 virus.
The global economy surpassed its pre-pandemic
level, but many
countries are still operating below pre-Covid
levels, particularly emerging markets
and developing
economies with lower vaccination rates and
less government support.
China and Australia had already
recovered in 2020; the US and the eurozone
caught up in 2021.
A resurgence of Covid-19 cases and supply
disruptions began to negatively impact economic
momentum in the second half of the
year. In particular, US consumption softened
in the third quarter
and German industry had to scale back because
of shortages of key inputs. The economic
impact of
the Delta variant, especially in countries with
low vaccination rates, added to pressures
on global
supply chains and costs. Supply disruptions
were often longer than expected
and fed inflation in many
countries. Higher commodity prices and the
rise in consumer demand as economies thawed
caused
consumer price inflation to increase rapidly,
most significantly in the US, Canada and
the UK, although
other advanced economies in Europe and Asia
also saw inflation picking up.
Against the background of economic recovery
and increased inflationary pressures, the Federal
Reserve started to taper its bond-buying programme.
The European Central Bank (ECB) also
announced a reduction in bond purchases,
but is set to move slower. The ECB plans to
end its
Pandemic Asset Purchase Programme by
2Q 2022 and expects to have reduced
asset purchases under
this programme to €20 billion per month by
the end of the year. Together these
factors drove up
longer-term interest rates and steepened
yield curves.
With interest rates remaining at low levels and
government policies staying growth-supportive,
house prices continued to rise.
These were significant macroeconomic
developments that impacted our own
organisation as well as
our customers, employees, shareholders
and other stakeholders. Despite the economic
thaw, the
normal flow of business in countries where
ING operates remained disrupted to a greater
or lesser
extent throughout 2021. The German elections,
continuing China/US tensions and continued
uncertainty around the full impact of Brexit
all added to the volatility of our external
environment.
ING is also closely monitoring the situation
in Ukraine from a financial, operational
and security
perspective, with the safety and wellbeing
of employees our top priority. We strongly
condemn
Russia’s invasion of Ukraine in February
2022 and are deeply concerned by its devastating
impact and
the threat to international stability and security.
ING has been providing Wholesale
Banking services in
Ukraine and Russia for almost 30 years. As of
28 February 2022, ING’s total Russia-related
exposure
was approximately €6.7 billion (representing
around 0.9% of our total loan book), of which
around 700
million was affected by new sanctions.
We have around €500 million exposure
in Ukraine. In March
2022, we decided to not do new business with
Russian companies. Read more in Risk management.
As a global financial services company, with
our profitability, solvency and liquidity
linked heavily to
the state of the economy and the market environment,
we remained alert to this volatility’s potential
to impact our performance.
Among other topics impacting our business
in 2021 were climate change (including
climate risk), anti-
money laundering, cybersecurity and fraud, personal
data protection, and culture and ethics.
Contents
Introduction
Report of Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
World around us
ING Bank Annual Report 2021
5
Climate change
Although the threat of climate change has
been signalled for some time by the
scientific community,
its impact is intensifying and it’s happening
faster than previously predicted. The
flooding, wildfires and
heatwaves experienced this year are expected
to occur more frequently due to climate
change.
This
formed the backdrop to the 2021 report from
the United Nation’s Intergovernmental
Panel on Climate
Change (IPCC), which flagged climate change
as a ‘code red’ for humanity, requiring
urgent
intervention from all sectors of society.
This urgency was underlined at the New
York Climate Week in September 2021,
where it was
reinforced that accelerated action now
and in the coming years can positively affect
our transition
towards a more carbon-neutral future.
In November 2021, at the 26
th
UN Climate Change Conference
(COP26) in Glasgow, agreements were reached
on important steps towards net-zero
emissions in 2050,
such as shifting away from coal and a pledge
to halt deforestation. But this is not yet enough
to get us
into the safe zone; these pledges add up to
an average global warming of 1.8°C at best.
There was
agreement on countries having to accelerate
and strengthen their 2030 targets,
and a framework for a
global carbon market was drawn up, which
is expected to trigger a surge of green
projects. As always
the proof is in the action and real impact
on the ground. COP27 will be crucial –
again. Not only for
limiting greenhouse gas emissions far more
drastically, but also for agreements
on climate adaptation
and the social impact of climate change, both
of which affect developing countries disproportionately.
We believe ING can have the biggest impact
in mitigating the effect of climate change
through our
financing. We work with our clients to finance
and facilitate their transition to low-carbon technologies
and offer a growing suite of sustainability products
and services to help them, including sustainability-
linked loans and green bonds.
The popularity of sustainability-linked
financing is growing,
partly fuelled by companies facing pressure
from investors and regulators to ‘go green’.
To protect the integrity of this fast-growing
market, which
we pioneered back in 2017, ING published
a position paper in October calling
for linked sustainability
targets to be ambitious, recognised industry-wide
and verified by a reputable, independent party.
This
will help to retain the credibility of the market
by ensuring companies tackle the most
difficult and
urgent climate issues first. Ambition levels
that are too low will not make the
impact these products
are designed for.
While ING can voice its opinion on all transactions,
and we can use our influence to steer clients
towards credible targets on those we structure
ourselves, market dynamics don’t always
allow us to
put the proper structures in place if we’re
not in a leading role. We believe regulatory
developments
like the European Commission’s green bond
standard will help to improve the quality
of the market as
it evolves.
The role that regulators and governments play
in supporting and facilitating the road
to a net-zero
emission world cannot be underestimated.
To this end, the EU presented its net-zero
targets with
ambitious legislative proposals to cut emissions
by 55% by 2030 (‘Fit for 55’), and we
look forward to
seeing ambitious national policies that align
with this goal. In the meantime, ING is working
on its own
action plans as new climate scenarios and
expectations emerge, and we present
these, and our
progress on them, in our integrated climate
report on ing.com.
Climate risk
According to the European Central Bank,
climate change will be a major source
of systematic risk to
banks if no action is taken. A recent ECB study
showed banks in the eurozone
would have an 8% higher
chance of loan defaults by 2050 if nothing
is done about global warming, with
the risk rising to 30% for
banks in southern Europe. The physical risk
from climate change is tangible –
fires, floods and rising sea
levels affect people’s lives, livelihoods, assets
and businesses. There is also transition
risk such as
carbon pricing and shifting consumer preferences,
which can leave manufacturers with stranded
assets if they don’t adapt to market demands
for greener products.
ING strives to identify and understand these
risks as part of our integrated approach
to climate action.
We do this to build resilience to these risks
in our own organisation as well as
to prepare for their
potential impact on clients and other stakeholders
and this helps shape our strategy. As such, climate
risk will be included in our risk management
framework in a forward-looking approach. Our
climate risk
programme helps measure the impact of
climate change on our loan book.
We follow guidance from
the ECB and the Taskforce for Climate-Related
Financial Disclosure on how banks are
expected to
prudently manage and transparently disclose
climate-related and environmental risks
under current
prudential rules.
Contents
Introduction
Report of Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
World around us
ING Bank Annual Report 2021
6
Anti-money laundering
As a gatekeeper to the financial system, we have
an important role in protecting society
against all
types of financial crime. Money laundering
is one such crime, existing in and of itself
and as a facilitator
of other crimes such as people trafficking
and drug smuggling.
To be more effective in our efforts to fight financial
economic crime, we work closely with our peers,
regulators and law enforcement. This includes
initiatives with other banks in the Netherlands
and
Germany to jointly monitor transactions
and share intelligence, and further professionalising
our KYC
organisation by means of internationally recognised
certifications.
In June, the EU presented its action plan for
know your customer/anti-money laundering
(AML). This
aims to increase harmonisation of rules across
member states and proposes direct supervision
at EU
level for those banks exposed to the highest
AML risk. We welcome these reforms
as they will help
improve the current framework and help
us with the operationalisation of new
AML measures across
our network.
ING is looking into how to deal with the issue
of customer tax integrity,
(a process accelerated by the
Pandora Papers investigation in October), where
customer transactions may be legal but
are ethically
undesirable. We are exploring different approaches
regarding the execution of our risk judgement
processes in this area.
Cybersecurity and fraud
Digital technology has connected the world
in an unprecedented way. The pandemic
has highlighted
just how much people rely on the internet
to work, socialise and shop. With this
increased reliance,
comes an increasing risk that some of these
digital interactions will be used for criminal purposes.
As a
result, there are growing societal concerns
about increasingly sophisticated cyberattacks
as well as
around data privacy and protection.
Cybercrime is a growing threat to society
and companies in general, and to the
financial system in
particular,
with scams that aim to trick people
out of their money. One such scam involves
fake bank
employees tricking customers into redirecting
their savings into a ‘safe’ account, while phishing
scams
have evolved from emails to text messages
as fraudsters become ever more inventive.
Falling victim to bank fraud can have devastating
consequences for customers, not just financially
but
also on their confidence, mental health and
relationships. Raising awareness
among customers and
employees is an important step in protecting
people against crimes like, phishing,
spoofing and
hacking.
At ING too, there is an increased risk of criminals
trying to gain unauthorised access
to the bank,
whether that’s through malware, phishing
attacks, identity theft or online fraud. To stay
resilient to
these increasingly sophisticated crimes, we take
a multi-faceted approach that aims to
anticipate
threats, prevent them from becoming reality
and so protect our customers.
Through collaboration with
governments, fintechs and our peers, we share
knowledge and facilitate security innovation
for the
bank, our industry and society.
Stakeholder engagement case: agri commodities and the threat of deforestation
Topic
: Financing agricultural commodities that
may contribute to deforestation
Stakeholder groups
: NGO Global Witness; agricultural
commodities clients
Case:
The agricultural sector is essential for
global food security and provides local
economic
development and employment. At the same
time, agricultural commodities such as
coffee, grain
and soy (and cattle farming) require significant
land use, which can lead to the destruction
of
forests and risks to the climate, biodiversity
and land rights. The supply chains of clients
we
finance could be directly or indirectly contributing
to this. In an October 2021 report, NGO
Global
Witness mentions ING as financing agri commodities
companies with an increased risk of
deforestation.
Outcome:
ING recognises the alarming rate of deforestation.
We are in an ongoing dialogue with
NGOs, clients and regulators to determine
the best way to mitigate our impact
throughout agri
commodity supply chains. Clients who trade
in and/or grow agri commodities are thoroughly
assessed against our Environmental and Social
Risk (ESR) policy, including for the risk
of
deforestation. We encourage clients to use
certification aimed at demonstrating that no
deforestation occurred for the product
in question. Where relevant, clients must
participate in the
Forest Stewardship Council (FSC) scheme
or Programme for the Endorsement
of Forest
Certification. See ing.com for our stance
on deforestation and position on biodiversity.
Contents
Introduction
Report of Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
World around us
ING Bank Annual Report 2021
7
Personal data protection
Customers trust us with their money and
their data, and this is a responsibility we
take very seriously.
Safeguarding customer data and data privacy
are growing in importance on the global
agenda across
sectors and geographies. This is required
by an increasing legislative focus, for
example through the
EU’s second Payment Services Directive
(PSD2) around data sharing and the
General Data Protection
Regulation
(GDPR), with which we align our own
global data protection policy.
Data controllers or processors who want to
transfer personal data outside of
the European Economic
Area (EEA) must ensure that the data subject
is granted a level of protection equivalent to
that
guaranteed by GDPR. In 2020, the Court
of Justice of the European Union introduced
the Schrems II
ruling, confirming that European companies
have to carry out individual assessments
of each data
transfer to a non-EEA country. In 2021,
the European Commission also introduced
new standard
contractual clauses to the GDPR governing
the transfer of data to third countries
such as the US.
Following the Schrems II ruling, ING launched
its own transfer impact assessments and
the necessary
updates of our standard contractual
clauses, all of which should be completed by
year-end 2022.
Financial institutions need to walk the fine
line between privacy protection and fostering
data sharing;
again, countries differ in their approach.
At EU level there is a clear regulatory trend
towards more
data portability and more data sharing.
Under the Digital Markets Act, Big Techs will
be required to
facilitate data portability and we expect the
future Open Finance proposal to establish
PSD2-like data
portability.
Culture and ethics
Trust is integral to our role as a bank. At ING
we adhere to a comprehensive
set of policies and rules
designed to protect our customers and
our bank from conduct that will jeopardise
people’s trust in our
business and our sector. This includes policies
to prevent insider trading, price
fixing and market
manipulation, as well as to detect and prevent
tax evasion, fraud and other financial
crimes.
Everything we do at ING is guided by our Orange
Code, which describes the values and
behaviours that
underpin our way of working, and which puts
integrity above all.
Building on the Orange Code is ING’s Global
Code of Conduct. We encourage employees
to speak up
when they are confronted with unethical
or illegal behaviour and provide a
variety of reporting
channels, including via their manager, local
compliance officer or an ING whistleblower
reporting
officer. ING also has external and anonymous
whistleblower channels. We take great
care to protect
the identity of whistleblowers and the
confidentiality of their reports to protect them
against potential
retaliation.
We believe that trust, integrity and ethical
behaviour are at the core of any reliable
business;
they go
hand-in-hand with satisfied customers.
Yet, with the growth of social media
platforms and the
behaviour of the tech giants that own them
coming under ever closer scrutiny, these
core principles
are also more frequently questioned by whistleblowers
for example,
who release evidence of what
they believe to be unethical practice to regulators
and the media.
The 2021 Edelman Trust Barometer, (surveying
33,000 people in 28 countries), revealed
a crisis of trust
in media, particularly social media, alongside
governments and NGOs, fuelled by widespread
misinformation and a lack of credible leadership
through the pandemic. However, businesses
emerged
as the only trusted institutions
regarded as both ethical and competent.
People clearly expect
businesses to step in and help to solve challenges
such as the pandemic impact, job automation
and
societal problems.
Contents
Introduction
Report of Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Our strategy
ING Bank Annual Report 2021
8
Our strategy
Delivering on our strategy is about creating a differentiating customer
experience that is personal, easy and smart. It’s also about focusing on
the things that matter: being a bank that is safe, secure and compliant;
maintaining a healthy business; data-driven digitalisation to better
meet our customers’ evolving needs;
and jointly building a sustainable
future for all.
ING has a clear purpose: empowering people
to stay a step ahead in life and in
business. This is
reflected by our ‘do your thing’ tagline,
which encapsulates our brand and our
promise to make
banking frictionless so people and businesses
can do more of the things that move them.
Our purpose
guides us in everything we do and is founded
on our belief that it’s our role to support and
promote
social and environmental progress and
at the same time generate healthy returns
for shareholders.
We have a strong – and growing – primary
customer base. We have a digital, mobile-first
mindset and
we’ve put in place the building blocks for
becoming a data-driven digital bank.
We continuously strive
to improve the customer experience, working
in an agile way and guided by our
Orange Code, which
describes the values and behaviours that
define ING.
Even in a digital world, our business
is founded on relationships
and our people are among our greatest
assets. We therefore work to provide a differentiating
employee experience that keeps our people
motivated and engaged. This includes supporting
their wellbeing, providing a safe and healthy
workplace and opportunities to develop themselves
to their full potential, as well as promoting
a
diverse and inclusive work environment where
they feel free to be themselves. For most
of the year,
the majority of our employees continued to
work from home due to ongoing measures
to stop the
spread of Covid-19. As restrictions were lifted
in various countries, we moved towards
a hybrid mode,
giving employees the flexibility to combine working
from home with working from the office. However,
new outbreaks meant they had to remain ready
to adapt to a constantly changing situation.
The trends that have shaped our direction
so far – digitalisation, continuing low
and negative interest
rates, new competitors, changing customer
behaviours and expectations, increasing
regulation and
the growing urgency for action on climate
change and to address social imbalances
– continue to
influence our business and were amplified by
the Covid-19 pandemic.
We’ve also learnt some important lessons
over the past years: some of our projects
became too
complex, went on for too long or resulted
in us sometimes losing sight of customers
and competition.
We’re guided by our purpose and our strategy
in how we respond to these and other
challenges and
opportunities.
As we look to the future, we are now focusing
on delivering with impact so we can truly
differentiate
ourselves from the competition and emerge
from the pandemic in a position of strength
for our
customers, our investors, our employees
and society in general. In the near-to-mid-term,
this means
focusing on:
●
being a safe, secure and compliant bank
●
being a healthy business making healthy returns
●
data-driven digitalisation
●
sustainability.
Safe, secure and compliant bank
Keeping our bank safe, secure and compliant
remains a top priority for ING. This
means fighting
financial economic crime as a gatekeeper
to the financial system, protecting our bank
and our
customers against cybercrime and fraud,
as well as from conduct that will jeopardise
people’s trust in
us, and the safe and ethical use of data
and data-driven models. This year too,
the growing
importance of climate risk was emphasised
in ING’s first integrated climate report.
Protecting our bank and our customers also
means continuously improving our risk culture
and
behaviours. Everyone at ING has a responsibility
to understand, discuss and act on the
many non-
financial risks that banks are confronted with
every day. To this end, we introduced a
risk culture
programme in 2021 that aims to ensure
our risk culture reflects the dynamic
business and regulatory
environment we operate in. By acting with
the right mindset and living up to
our Orange Code and
Global Code of Conduct, we all play a part in
safeguarding ING and our customers.
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Knowing our customers (KYC) and ensuring we
only do business with people and companies
that meet
regulatory requirements and are within
our risk appetite, are essential for preventing
financial
economic crime. Monitoring transactions for
unusual activities and carrying out customer
due-
diligence checks at regular intervals are
an important part of KYC. We also assess
the environmental
and social impact of companies and projects
we finance.
Since 2017, we’ve introduced a number of structural
improvements to enhance our KYC organisation
and activities, including standardised policies
and digital tooling, and further increasing
knowledge and
awareness across the bank. This includes mandatory
e-learnings for all staff and the
KYC and Risk
Academies for more specialist training.
We are building on this with our financial
economic crime
controls maturity programme, which
consolidates all our activities to fight financial
economic crime
(policies, systems and processes) in one holistic
approach.
With the growing number of digital transactions
and employees working from home it’s of the
utmost
importance to safeguard ING and our
customers against cybercrimes such as
digital fraud, phishing
scams and malicious software. ING has
preventative measures in place to test
our resilience against
cyberattacks and attempts to gain unauthorised
access to our systems. We also focus
strongly on
managing our exposure to operational risks
with respect to the availability of our networks
and
infrastructure to ensure we’re always accessible
to our customers and our employees.
Closely related to cybersecurity resilience is protecting
customers’ data and their privacy. To this
end,
ING follows European data protection regulation
(GDPR) and local laws applicable in our
countries. We
consider people’s expectations about how their
data is used and respect their privacy
when processing
it. Local and global data ethics councils help
ensure we use data responsibly.
Healthy business
While the economy picked up in many of
our markets in 2021, to remain a financially
healthy business
it’s imperative that we diversify our income,
optimise capital allocation and scrutinise
costs. Our 2021
figures show we’re on the right track,
with fee income up 17% compared to
a year earlier and
contributing 19% to our full-year income,
which is a crucial component of our
strategy to diversify our
revenue sources in the negative interest environment.
This strong fee income growth combined
with
higher lending volumes contributed to a
4.8% increase in total income compared to
2020, while net
customer deposits grew with €10.3 billion.
We earned higher fees from daily banking
activities in 2021, spurred by economic recovery,
and
benefitted from continued demand for
digital investment products in our Retail
business.
Our results
were also supported by low risk costs. We were
able to release some of the Covid-19-related
provisions
we took earlier and are confident about the
quality of our loan book. However,
we remain cautious
about the impact of supply chain disruptions,
rising energy prices and increasing inflation
on
companies and consumers. We therefore remain
ready to support our clients when they
need it.
Ensuring ING remains
a financially healthy company means there
are also times we have to make
difficult decisions about where and how we
allocate our capital, so that we put
it to work in the places
that provide the best growth opportunities
and viable returns. Unfortunately,
this can affect our
customers and colleagues. In the current environment,
with varying local and regulatory
environments, we believe that we require
sufficient local scale in the Retail markets
in which we
operate to maintain a reasonable franchise.
It’s in these markets that we want to invest
our people,
capital and costs. This led to our decision to
exit selected Retail markets in 2021. Separately,
we
decided to wind down our payment services
provider Payvision,
which we believe was not evolving
rapidly enough to keep pace with the competitive
payments market,
and to stop certain partnerships.
These include discontinuing the consumer-facing
smart money app Yolt to focus instead
on growing its
business-to-business open banking platform Yolt
Technology Services. We also sold our
stake in Dutch
property platform Makelaarsland as the partnership
did not bring what we had expected from
it.
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We had expenses under control in 2021, with
room for us as a digital-first bank to
improve our cost-to-
serve, supported by investments
in further (end-to-end) digitalisation. This
brings benefits to the
experience of customers and colleagues
and improves our operational quality and processing
speed. It
also helps us better absorb the eroding
effects of negative interest rates on our
net interest income.
Data-driven digitalisation
Delivering on our customer promise is all
about creating a customer experience that’s
personal, easy
and smart. And a key driver for this is digitalisation
– a trend that was accelerated by the Covid-19
pandemic and the demand it unleashed
for mobile and contactless banking –
and data, which is the
fuel powering end-to-end digitalisation.
Reflecting the growing importance of technology
and digitalisation in fulfilling our purpose
and
strategy, in 2021, ING appointed a chief
technology officer to its Management
Board Banking for the
first time, having split the role of the chief
operations officer. Digitalisation has
benefits for our
customers, our employees and our business.
Automating tasks frees up time for more
rewarding
activities. It improves efficiency and effectiveness,
and helps to make our bank safer and compliant-by-
design. However, we also have to be cognisant
of those customers who are not (yet) fully
digital and
ensure our products and services remain
accessible to them.
In 2021, mobile interactions grew to 6.2 billion
from 5.3 billion in 2020, accounting for
91% of total
interactions with ING. The number of mobile
payment transactions also grew each
quarter, with 267
million made in 4Q 2021, compared to 154
million transactions in 1Q 2020.
This digital connectivity in turn yields data
and insights that contribute to a more personalised
and
empowering experience, giving customers
even more reason to interact with us. This
is how we believe
we can become an essential part of people’s
digital lives.
Mastering data is essential for this. Data,
used responsibly, helps us understand
our customers better
and personalise our interactions. It is the
main ingredient for the models that inform
our business
decisions, manage risks and keep our capital
in control. We use transaction data to
detect money
laundering and fight financial crime. And
it powers technologies like artificial intelligence,
robotics and
blockchain that digitalise processes and
improve the customer experience.
Examples include using
machine learning to understand why customers
contact us and proactively come up with
solutions
that will reduce the number of calls in future;
virtual assistants to help customers
24/7; and instant
loans, personalised insurance and easy-to-use
investment products.
And there are innovative solutions
for ING and for our customers,
such as Komgo, which digitalises trade finance;
supply chain
management tool Stemly; and Flowcast to
reduce risk and unlock credit for businesses.
To make raw data meaningful it needs to be
sorted, harmonised and put into context.
That’s why it’s
essential to have one common language for
defining our data. We call this ING Esperanto.
In addition,
we’re standardising data models (Esperanto
Warehouse Model) through which we
can store and use
our data. This approach contributes to the
availability, quality, integrity, usability, control
and
governance of our data. We also have
a uniform global customer data management
approach that
facilitates customer self-service and enables
new ways of doing banking by making
it easier to retrieve
information that can be used to propose new
types of billable ING services or new
product bundles.
Global and local data ethics councils guide
our decisions around the use of data based
on ING’s Orange
Code values.
Our customers’
appreciation of ING’s smart and personal
experience is reflected in above-average
NPS
scores in a number of our Retail and Wholesale
Banking markets. Over the past year we
gained
481,000 primary customers, bringing the total
to 14.3 million, 3.5% higher than
at end-2020.
ING is not the only bank with digital
ambitions. Society’s growing reliance on
the internet has
fundamentally changed the way people shop
– and pay. These changing behaviours, along
with the
second European Payments Services Directive
(PSD2), are reshaping the role of banks
in the payments
industry, opening it up to new (non-traditional)
payments providers. To stay a step
ahead in this
competitive digital environment, there’s a
growing urgency to speed up end-to-end
digitalisation and
the associated requirement for operational excellence.
Given the increasing commoditisation of payments
and the need for scale and efficiency to remain
competitive in this fast-growing area, we’re
looking to create a dedicated payments and
settlement
utility within the chief technology office
domain in 2022 that will deliver all payments,
settlement and
liquidity services across ING, subject to
Works Council approval. Until now this
has been done within the
business lines, notably Wholesale Banking,
also for Retail payments. The aim is to build
on our existing
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ING Bank Annual Report 2021
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payments capabilities and further mature,
scale and evolve the way these services
are delivered,
allowing the business lines to focus on meeting
the needs of our customers.
Digitalisation is also empowering customers
to have agency over their finances with
innovative tools
such as personal budget planners, expense
trackers and smart saver tools. Given the
costs and
complexities of cross-border integration, we’re
using our scalable technology to implement
products
locally that meet the needs of our customers,
particularly in areas such as retail investments,
consumer finance and insurance.
Since 2016, we’ve worked on putting in place
a technology and operations foundation
on which to
build a mobile-first digital experience for all
our 38 million customers. This foundation
includes IT
infrastructure, uniform processes, data
management and way of working, and bundling
expertise in
shared service centres that support our businesses
globally. Underlying all of this are technology
platforms such as Touchpoint and OnePipeline.
Designed to create speed, scale, security
and cost
efficiency, this foundation allows us to bring new
products and services to our customers
faster and in
multiple markets using next-generation technologies
and re-useable modular components.
It has also enabled our employees to continue
working from home during the ongoing
lockdowns and
supports their return to the office in
a hybrid mode when that’s possible.
Sustainability
Sustainability in all its forms is one of the biggest
challenges facing society. Climate change
is
threatening our planet and its people, many
of whom also struggle with inequality, poor
financial
health and even a lack of basic human rights.
It’s clear the world is changing and banking
needs to
change with it. We have a responsibility to
society to define new ways of doing business
that align
economic growth with positive environmental
and social impact.
On the environmental side, we believe we
can do this by aligning our lending portfolio
with global
climate goals,
supporting the transition to a net-zero
economy in our own operations and by
actively
engaging with companies to finance the investments
needed, and addressing related challenges like
biodiversity;
on the people side, by steering customers
and local communities towards improved
financial health.
To tackle climate change even faster, we joined
the Net-Zero Banking Alliance in 2021
and increased
the ambition of our Terra approach. We’re
now aiming to steer our lending portfolio
towards net-zero
greenhouse gas emissions by 2050 or sooner.
In our integrated climate report
on ing.com we report on
our progress until end-2020 in the nine
most carbon-intensive sectors, which are our
main focus for
steering. We’re working on pathways for
those sectors to align our targets for
them with our own net-
zero ambitions.
In addition to financing sustainable projects,
we believe we can influence positive
change by advising
clients on their own transition to sustainable
and circular business models, as well as through
innovative products such as sustainability-linked
financing, gaining access to a new range
of
opportunities.
To protect the integrity of this fast-growing
market, we believe these targets should
be
ambitious, recognised industry-wide and
verified by a reputable, independent
party, thereby ensuring
companies tackle the most difficult and
urgent climate issues first.
It’s also about what we don’t finance: we say
no to certain companies and sectors;
for example, new
clients active in palm oil plantations and new
coal-fired power plants. However,
much of the ‘real’
economy still runs on fossil fuels, and some sectors
are further along on their journey than others.
So
rather than withdrawing completely from
a particular sector (such as oil and gas)
– with the associated
impact in terms of jobs and economic fall-out
– we believe we can be more effective by
actively
engaging with that sector to speed up
its transition. For example, we’re leading
the climate-aligned
finance working group for the Net-Zero
Steel Initiative to support the sector’s decarbonisation
and have
signed up to the Global Maritime Forum’s
call to action to decarbonise the shipping
industry.
Climate change also brings risks for ING
and the companies we finance. These
range from physical risks
such as floods and wildfires to social risks
related to displacement, discrimination
and human rights
violations,
as well as transition risks that could lead
to stranded assets when policies, regulations
or
consumer preferences shift towards a
lower-carbon economy.
We’re working to embed the
management of climate risk into our overall
risk management approach and our business
practices.
We also evaluate clients and transactions
against our environmental and social risk framework
to limit
the negative impact of our financing decisions
on the environment and communities.
Climate action requires a concerted collaborative
effort across all sections of society. There’s
a growing
sense of urgency for governments and businesses
to step in and help. While banks can finance
the
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ING Bank Annual Report 2021
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transition, it’s companies that need to make
it happen in their own businesses
and supply chains.
Governments can, and should, direct and
guide this change. We believe the European
Union’s Green
Deal is a step in the right direction.
Stakeholder engagement case: oil and gas in the Amazon
Topic
: The role of banks in financing Amazonian
oil and gas activities in Ecuador and Peru
Stakeholder groups
: NGOs Stand.Earth and Amazon Watch;
hard commodities trading clients
Case
: The Amazon Sacred Headwaters region
in Peru and Ecuador is one of the most biodiverse
places on earth. It protects the climate by
acting as a carbon sink and is home to more
than 500,000
Indigenous people. NGOs have raised concerns
about ongoing oil exploration and production
in this
fragile ecosystem. ING has no asset-based finance
exposure to oil and gas activities here.
However,
we have financed the trade of Amazonian oil.
Outcome
: In 2020, after the NGOs raised their
concerns with us, we decided to no
longer enter into
new contracts for oil and gas exports from
Ecuador. In November 2021, we expanded
this
moratorium to new oil and gas export
contracts from Peru following continuing
dialogue with the
NGOs and a further review of our exposure
to the Amazonian oil trade. We will
continue to monitor
and engage with existing clients on this topic,
in line with our view that we can use
our influence to
steer our clients.
Recognising the importance of environmental,
social and corporate governance (ESG),
we have a
number of initiatives running in the bank
covering our governance structure,
developing a diverse and
engaged workforce and being a trusted
counterparty for our customers and clients.
When it comes to financial health, we’re
embedding our activities directly into our
core business where
we can make a more tangible impact on our
customers.
We’re currently defining actions we can
take
in our Retail markets to help customers
who are financially vulnerable; for example,
to get out of
problematic debt, or to save more. We’re also
bringing our community support
closer to home through
our new community investment programme,
which targets a broader range of
local initiatives that
contribute to an inclusive economy and support
vulnerable groups in the communities we
serve.
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Our business
A sharper focus on digital investment products, daily banking and on
providing a smart, easy and personal customer experience,
boosted
growth in 2021, with more people than ever doing their banking on a
mobile device. Companies also increasingly chose to link their financing
to their efforts to protect our planet and its people.
Diversifying our income is a crucial component
of our strategy in a negative interest
environment, and
in 2021, our fee income grew by 17% year-on-year.
Much of this growth came from an increase
in
daily banking activities on the back of
economic recovery, coupled with good investment
product
revenues from the growing number of new
investment accounts opened and customers
making a
higher average number of trades.
We saw continued lending growth in mortgages
and in the last quarter of the year lending
volumes
increased, a sign that confidence in the economy
is picking up. Still, economic recovery remains
fragile.
Covid-19 continues to be a factor in many
markets with new waves of infections,
geopolitical tensions
and supply chain disruptions, rising energy prices
and increasing inflation impacting
companies and
consumers alike. We therefore continue to be
cautious and remain ready to support
our clients when
they need it.
A differentiating customer experience
Delivering a differentiating customer experience
is what sets ING apart and ensures
customers choose
us rather than another provider. We can measure
how successful we are by looking
at our Net
Promoter Scores, which are an indicator of
customer satisfaction (see
‘
Measuring customer
satisfaction
’
below). To provide a differentiating
customer experience, we have to keep making
banking
as frictionless as possible, providing smarter,
easier and more personal experiences,
and continuously
work to keep getting better at it.
Every interaction with our customers
– whether it’s a call to a contact centre, a click
on a web page, a
conversation or a survey – is an opportunity to
understand their thinking and how we
can improve
their experience. Sometimes it’s small changes
that can make a big impact. This is the idea
behind our
global CX Day where colleagues from across
the organisation work on ways
to improve the customer
experience. In 2021, teams from 27 countries
and 15 Wholesale Banking business units
worked on
around 300 improvements on the day, of which
21 were aimed at corporate clients.
By enabling ING designers and customer journey
experts to work together, we connect
the dots
between insights and delivering real value
for our customers. This is the case
for example in Germany
where our designers joined a cross-industry
effort to make digital experiences more
accessible to all.
Customer testimonials underscore that good
design is good business.
As we’ve digitalised more of our processes, we’ve
empowered customers to take more of their
money
matters into their own hands. For example,
in Germany, Spain, Poland, Italy and
Turkey pre-approved
consumer loans are available for existing
customers via our digital channels,
providing them with
instant access to financing when and where
they need it. Users of our OneApp in the
Netherlands,
Belgium and Germany can update their
contact details, block a stolen bank card,
open a new account
and send payment requests without needing
to visit a branch. Financial advice is also
increasingly
given online.
In 2021, digital interactions with customers
rose to 6.9 billion (up from 5.3 billion
in 2020). In Wholesale
Banking, the number of digital interactions
increased to 11.8 million, of which
49% were via or in
combination with the mobile app introduced
five years ago.
This digital connectivity yields data and
insights that contribute to a more personalised
and
empowering experience, giving customers
more reasons to interact with ING. Getting
the most out of
our data will unlock even more potential to
create a differentiating experience for
our customers. But
there’s still work to be done to gain the most
value from our data, both by moving
data into our data
lakes and by using analytics. Closely linked
to this is the trust our customers and employees
have that
we will protect their data and ensure it’s
not used for purposes they have not
agreed to.
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Retail Banking
For consumers using our Retail Banking services
our focus is on providing a fully digital,
mobile-first
experience that’s smart, personal and easy,
empowering, and seamlessly connects with the
apps and
platforms they’re on.
We want to engage with these customers
on mobile at every stage of the customer
journey. This
means as far as possible each step of our
processes has to be fully digitalised, from
onboarding and
customer due diligence checks to daily banking
and contact centres.
Over the past years we’ve been working to harmonise
the customer experience in our different
markets and created one brand identity.
Now we’re increasingly focused on end-to-end
digitalisation
of our customer journeys to make our products
and services even easier, smarter and more personal.
In 2021, we migrated the last of our Belgian
Retail customers to ING’s OneApp for mobile banking,
which is now available to 17.4 million customers
in the Netherlands, Belgium and Germany,
of which
9.8 million are actively using mobile channels.
OneApp offers a single unified banking proposition
that
is continuously being extended with new functionalities
(e.g. Apple Pay).
In addition, all 9.8 million
active Retail customers in Belgium and the
Netherlands have the same OneWeb online
banking
environment. This is an outcome of the unite
be+nl transformation programme,
which ended in the
first half of 2021.
A positive impact of the pandemic was the
acceleration of mobile banking, with
high adoption by
customers in Turkey (88%), Romania (72%)
and Spain (59%). More than half of
active ING customers –
51% –
were mobile-only at end-2021, up from
40% in 2020.
In addition, mobile and card payment volumes
more than doubled compared to 2020,
reflecting the
increasing use of contactless payments
via third-party services like Apple Pay
and our own Android
solution in the banking app. In Poland
customers can also use their mobile phone
to make contactless
ATM transactions and here the ING app has
more functionality than our website
(unique in the
market). Over two-thirds (68%) of active customers
in Poland use mobile banking.
Another fast-growing digital market is Romania
where mobile sales have tripled since
2019. Customers
here can access a complete offering of digital
products from loans and insurance to
investments,
shopping programmes and virtual cards.
Remote advice
This digital shift also means more customers
are now using remote video advice and
digital self-service
channels. We can connect with customers
across multiple channels through ING’s cloud-based
customer interaction platform for phone,
chat and video contacts. The customer
interaction platform is
used in nine countries to harmonise the experience
and ensure customers receive the same services
everywhere.
In the Netherlands, we saw a year-on-year
increase of video contacts through ING
Beeldgesprek, which
enables customers to speak to an advisor
about a new mortgage or investment
product from the
comfort of their own home.
On average, it is used for around 7,500
customer conversations per month
in the Netherlands and is now also available
in Belgium, Spain, Italy and Germany.
A similar remote
advice service was launched in Turkey
in March 2021 via the ING app. ING is the
first bank to offer this
service in Turkey.
In addition, more customers are using the
chat function on our website and mobile
app to reach out to
us. On average, we handle around 22,500
chat interactions per month in each of the six
countries
where the service is offered.
Given the rise in digital interactions, we
announced the closure of a number of
bank branches. In March
2021, we announced the closure of 69 branches
in the Netherlands by July 2022, and
over the course
of 2021 we closed 59 statutory branches
in Belgium. Our business is built on both digital
and real-life
connections and there are still customers
who prefer to visit us in person. To
make sure these
customers can still get in-person assistance,
in the Netherlands, for example,
we are expanding the
number of ING service points (shops inside
other shops)
to 321. In some countries, like the Philippines,
our Retail offering is entirely digital.
All but a limited number of branches remained
open throughout the Covid-19 lockdowns,
working by
appointment only in most countries. In all our
branches we took precautions to ensure
the health and
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safety of our customers and employees,
such as limiting the number of visitors,
installing plexiglass
screens and making hand sanitisers available.
Financing for consumers
Point-of-sale (POS) lending, where online
merchants offer shoppers the option
to ‘buy now, pay later’,
is a new area offering opportunities for ING.
In June, ING Ventures invested in POS platform
Divido,
which allows its partners to ‘white-label’
its technology. Merchants, banks and
payment companies
can brand the Divido platform as their own
to give their customers the option of paying
for their
purchases in instalments when they check
out online, or in-store. Based on this, ING
launched its first
European POS lending initiative in Spain, where
pre-approved ING customers can pay
in instalments for
online purchase from enrolled merchants.
In addition to a physical POS offering in Turkey,
we launched ING Shopper, a new digital
sales channel
that enables shoppers (including non-ING
customers) to apply for an online loan
at checkout (thanks to
digital customer onboarding) or pay for their
purchases in instalments. It also allows
e-commerce
merchants to grow their customer base by
offering easy payment alternatives.
For ING Orange Extra
programme members there’s an additional
incentive to repay their loans interest-free.
In Romania, we’re encouraging consumers
to become more environmentally friendly
by offering green
loans with favourable rates for electric and
hybrid cars. A pilot programme involving
1,000 loans was
launched in the summer of 2021 as a limited
offer. Around 180 loans were distributed
by year-end and
ING’s share of the market for new electric
and plug-in hybrid vehicle sales reached
11%. Building on
this, in 2022 we intend to add eligible new
green and sustainability products to
increase our social
responsibility impact.
In our mortgages business in the Netherlands,
where around 60% of mortgages are sold
through
intermediaries, we have been making strides
to improve our services, including faster
processing times
for their applications and fewer documents
needing to be provided. In December
2021, intermediaries
named ING as the best money provider
in a survey by the national mortgage
association (Nationale
Hypotheekbond). In addition, we developed
new mortgage propositions for customers
nearing
retirement age, and for international home
buyers, and made it possible for customers
to see their
mortgages in the ING app and use it to make
repayments.
At Interhyp in Germany, the HOME platform
digitalises the mortgage process for home buyers,
advisors, brokers and bank partners. Almost
500,000 Interhyp customers can connect
directly to real-
estate portals, create financing scenarios and
upload documents from their smartphones,
speeding up
the mortgage decision process. Machine
learning personalises the experience by
matching (potential)
buyers to advisors and mortgages for their
needs, and providing property valuations.
Mortgage
advisors and brokers use HOME for processing
mortgages and consultations with buyers
via phone,
video and chat messaging. To complete the
end-to-end digitalisation of the mortgage
process we’re
now focusing on integrating scoring mechanisms
and digital signatures for instant approvals
in just a
few clicks. In 2021, Interhyp’s market share
rose to 11.6% in Germany (10% in
2020).
Case study: balancing customer needs and financial wellbeing
Financial services such as loans, credit cards
and buy-now-pay-later products can
cause financial
difficulties for some people. As a bank, providing
loans is integral to what we do. It’s our
belief that
financially healthy people contribute to a healthy
economy and help drive social progress.
That’s
why we take a responsible approach to
all financing, looking at products like
loans, mortgages and
short-term credit carefully in line with local
market conditions while also balancing the needs
of our
customers.
For example, in Turkey, where inflation is typically
very high, it may make sense to pay for
purchases in instalments and credit card use
is widespread. At the same time we remain
cautious.
ING’s Orange Extra programme encourages
customers in Turkey to use their debit card,
or if they do
take credit, to repay their loans interest free,
contributing to improving financial health.
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Business Banking
Our Business Banking segment is part of Retail
Banking and serves around 1.7 million
clients in seven
markets (Belgium, Luxembourg, the Netherlands,
Poland,
Romania, Germany and Turkey). These range
from self-employed and micro businesses to small
and medium-sized enterprises (SMEs) and mid-
corporate companies. We’re using Touchpoint
(ING’s open banking technology platform)
to digitalise
and standardise our offering for business
clients on ING’s OneApp and OneWeb in Belgium,
the
Netherlands and Germany,
with Luxembourg currently being migrated.
This is helping to drive
efficiency by avoiding duplication of services
and unlocking synergies between the
countries. In
Belgium, all business clients now use OneApp
and over 90% use OneWeb, providing
a consistent
experience for both their personal and professional
financial needs. Further roll-outs are planned
for
Poland and Romania.
Our ambition to serve over 80% of SMEs
digitally is in direct response to the increasing
customer
demand for digital solutions and self-servicing
capabilities. To ensure the continuity of the
quality
customer relationships we have, we are focusing
our efforts on the most important interactions
with
our customers, namely: KYC outreach for
customer due diligence, onboarding, account
opening, and
loan or card requests. Each interaction is built
in a modular way to ensure reusability across
the global
network, while leveraging and scaling local
best practices. Invariably, automation underpins
any
improvement and supplies the speed needed
to improve the customer experience.
Digital transformation of loan requests is
end-to-end and focused on improving
cycle times for the
application process (‘time to apply’), underwriting
process (‘time to yes’) and fulfilment
(‘time to cash’).
For example, Poland offers instant and fully
automated lending journeys for disbursement
of small
tickets in less than two hours, whereas in Germany,
semi-automated (fast-track) journeys for
bigger
tickets are possible within 48 hours.
We can add value for these clients through
digital services that go beyond banking, such
as factoring,
liquidity management, tax accounting and
by using APIs (application programming
interfaces) that
connect to third-party providers.
Wholesale Banking
In Wholesale Banking we believe our differentiators
are our sector expertise, our network and our
people. We continued in 2021 to focus on
deepening client relationships and growing
our franchise by
unleashing our sector potential and delivering
more of our network to our core clients in
EMEA (Europe,
the Middle East and Africa), Asia and the US.
By this we mean partnering global product
and sector
specialists with local expert teams across
our network to meet the increasingly sophisticated
and
complex cross-border needs of the companies
we serve.
This is reflected in deals such as with Korea
Ocean Business Corporation, a government
agency that
supports South Korea’s maritime industry with
ships and liquidity. The successful distribution
of a
$108.3 million out of the total $171.5 million
loan to Korean investors – the third
such transaction for
KOBC in three years – relied on close cooperation
between ING teams in Seoul and Singapore
combined
with our sector and product knowledge and
distribution networks.
Our client segmentation model aligns
our strengths with our clients’ needs and
is an important
element for deepening relationships. ING’s
way of working allows us to respond rapidly
to our clients’
changing needs and to close the gap between
local and global specialists, making an
impact in our
markets. During the year we continued to
pair our sector knowledge and financial
expertise to support
companies with tailored advisory and daily
banking, in line with the client segmentation
model. We
aim to provide relevant advice, data-driven
insights and customised, integrated solutions
that make
our clients day-to-day banking more efficient
and support their business ambitions.
Corporate clients also benefit from gains in speed,
transparency, security and efficiency
created by
technologies such as blockchain and artificial
intelligence. In 2021, Global Finance magazine
named
ING as the best bank for Commodity Finance
in recognition of our efforts to modernise
the market with
digital trade finance initiatives such as Komgo,
MineHub, Vakt, Marco Polo and Contour.
Read more
below in ‘Innovating to stay a step ahead’.
Sustainability is another area where we
can make a real difference for clients. We work
closely with
companies to help them transition towards
net-zero emissions by providing advice, insights
and
financing, including for green projects
and new technology like battery storage.
Recognising the
challenges many companies face in their
transition journey, Wholesale Banking’s
2021 global brand
campaign is built around ‘sustainable finance
for the real world’, which features actual
clients who are
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working to change their sectors or industries
from the inside. In 2021, we also supported
147
sustainability-linked loans (SLLs), where
rates are linked to a client’s sustainability
performance.
These
included several firsts in their sector or industry,
cementing our position as a sustainability-linked
pioneer.
Supporting customers in crisis
The last thing customers want to worry
about in the midst of a crisis is their
daily banking. We aim to
ensure uninterrupted access to our call
centres, online banking and ATMs, and to
make it easy for our
customers to make contactless payments
and arrange their finances from home.
But for some
customers, a bigger concern may be their ability
to pay back a mortgage, loan or credit
card debt.
At the start of the pandemic, ING introduced
a raft of measures worldwide to alleviate
these concerns.
These differed from country to country and
included payment deferrals on mortgages,
personal loans,
credit cards and business loans to small
and medium-sized companies, as well as financing
solutions
to help companies bridge their short-term
liquidity needs. In harder hit sectors
we proactively reached
out to business clients with tailored solutions
for their specific circumstances.
A 2021 Coalition Greenwich survey recognised
ING as one of eight ‘standout’ banks for its
support of
corporate clients during the Covid-19 pandemic.
This included maintaining a strong, coordinated
and
continuous flow of information between clients
and internal departments to address their
clients’
evolving needs at the right time, accommodate
their liquidity needs and allow
more operational
flexibility while managing the potential associated
risks.
Loan demand in 2021 continued to be influenced
by the economic effects of the Covid-19
pandemic.
To support the provision of credit to companies
and consumers, the European Central
Bank modified
the terms and conditions of its third targeted
longer-term refinancing operations (TLTRO
III)
programme. Under these conditions (which
ING has met), banks can borrow from
the ECB at attractive
conditions up to -100 basis points. The programme
aims to stimulate the real economy by providing
funding to banks at favourable interest rates
that they can pass on to their customers
and business
clients.
At the same time, signs of economic recovery
during the year were tempered by other
issues like
supply chain disruptions, rising energy prices
and rising inflation. We continue to support
our
customers and business clients wherever we
can.
Financial health
According to the financial health working
group convened by the United Nations Secretary-General’s
Special Advocate for Inclusive Finance for
Development, having financial health as a
core business
purpose contributes to happier, more engaged
and more profitable customers (larger
deposit
balances, lower delinquency and loan loss),
leading to greater financial resilience
and enhanced brand
and reputation. ING is part of this working
group and our approach to financial health
has been
showcased as a best practice.
In 2021, we renewed our financial health
approach to integrate it more closely into
our core business
in order to increase the impact on our customers
and target our support to the local communities
where we operate.
This includes embedding into our business
some of the activities related to
the Think Forward Initiative
(TFI), which was discontinued in December
2021. ING and its TFI partners believe the initiative
has
achieved key milestones in fulfilling its purpose
to empower people financially through
its research and
insights. Since it was started in 2016, TFI has
supported almost 60 research projects,
19 start-ups and
reached more than 100 million people in
18 countries with insights aimed at improving
their financial
health. We will continue to use our insights
into money management and people’s
financial behaviour
to empower our customers and communities
to make better financial decisions.
In late 2021, we started defining new
ambitions for our financial health approach.
We’ll determine the
specific financial health challenges in our
local markets and actions we can take in
each country to
support financially vulnerable customers,
for example with programmes to save
structurally for the
future or overcome problematic debt. This
reflects our belief that financial health contributes
to a
healthy economy and helps drive social progress.
We are committed to reporting on our financial
health activities and progress systematically
and regularly, as we do for climate action.
Our efforts are
aligned with the Principles for Responsible
Banking and we’re working with the
United Nations
Environment Programme Finance Initiative
(UNEP FI) to contribute to setting a standard
for financial
health impact for our industry.
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We think our biggest impact on improving
financial health can be made through our
products and
services by equipping our customers with
actionable insights, innovative tools
and real-time
information to make better,
smarter financial choices now and in the future.
Financial health is also about financial inclusion.
By this we mean creating equal opportunities
and
making sure our products, services and facilities
are accessible to everyone in a way that best
suits
people’s needs and abilities. Examples of this
include talking ATMs in Poland, the
Netherlands and
Turkey, and an accessible bank card in the
Netherlands and Belgium; the card has a notch
in it so
customers with a visual impairment can
insert it correctly when it’s used. It’s
also designed to support
customers with limited hand functionality.
In Australia we provide phone banking
for customers with
speech or hearing impairments via the national
relay service, and sign language services
are available
in some bank branches in Poland. When it
comes to accessible content on our
websites we’re working
towards the web content accessibility guidelines
standard (WCAG 2.1).
By using our knowledge of digitalisation
and insights about money we’ve created innovative
tools that
help our customers manage their finances
and improve their financial health.
Among these are a
personal budget planner and categorisation
tool that helps customers in Germany
to plan and control
their expenses better and discover potential
savings and a ‘Smart Saver’ tool that
helps customers in
Poland build their savings with automated
transfers to a special account.
Customers in Romania, and,
since early 2021, in Germany and Belgium,
can use their banking app to
access Dealwise, ING’s smart shopping platform.
Dealwise promotes healthier financial
behaviour and
encourages users to save on their daily spending
by gathering the best shopping deals
and giving
them cash back on purchases. More than
1.1 million users have generated €30 million
in transactions
so far, which in turn has helped customers
save almost €1.72 million in cashbacks.
Merchants too can
benefit from the insights they gain into
customer behaviour on the platform.
Over 1,100 brands
offering fashion, accessories, electronics
and even travel deals have partnered
with Dealwise.
In the Netherlands, ING has a similar programme
where customers can earn points from
their daily
banking activities, which they can use in ING’s
online shop to buy a wide range of fashion,
beauty,
household and other products at discount prices.
Initiated in 2006, ING Points was added
to the
OneApp in 2021, delivering a turnover of
€75 million on 2.4 million products sold to
812,000 customers.
As a result of our financial health activities,
72.2% of our customer base felt financially
empowered by
ING in 2021 (71% in 2020). In absolute numbers
this is 27.5 million people, compared
to 27.8 million
people in 2020, due to the discontinuation
of our Retail activities in Austria and the
Czech Republic in
2021. More details on the scope and reporting
methodology can be found on ing.com.
Achieving our business goals
Achieving our business goals is about growing
our primary relationships by providing
a differentiating
experience that’s safe and secure while driving
capital and cost efficiency. We achieve this
by
deploying our resources effectively on activities
that deliver sustainable returns,
diversifying our
income,
driving an engaging and personalised experience
through end-to-end digitalisation and
data
analytics, and developing new propositions that
meet our customers’ needs in areas such
as
insurance, investments and consumer lending.
To really stand out, we need to focus on
our strengths.
We have strong brand recognition.
A higher-
than-average Net Promoter Score (NPS) in
many of our markets is indicative
of customer satisfaction.
We’ve built a solid Tech foundation for
digitalising and innovating to improve
the customer experience,
make processes more efficient and effective,
and bring new solutions to our markets
faster. And not
forgetting our people – even in a digital world
ours is a relationship business – our people
are crucial to
our success.
Healthy business
To remain a financially healthy company,
we have to put our people, capital
and investments to work
in markets and activities that provide the best
growth opportunities and sustainable returns.
Retail
markets where ING has mostly savings
and current accounts put pressure on
our business model,
especially in the negative interest rate environment.
Rather than remain in markets where we
do not
see growth opportunities, we prefer to reallocate
our resources to markets where we
are growing. This
led to our decision in 2021 to discontinue
our Retail Banking businesses in several
countries that we
believe have insufficient scale to maintain
a reasonable franchise.
In Austria, we transferred our Retail operations
to bank99, the digital banking arm of the
Austrian
postal service, and in the Czech Republic around
half of ING’s Retail customers and
60% of client
balances were transferred to Raiffeisenbank.
In December,
following a strategic review of our activities,
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we announced we would also exit the French
Retail Banking market where ING has been active
as an
online bank since 2000. In all these markets
our Wholesale Banking activities will continue.
Diversifying our income: investment products
With customers looking for alternatives to
savings accounts in the negative interest
market, we’re
empowering them with smart digital investment
tools like My Money Coach in Italy, Naranja+
in Spain
and Easy Invest in the Netherlands. At the
same time, growing our fee and commission
income, and
increasing its share in our overall income mix,
remain very important as our net income
is impacted by
the negative or low interest rate environment.
In 2021, fee income rose 17% in 2021,
contributing 19%
to our full-year income.
In 2021, we introduced Komfort-Anlage
(Comfort Investing) in Germany, a low-threshold
entry point
for new investors. From as little as one
euro, customers can invest in one of seven
ING World funds
according to their risk appetite. Komfort-Anlage
is based on ING Spain’s Naranja+ product
and owes its
scalability to reusable Touchpoint components
that enable it to be rolled out in
other countries. Since
its introduction in June 2021, it has attracted
10,000 investors and €120 million in assets
under
management. Of these customers, 85% have
a recurrent investment plan.
Also in Germany we offer securities savings plans
that allow customers to invest small
amounts in over
1,800 securities (shares, exchange-traded funds
or mutual plans). More than half a million
savings
plans were activated in 2021, growing this
service from 0.6 million savings plans at
end-2020 to 1.3
million at end-2021. For more experienced
investors, we have self-directed accounts
as well as robo-
advice from our fintech partner Scalable Capital,
which has attracted more than €1.6 billion
in assets
under management.
This demand for digital investment products
helped to boost our fee income to record
levels in 2021,
attracting €79 billion in assets under management
(AuM) in Germany at year-end (39% higher
than
end-2020) and close to €15 billion in Spain (€12.3
billion in 2020). In Belgium and the Netherlands,
investment product balances increased respectively
to €42.6 billion (from €36.8 billion in 2020)
and
€40.1 billion (from €32.2 billion in 2020).
Insurance
In various Retail markets ING has teamed up
with insurance partners to offer our
customers insurance
products via the ING app or website, based
on the local needs within those markets.
With insurer NN
we’re offering insurance linked to loans
in Belgium, Poland, Romania, Turkey
and Spain, as well as a
range of standalone non-life insurance policies
in Belgium, the Netherlands and Poland.
In some
countries we also team up with other insurers
for additional protection needs.
For example, in 2021 we
introduced a new health insurance product
in Romania and device protection
in Turkey, as well as
distributing pensions and offering insurance-based
investment products in several countries.
Through our bancassurance offering in partnership
with insurer AXA we’ve launched 20 products
in five
countries to date. Given the reduced number
of markets now covered by the partnership
(following
ING’s exit from the Retail Banking markets
in the Czech Republic and Austria),
which decreases the level
of scalability, we announced our intention in
November 2021 to refocus the scope of the partnership
from a central platform approach to the local
delivery of existing insurance propositions.
Daily banking and savings
Everyday Roundup (ERU) is a digital product
that aims to make saving simpler
at a time when
customers may be financially vulnerable (due
to the economic disruption caused by
Covid-19). Used by
more than 1 million customers in five countries
(Poland, Australia, Germany, Romania
and Turkey), it
works by rounding up every transaction on
a customer’s current account and automatically
transferring the difference to their savings
account. ING in Australia also has
a roundup option for
mortgages while in Germany customers
can use the service to make donations
to support the UN’s
sustainable development goals. The next step
will be investments.
Increased emphasis on fighting financial
economic crime has necessitated investments
in areas like
know your customer and data protection over
the past years with the aim of ensuring
our
relationships with our clients meet the highest
due-diligence standards. In light of this,
ING introduced
a banking service fee for Wholesale Banking
clients in 2021. It includes access to our CoorpID
digital
vault where they can store, manage and share
their know your customer documentation,
to make this
often time-consuming process easier.
Although there was some resistance to
the fee, many clients see
the benefits of making banking safer and more
secure.
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Similarly, banking fees for Retail customers
in the Netherlands and Belgium were
increased in 2021 in
the context of higher regulatory costs combined
with increasing investments in digitalisation,
with a
further rise announced for Dutch customers
from January 2022.
In Germany,
where we introduced a
monthly fee for current accounts linked
to non-primary customers, we will
also now charge a €0.99 fee
a month for the girocard debit card from
March 2022, reflecting a trend towards payment
cards that
are more suited to e-commerce and contactless
payments. The fee will apply to all
new customers.
Existing customers will be approached for
consent.
The negative interest rate environment
is disadvantageous for savers and for
banks. Some banks,
including ING, are already charging a negative
interest rate fee for savings above a
certain threshold.
At ING, this threshold is currently set
at different levels across our euro markets,
depending on local
market dynamics and regulatory frameworks.
In October 2021,
we reached an agreement with the Dutch
consumer association to compensate
certain Dutch Retail customers for past interest
charges on revolving consumer loans that
allegedly did
not sufficiently follow market rates. We
expect any such compensation to be
paid before the end of
2022. Read more in the ‘Legal proceedings’
paragraph of the additional notes to the
consolidated
financial statements.
Digitalisation
We aim to digitalise our processes in order
to increase productivity and decrease the
time customers
have to spend on banking. The Covid-19
pandemic accelerated the shift to mobile
and online banking,
with customers increasingly using their phones
to connect to apps for shopping, making
contactless
payments, opening a bank account and getting
instant financing.
Although ING has been a frontrunner
in online banking (we were one of the first
direct banks in
Europe), we’re no longer the only bank with
digital ambitions. As we saw during the
many Covid
lockdowns, the demand for digital and contactless
banking has grown exponentially, making
digital
delivery an essential requirement for
all banks. Here, operational excellence
matters.
Operational excellence leads to a better customer
experience.
It ensures effective and efficient
processes that improve productivity and
enable us to deliver high-quality services more
easily.
Operations management is therefore one of
the Big 6 capabilities ING has identified for
success, along
with related capabilities such as customer
experience, non-financial risk management
and data
fluency. Looking back at past years, we’ve
learnt that by sharing our expertise and
strengths across
our countries we can be more effective in reducing
duplication of business services and
processes,developing new solutions and achieving
end-to-end digitalisation.
ING Business Shared Services BV (IBSS) is
a fully owned service company employing
around 13% of
ING’s global workforce. Its shared service
centres in Bratislava, Manila, Poland
(Katowice and Warsaw)
and Bucharest contribute to ING’s digital transformation
and cross-border scalability by providing
shared operational and technology services
in areas such as business operations,
tech development,
non-financial risk and compliance, KYC,
data analytics and modelling.
Scalable technology
Given the costs and complexities of cross-border
integration, we stopped the Maggie transformation
programme (that aimed to standardise our
Retail offering in four countries) in
late 2020. Instead we’re
focusing on using our scalable technology
– shared data lakes, infrastructure
and reusable app
components–
to implement global products locally.
In this way we can build on what we already
have
and scale it to our markets, adapting it to
local
needs as necessary.
To enable us to build and share standardised
IT components and reusable services we
developed
Touchpoint, our open banking technology
platform. It provides access to 31.8
million customers (over
80% of our customer base) using common
architecture and shared application programming
interfaces (APIs).
Related to Touchpoint, ING has built a private
cloud (IPC) where we store and manage applications
and
data such as channel applications, core bank
systems and other banking applications.
Given its
flexibility and scalability, cloud computing
is an important component for scaling
our digital
capabilities. To keep up with global usage, scalability,
availability and delivery speed, ING uses
public
cloud computing in addition to the IPC.
By end-2021, 34.2% of our global infrastructure
was running on
IPC (up from 25% in 2020) following the migration
to IPC of ING in the Netherlands, Belgium
and Spain.
One of the many advantages of a cloud-based
infrastructure is that security-patching
of databases
can be done globally, with near-to-zero
downtime. This new feature was added to
IPC in 4Q 2021 and
in the future will allow for the rapid global
roll-out of other new cloud-based improvements.
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As an early adopter of cloud technology, ING
joined forces with other banks in 2021
to establish the
European Cloud User Coalition (ECUC). It aims
to develop common security standards
and best
practices to mitigate security risks and address
regulatory requirements around data privacy
and
sovereignty.
To consistently manage and protect data
across ING we have built a set of data repositories:
the data
lake. By using a universal data language called
ING Esperanto we make it easier to share
and use data
across the company.
OnePipeline is the third element of our scalable
technology, providing engineers with
a consistent and
secure capability to develop, test and deploy
fully automated software across
ING. Around 74% of our
engineers were using OnePipeline at the
end of 2021.
Scalable technology allows us to create global
and local propositions that can be shared
across our
business quickly and easily. We are focusing
on products in three areas: investment products,
consumer finance and insurance.
Open banking
In an age of disruption and changing customer
expectations, banks have to keep adapting
their
services to become safer, more personalised,
easier and more accessible for customers. Moreover,
the
introduction of the second European Payment
Service Directive (PSD2) in 2019 changed
the
competitive landscape of banks dramatically,
opening it up to non-traditional payments providers.
This
has created an uneven playing field disadvantaging
more heavily regulated traditional banks.
At the
same time, it’s the catalyst for banks to rethink
traditional products and services and create
new
customer experiences using application
programming interfaces (APIs).
More than compliance or regulated access
via PSD2, open banking is about connecting
with customers
directly or through a third party (API banking)
and adding value with new banking
and ‘beyond
banking’ propositions (embedded finance).
Additionally, there are opportunities for
Banking-as-a-
Service (BaaS), which enables businesses to
integrate banking processes into their
own non-bank
products through a secure and regulated infrastructure.
Open banking offers opportunities for us to
meet the needs of our customers by
connecting to the
apps where they’re shopping and socialising.
This is supported by our open banking platform,
which
provides the capabilities we need to establish
secure, scalable, compliant and uniform
connectivity
with external parties using APIs. These
API-based propositions can often be used
in multiple ways in
new and traditional channels, apps, and platforms.
At the same time, there are inherent risks to
sharing sensitive data and it’s critical to
protect the
privacy and security of our customers’
data. Each participant in the open banking
ecosystem has a
duty to treat data with the utmost care
and to educate users on data permissions
and privacy. Under
European data privacy laws explicit consent
is required from the account holder
before sharing their
data. For consumers, where their data
is stored could also be a concern.
API-enabled services such as Minna (subscription
management via OneApp) and small
and medium-
sized enterprise (SME) loans via Amazon’s
sellers platform showcase how open
banking is digitalising
our customer and partner relationships. The
pandemic accelerated the need for
end-to-end
digitalisation and we’ve found that these ambitions
go hand-in-hand with realising our open
banking
objectives. By breaking down our back office
into modular, reusable, real-time services
we can
ultimately offer them externally to our
customers and partners. Internal applications
using API services
to exchange data are built with this external
reuse in mind. The recent go-live of
our transaction
screening API shows how we’re putting this
vision into practice. Now, payment
service providers can
integrate ING’s capabilities for screening transactions
into their systems of choice or customer
journeys. We believe open banking and
APIs are a great way to foster innovation,
accelerate
digitalisation and integrate and co-create with
others, and are pursuing this across the bank
and with
our partners.
Given the rising demand for open banking
services, we decided in 2021 to discontinue
smart money
app Yolt and focus our attention on growing
its business-to-business open banking platform
Yolt
Technology Services. It provides businesses
across Europe with the APIs they need
to connect to users’
bank accounts and initiate payments. In this
way we are helping to speed up the adoption
of open
banking and empowering businesses to grow.
Yolt Technology Services offers businesses
API coverage
to over 95% of bank accounts in the Netherlands,
France and the UK, and its API infrastructure
can
connect to 80% of bank accounts in Belgium,
Italy and Spain. By end-2021, it had made
over two
billion API calls – single uses of its API.
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Payments
Open banking has changed the way people
pay, giving consumers more options
and opening up this
service to non-traditional providers. This has
accelerated the trend for instant payments
executed in
real time 24/7, 365 days a year. ING makes
it possible for customers to make instant
payments from
the Netherlands, Belgium and Spain to the
rest of Europe and is expanding this capability
to other
countries. Customers can instantly request
and receive money from friends
and family via mobile
phone apps. We’re now working with major Dutch
retailers to extend peer-to-peer payments
(apps
enabling users to request and receive payments
instantly) so merchants can send their
customers a
mobile payment request on delivery of
goods.
To speed up international money transfers,
ING uses SWIFT gpi (global payments
innovation) in 11
countries.
SWIFT – the Society for Worldwide Interbank
Financial Telecommunication – facilitates
payments between financial institutions. Around
80% of SWIFT gpi transfers are completed
on the
same day, as compared with three to five
days previously. Our ‘proof of payment’
module on
InsideBusiness now includes gpi information
that allows corporate clients to track
and trace their
international transfers, including fees and FX
conversions made during processing through
our network
of correspondent banks. For our Business Banking
customers, we provide a bulk payment functionality
API that makes it possible to pay up to 5,000
recipients simultaneously and which
supports multiple
strong customer authentication for all types
of payments requiring two or more
authorisations.
We announced in October 2021 that we are phasing
out the services of our Payvision subsidiary
by the
second quarter of 2022. Acquired by ING
in 2018 to grow our share in the e-commerce/online
merchant payments market, Payvision offers
business clients an omni-channel payments
platform.
However, this market has evolved faster than
we anticipated, and is increasingly
competitive and
capital intensive. After thoroughly evaluating
all options we concluded it’s not feasible
for ING to
achieve its ambitions with Payvision. Until
it’s wound down, Payvision will continue
to fulfil its
contractual obligations and assist clients
in the move to a new service provider.
ING will continue to
serve business clients in the offline point-of-sale
market and in e-commerce payments, for
example
through providers such as iDeal in the
Netherlands. Given iDeal’s dominance in
the local payments
market, ING and other Dutch banks decided
to discontinue the Payconiq payments
app in the
Netherlands from January 2022. Conceived
by ING in 2014 and a stand-alone company
since 2018,
Payconiq remains active in other markets
such as Belgium (via ING’s OneApp)
and Luxembourg.
Earning the primary relationship
Earning the primary relationship is an important
driver for profitable growth. It leads to
deeper
relationships, greater customer satisfaction
and ultimately customers choosing us for
more of their
banking needs. We want our customers to
do more than just some of their banking
with us; we want
to be their first partner, where they deposit
their salary, handle their payments, manage
their assets,
take out loans and do most of their other
banking business.
In Retail Banking, primary customers have
at least two active ING products. One
of these should be a
current account into which they deposit regular
income.
In Wholesale Banking, these are
clients with
lending and daily banking products and
at least one other product generating
recurring revenues.
ING grew the number of primary customers
by 481,000 to 14.3
million in 2021, 3.5% higher than
at
end-2020.
Measuring customer satisfaction
One of the ways we measure our progress
is through the Net Promoter Score
(NPS), which indicates
customer satisfaction and loyalty (whether
they would recommend ING to others)
compared to
selected peers in each market. 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
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.
Retail Banking
Based on a rolling average of our NPS scores
in 2021, ING ranked number one at
year-end in five of our
11 Retail markets (six out 14 markets in
2020, which then had included Austria,
the Czech Republic and
France). In four of these we are more than
10 points ahead of our nearest competitor. In
Australia,
Spain and Germany we widened the gap on the
number two player and maintained our
number one
position in Poland and Romania. In the
Netherlands, where we rank second, our
NPS score improved to
close the gap on the top scorer, while in
Italy we moved up two positions in the
ranking.
Business Banking
In this segment, serving self-employed and
micro businesses, small and medium-sized
enterprises and
mid-corporate companies, we measure
NPS in four markets (on a scale of -100 to +100):
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●
Netherlands
: NPS for mid-corporate clients improved to
+30.5 (from +18.4 in 4Q 2020), well
above our competitors (-19.2), based on feedback
from clients who do business
with multiple
banks. In particular clients appreciate ING’s sector
knowledge combined with regional presence,
with satisfaction highest in the services, industry
and transport and logistics sectors.
For Real
Estate Finance clients there is a relational
and transactional survey in place with a healthy
+39
outcome in 2021. However, there is room
to improve the digital customer experience
for small
and medium-sized businesses and for self-employed
clients where NPS respectively declined to
-39 (from -26 in 4Q 2020) and -23 (from
-18).
●
Poland
: combined NPS for SME and mid-corporate
clients improved to +47 (from +43 in 4Q
2020) and the relationship NPS for the self-employed
and micro segment the NPS was +49.1.
●
Romania
: NPS for mid-corporates rose to +64
(from +54 in 2020) and for micro clients
and SMEs
it increased to +51 (from +43 in 2020), putting
ING in joint first place in both categories.
●
Belgium
: NPS for mid-corporate and institutional
clients (MCIs) improved to -33 in December
2021 (from -40 in January 2021), with an
average score of -31 over the year.
The NPS for self-
employed and micro clients (SEMs) decreased
to -55 from -32 at the start of 2021, scoring
an
average of -47 over the year. This can be
attributed to several factors including a new
loans
policy, branch closures,
proximity to clients and ease of contact.
Wholesale Banking
In Wholesale Banking we measure both relational
and transactional NPS. The relational
NPS
programme runs in 32 Wholesale Banking
markets and is a qualitative measure
of client satisfaction
and how likely they are to recommend ING.
The transactional NPS programme measures
satisfaction
with regards to specific transactions and services
and the ease of doing business with
ING. This is run in
23 countries.
In 2021, ING’s relationship NPS score rose
to +59.2 (on a scale of -100 to +100),
from +56.3 in 2020, and
26% ahead of the industry average of
+46.9 (+49 in 2020). The response rate
increased to 62% from
60.4% and is based on clients representing
more than 55% of Wholesale Banking revenue.
In three of
our four client segments (Platinum, Gold
and Silver) NPS was higher; among Sapphire
clients it
retracted by 5% to 64.7.
Six out of seven sectors registered stronger
NPS, with Financial Institutions
joining for the first time in a pilot programme.
The higher scores suggest that
clients appreciate our
approach and that Wholesale Banking is succeeding
in its strategy to focus on core clients, with
as a
result more resources allocated to a smaller
group of clients and higher client satisfaction.
On the transactional side, the number
of invites increased by ~68%
compared to 2020, with an overall
response rate of ~45%. A Client Services survey
in June 2021 included
a Transaction Services-related
question. Here the response rate was ~48%
and client services/transaction services
scored above
target with an overall satisfaction of 8.6
and a customer efforts score (measuring
ease of doing
business with ING) of 8.5. Also in June 2021,
a Trade Financial Services survey was carried
out in EMEA
and APAC, with these clients rating ING
above target with overall satisfaction
of 8.8 and customer
efforts score of 8.6.
External recognition
ING’s digital leadership, customer experience
and innovative products were recognised
with several
‘best bank’ awards in 2021:
●
Best bank in Spain at the 2021 HelpMyCash
awards. ING was rated 4.4 out of 5 by customers.
The sector average was 3.6.
●
Euromoney named ING best bank in Poland
and best bank for SMEs in Central and Eastern
Europe, based on digital leadership, client-centricity
and support for businesses during the
pandemic.
●
First in the Polish Banking Stars 2021 ranking
by financial newspaper Dziennik Gazeta Prawna
and PwC for the sixth consecutive year.
●
ING in the Philippines named best digital bank
for customer experience (Digital Banker
magazine), and best savings bank, fastest-growing
retail bank and most innovative mobile
savings app (Global Banking & Finance Review).
●
Recognised as most supportive bank through
the Covid-19 crisis by trade commodity
finance
media outlet TXF.
Innovating to stay a step ahead
Innovation is a prerequisite for remaining relevant
to our customers and living up to our purpose
in a
fast-changing world. It’s how we can create new
and differentiating experiences that
deepen our
engagement with customers and improve
our own operational excellence. Ever
since the introduction
of direct banking in 1997, ING has been finding
ways to make banking easier, smarter
and more
personal for our customers. Many of these
advances stem from twinning the latest
technologies with
data insights. Growing demand for digital solutions
is also spurring new ideas.
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To increase the speed and impact of our
innovation, at the start of 2021 we merged
all of our
innovation activities into one business area
called ING Neo, which reports directly to the
chief executive
officer. This includes our beyond banking
and platform activities in Retail Banking,
Wholesale Banking
innovation, the chief innovation office, ING
Labs and our investment vehicle ING Ventures.
We’re concentrating our innovation efforts
on five value spaces chosen for their
relative market size,
potential to disrupt, and ING’s right to play
in those markets: housing, trade, disrupt
lending, financial
health, and safe and compliant. Closely related
to our core business, these value spaces
address trends
that we believe will impact our customers
and our business in areas such as customer
convenience
and access, sustainability, automation and
digitalisation.
We’ve learnt that it takes time for an innovation
to be widely adopted and reach the scale
it needs to
have an impact. This requires longer horizons
and different ways of measuring success
while still within
a reasonable time frame for ING. New, non-traditional
products and services also require
a different
approach to evaluating risk. ING Neo therefore
has its own second line of defence (which
reports into
the group line), ensuring compliance by
design and the right risk and control frameworks
for our
innovation activities.
How we innovate
Innovative ideas come from inside and outside
ING. We encourage our employees to think
creatively
and turn their ideas into opportunities through
hackathons and initiatives like CX Day (to
improve
customer experience). In addition, ING’s
Innovation Summit aims to raise awareness
among all
employees of innovation trends and activities,
and innovation ambassadors link our
activities more
closely to our business goals. In November,
ING’s second virtual Innovation Summit
was streamed to
26 countries and reached more than 2,000
users.
ING also has its own customised innovation
methodology called PACE, which emphasises
customers
validation to ensure we’re only developing
what they really want. So far over
12,500 employees have
been trained in PACE. In 2021, we set up
a digital PACE Academy to move the training
from the
classroom to online and reach more
colleagues. The PACE programme was recognised
at the 2021
Stevie Awards for Great Employers in the
categories Skills Training and Problem-solving
Training.
Partner,
invest and build
No-one knows what the future may hold, nor
what technologies may emerge and we
recognise we
don’t always have all the knowledge and skills
in-house. That’s why we partner with
academic
institutions like the Dutch Technical University
of Delft on technologies like artificial intelligence,
with
consortiums like R3 on blockchain initiatives
that are modernising commodity and trade
finance, and
with fintechs and others who look at banking
from a different perspective.
ING Labs is our incubator for potential scale-ups
where we work with various partners
to validate and
build new businesses for ING and our
customers, such as Stemly, an AI-driven forecasting
tool for
supply chain managers, and Cobase, a cloud-based
multi-bank platform for corporate clients.
One of
the first initiatives to be incubated in our Singapore
Labs in 2018, Stemly was spun out as an
independent venture in 2021, while Cobase,
which was spun out earlier, became
a minority
shareholding in 2020. We believe combining
corporate innovation with entrepreneurial
experience
contributes to a higher success and greater
impact than either partner could achieve
alone. In our four
ING labs in Amsterdam, London, Singapore
and Brussels we currently have 18 initiatives
in the
innovation funnel in our five value spaces.
Global Finance magazine named ING
as one of the best
bank-sponsored innovation labs in its 2021
Innovators awards.
Through ING Ventures, our corporate
venture capital fund, we make minority
investments in early-
stage companies with a strategic relevance
for ING. These are mainly fintechs
developing disruptive
technologies that will ensure our customers
get access to best-in-class services. In
2021, the size of the
fund was €350 million.
In total, ING had 114 active fintech partnerships
at end-2021, of which 17 are among
34 ING Ventures
investments. These include eXate (data privacy
and security fintech); Divido (buy-now-pay-later
platform); Flowcast (AI-powered credit decisions);
PRODA (commercial real estate automation);
and
Stemly (AI forecasting tool for supply chain
managers).
In the housing value space, ING partnered with
property valuation firm Sprengnetter on
Scoperty, a
digital marketplace that aims to make Germany’s
real-estate market more transparent. With
valuation
estimates for more than 35 million residential
properties,
it creates a ‘pre-market’ where buyers can
make a bid directly to the seller before the property
is officially listed.
Scoperty also provides related
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services such as sales support and mortgage
qualification, which is aligned with
ING’s independent
mortgage brokerage platform Interhyp,
offering access to 400 lenders.
In the safe and compliant value space,
Blacksmith KYC and CoorpID are two initiatives
being
implemented globally for KYC processes.
Blacksmith’s digital policy management
is designed to help
banks digitalise and accelerate know your
customer workflows, provide insight
into industry practices
and better monitor financial economic crime
risk exposure, while CoorpID gives
corporate clients a
platform to easily store, manage and synchronise
KYC documents.
For our Business Banking clients, various fintech
partnerships are opening up new sources
of financing
to help companies find the right loans
for their businesses. Countingup is a mobile
banking app for self-
employed entrepreneurs and freelancers
that combines accounting and banking features
into one
seamless solution
to reduce operating complexity and cost.
Not all our collaborations lead to new products
or services. We’ve stopped over 90 partnerships
so far,
mostly after unsuccessful or unsatisfactory
proofs of concept.
Distributed ledger technology and blockchain
When it comes to distributed ledger technology
(DLT) and blockchain, ING was an early adopter
of the
technology and is considered an industry
leader, consistently ranked among Forbes magazine’s
top-50
companies active in this area (for the third
consecutive year in 2021).
Komgo – previously called Easy Trading
Connect – is a former ING Innovation
Bootcamp winner and
one of the first to use DLT to digitalise
commodities trade financing in 2017. In
May 2021,
ING-backed
Komgo raised CHF26 million (€24.9 million)
in its third funding round from a consortium
of investors
including ING Ventures. Spurred by demand
for digital services during the pandemic,
Komgo saw a
50% increase in trade finance transactions
on its platform and a 65% increase
in clients in the past
year. Other DLT solutions include Contour,
enabling letters of credit to be processed
in under 24 hours
(from 10 days); and HQLAx, facilitating trades
in high-quality liquid assets, which was
commercially
launched in December 2020.
We amplify our DLT impact by addressing how
our solutions can solve key problems in the
finance
industry and work with others to produce open-source
assets that can serve and influence the wider
community. Among others, ING contributed
to the development of open-source blockchain
platform
Corda (with R3) and Ethereum, as well
as zero-knowledge proof solutions to improve
privacy and
security of DLT-based transactions.
We continue to support the adoption of the
technology in different areas of the bank
and to explore
additional opportunities as client demand, regulation
and the technology evolve.
Data, AI and advanced analytics
In our competitive industry, data analytics
stands to give us an edge. It goes
hand-in-hand with
digitalisation and we can use analytics to
create actionable insights about customers
and improve our
daily decision-making. Advanced analytics
techniques (machine learning and big
data) can be applied
to automate processes, making them faster
and better; create better products and
services; and fight
financial crime. In 2021, we initiated a programme
to further develop and strengthen our
global
analytics strategy and align it with our business
goals, moving analytics closer to
customer
experience-related activities and creating
a global community of data and analytics
experts.
ING Analytics delivers solutions in areas such
as customer interaction, smart pricing strategies
and risk
management, innovation, anti-money
laundering, people analytics, automation
and for Wholesale
Banking. In 2021, we further invested in an
analytics platform to service the analytics needs
of ING. It
has over 2,000 users working on more than
300 unique projects across the bank.
One of the ways we use AI to improve the
customer experience is with chatbots,
which are available
24/7 to answer questions and interact with
customers. In Germany, our virtual assistant
pING was able
to answer 7.6 million customer queries in
2021; the recogniton rate for current
account questions, for
example, improved to 95.7% from 94.2% the
previous year. INGo in Turkey has
a 92% accuracy score
on customer queries and can also assist
with money transfers, loan applications,
changing passwords
and locating the nearest ATM. Since its introduction
in 2018, it has been further improved and
‘humanised’ to make small talk and jokes with
customers and proactively reach out on birthdays
and
other special occasions. In 2021, INGo had
around 900,000 users in 5.1 million
chat sessions and
approved 476 million lira worth of loans.
Some of our fintech partnerships enhance our
data capabilities, such as London-based
data security
company Exate, which makes it possible to
securely share data with greater speed
and efficiency. This
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will allow ING to test new software on real data
to ensure effectiveness in production
and enable closer
collaboration with external partners across
borders.
Other solutions delivered by ING Analytics
in 2021
were Nadia, a robot that automates repetitive
tasks in our non-financial risk database
in seven ING
countries and SAIO, which automates financial
and other administrative processes for business
customers in Poland.
Sustainable business
Being sustainable is not just about reducing
our own environmental footprint.
We see it as an
opportunity to use our experience and knowledge
to support our clients on their own sustainability
journeys. Our biggest impact is through
our financing, via the loans we provide. That’s
why in 2018 we
committed to steering our lending portfolio
towards meeting the well-below
two-degree goal of the
Paris Agreement – an ambition we sharpened
in 2021 when we joined the Net-Zero Banking
Alliance.
We use our Terra approach to align our portfolio
with our ambitions, as well as to measure
and report
on our progress.
Recognising the merit of disclosing absolute
greenhouse gas emissions we started
doing so in our
integrated climate report published in September
2021 (available on ing.com). This report
also gives a
broader overview of all the elements of our
climate action approach, including how we
assess climate
risks and take action to mitigate them.
Terra
approach
Terra helps us to steer our portfolio away from
high-carbon technology towards the new
low-carbon
technology needed to reach these net-zero
goals in the nine sectors most responsible
for climate
change. These are power generation, fossil
fuels, automotive, shipping, aviation, steel,
cement,
residential mortgages and commercial real
estate. To measure our progress, Terra
uses the most
appropriate methodology available per sector,
given that each has its own transition pathway,
and
that some sectors are further along on their
journeys.
One of the methodologies is PACTA for Banks,
which ING co-created with 2DII (the
2° Investing
Initiative). 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
to use in the future. For
example, in the automotive sector we measure
the number of internal combustion
engines our clients
are making compared to electric vehicles
and based on science-based transition pathways,
we can
then see what needs to shift, by how
much and when. This is where financing
comes in, and where ING
can have an impact
in the real economy.
Reporting process
The process for reporting on Terra consists
of a number of steps, most of them
carried out by ING’s
Global Sustainability department in conjunction
with colleagues in the front office.
Required internal
data relating to our portfolio composition
is made available soon after ING’s year-end
close in
February. External data relating to climate
performances is collected around
April. The external data is
checked for consistency and matched with
our internal data. A year-on-year
portfolio comparison is
made to analyse fluctuations at company
or asset level for each sector. This helps us
understand the
drivers behind any changes, which are usually
attributable to the climate performance of
our clients,
the composition of our sector portfolios
or data improvements. When necessary, scenarios
and targets
are updated in conjunction with external parties.
Once the data is validated we draft our progress
report, which since 2021 has been incorporated
into
the integrated climate report. The report is
approved at board level and published in
September of the
reporting year. As such, all progress reported
in 2021 relates to 2020. Reporting on
progress in the
shipping sector is linked to and aligned
with the Poseidon Principles
timelines. The report on 2020 year-
end data was published in December 2021.
Targets and progress
Of the nine sectors in scope for Terra, five
– power generation, automotive, residential
real estate,
shipping and fossil fuel – were on track with
existing climate-alignment pathways in 2020.
Steel, cement and commercial real estate were
all within 5% of their scenario and we
consider these
sectors able to improve their performance
in the short term. Aviation was not on
track. Covid-19 had
an extraordinary impact on the sector in
2020, when restrictions on international
travel led to a
significant reduction in absolute emissions
but also impacted efficiency owing to the global
fall in
passenger loads. Read more in our integrated
climate report on ing.com.
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We are currently working on incorporating
our updated ambition into our Terra
approach and aim to
have the steps and intermediate targets needed
for a net-zero pathway for all nine sectors
by end-
2022. Detailed information on our transition
plans is available in our integrated climate
report on
ing.com.
As a first step, we’ve updated our target for
upstream oil and gas in line with the International
Energy
Agency’s net-zero scenario. Our aim is to reduce
financing to upstream oil and gas by
12% by 2025
(from the around €4 billion we loaned the industry
in 2019) by decreasing our exposure
in the sector
and engaging with clients to help them
shift to low-carbon technology. This new
target reflects the
accelerated pace that’s needed to bring about
change. Previously we had aimed to reduce financing
in
this sector by 19% by 2040.
To measure our progress we use the 2DII PACTA
‘economic activities’ methodology, which
has two
metrics to identify the carbon intensity
of the Energy sector. For ‘power generation’
the alignment
metric we use is emissions intensity.
For ’fossil fuels’ (coal, oil & gas) we use the
‘portfolio financing
trend’, which requires an absolute reduction
in the financing of primary energy production
by reducing
the size of our upstream oil & gas and thermal
coal mining portfolios. Both metrics use the
assumptions of International Energy Agency’s
net-zero scenario pathway to reduce the
carbon
intensity of global power generation.
Financing and advising our clients
As a financial institution we see it as our
role to support the transition to net zero
through our financing
and by using our knowledge and insights
to support our clients in their own transitions
towards a
greener future.
We believe we can have more impact
with what we do finance than what
we don’t
finance. So while we say ‘no’ to financing
certain businesses and sectors, in others
we say ‘yes but’,
outlining sustainability changes clients have
to make to reach net zero.
Our integrated climate strategy helps us
decide what activities we’ll support
and those we’ll no longer
finance. Our approach is closely aligned
with the climate goals of the Paris
Agreement, as well as the
objectives of the European Commission’s
(EC’s) Green Deal, which provides a framework
for Europe’s
journey to achieve net-zero greenhouse
gas emissions by 2050. It also aims to decouple
economic
growth from resource use and ensure economic
inclusivity so no person or place is
left behind.
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Energy policy in practice
Reducing society’s reliance on fossil fuels is
a vital contributor to the energy transmission
and for
reducing the emission of greenhouse gases.
As part of our integrated sustainability
strategy, we’re
working to align our energy portfolio (and
other major CO2-emitting sectors) with
net zero by 2050
targets through our Terra approach. However,
transitioning from fossil-based fuels
to low-carbon and
renewable power sources requires massive
investment in cleaner technologies
and infrastructure to
meet the growing demand for energy. This
is a complex process that will not
happen overnight and in
the meantime the real economy still relies
on fossil fuels. The least environmentally
damaging of these
is natural gas.
We believe that simply reallocating capital
from high-carbon clients and assets
to low-carbon ones
does not support the transition we want to see
in the real economy because it does not
reduce the
actual global CO2 emissions as the same
assets can be financed through other means.
Rather, we
believe in working with our clients to support
them in the transition towards reaching
climate goals
together. In the Terra approach, we’ve developed
a distinct method for steering our portfolio
by
identifying carbon intensity metrics that reflect
the shift that needs to happen in each
specific sector
to achieve climate goals.
To reflect on the composition of our power
generation portfolio we measure our outstandings
on 31
December 2021, as shown in the graphic
‘Total power generation lending’ below. This
portfolio includes
both renewable and non-renewable sources, which
should – over time – contribute to the overall
transition by reallocating our exposure to
renewables in the global energy supply
mix.
Overall, financing of our power-generating
activities increased by 22% to €12.2 billion
in 2021, which is
largely attributable to renewables, including
solar and wind. This sector saw an
increase of 26% to €7.3
billion in 2021. Over the last five years,
ING’s exposure in renewables has more
than doubled and now
makes up 60% of our power generation portfolio.
Our exposure to power generation through
natural
gas – the least damaging fossil fuel in the
transition to a net-zero economy - remained
roughly stable
in 2021 at €1.5 billion while we have zero
exposure to power generated by oil.
In line with stated target
to reduce coal financing to zero by 2025, financing
for coal-fired power plants decreased by 29%
to
€87 million (from €122 million in 2020). In
addition, financing for thermal coal mining
(which is not
shown in the power generation graphic) decreased
by 26% to €107 million in 2021 from €144
million in
2020.
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ING Bank Annual Report 2021
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Financing the transition
Since ING introduced the first sustainability-linked
loan (SLL) for Philips in 2017, where rates
are linked
to the client’s sustainability performance,
the popularity of these products has
increased as more and
more companies push sustainability to the top
of their strategic agendas. ING closed
147
sustainability-linked transactions in
2021. These included the world’s biggest-yet
SLL and the first in its
sector for brewer AB InBev ($10.1 billion revolving
credit facility linked to water-efficiency
improvements, PET packaging recycling, renewable
energy use and reduced emissions targets).
In addition, ING received four consecutive sustainability-related
mandates from US data centre
provider Aligned, acting as sole sustainability
coordinator and sole green structuring advisor
on the
first SLL and first green securitisation in the
data centre space.
Pioneering for the future
We also invest in the technology needed to
reach a net-zero world, things like battery
storage and
solar power. In 2021, ING’s innovative financing
method to make inland shipping in the
Netherlands
more sustainable with a pay-per-use structure
for renewable batteries, Zero Emissions
Services (ZES),
was recognised by the International Association
of Ports and Harbours (IAPH) with a sustainability
award in the climate and energy category.
ING founded ZES along with consortium
partners the Port of
Rotterdam, energy company ENGIE, Finnish
maritime technology company Wärtsilä
and its first
customer,
Dutch brewer Heineken. The first vessel
started sailing in September 2021.
ZES is also an example of how ING is exploring
circular business models with various partners.
The
circular economy is a way for companies
to reduce waste and emissions by rethinking
their use of raw
materials and resources from a ‘take, make
and waste’ approach to ‘reduce, reuse
and recycle’.
Companies like ZES stimulate other use models
for depleted battery packs, giving them
a second or
even a third life after they are exchanged.
Another ING investment in green transport,
electric bus company Ebusco made its
debut on the
Amsterdam stock exchange in October
2021. The initial public offering raised
€300 million to fund
Ebusco’s international expansion and
growth strategy and valued the company at
around €1.3 billion.
ING Corporate Investments continues to hold
a 21% stake in Ebusco (initially acquired
in 2016).
Accelerating the green economy
To accelerate a green and sustainable
economy we provide financing for projects
such as wind or solar
energy and sustainability-linked financing
that supports companies on their own sustainability
journeys.
In 2021, we closed 317 sustainable finance
transactions (139 in 2020). These include
45
green and social loans, 147 sustainability-linked
loans and 95 green, social, sustainability(-linked)
and
transition bonds.
The remaining 30 transactions were
spread among green and sustainability-linked
schuldscheins (an investment form predominantly
used in Germany), other sustainable investments,
sustainable structured finance transactions
and ESG advisory and green guarantees.
Sustainable bonds are an integral part of our sustainble
finance offering and are supported by
ING’s
Green Bond Framework, which is in line with
the Green Bond Principles of the International
Capital
Market Association. Among these are a euro-denominated
green bond (two-part €1.1 billion) for
US IT
and data centre provider Equinix, which builds
on the green finance framework ING
created for them in
2020; and a $3.2 billion equivalent dual-currency
bond offering for FedEx, part
of which was a
sustainability bond offering. ING was sole
structuring advisor on the sustainability
financing framework.
Through our social impact finance portfolio
we lend to projects that lead to, for
example, basic
infrastructure improvements, community
development or essential services. In
December 2021, ING
acted as joint coordinator of a social loan
for the Ghanaian Ministry of Finance
to set up national
vocational training institutes across Ghana.
The export credit facility is aligned with the
standards of
the Social Loan Principles. We also aim to make
a positive contribution to human rights
as financier,
employer, taxpayer and as a driver of progress
and prosperity. This is in line with the United
Nations’
Principles for Responsible Banking, of which
ING was a founding signatory in 2019.
Who we finance is as important as what we
finance. In 2021, lending to industry ESG
leaders (based on
the scores of independent ESG ratings provider
Sustainalytics) grew to €37.8 billion from
€28.5 billion in
2020. (This amount may overlap with the
amounts reported under climate and social
impact finance.)
The tables below provide a breakdown
of our direct lending for environmental
and social activities at
year-end 2021, which show our total climate
finance and social impact portfolio increased
by
€3.1 billion to €20.2 billion.
Of this, the climate finance portfolio, which
supports clients and projects
helping the transition to a low-carbon economy,
rose to €19.5 billion (from €16.5 billion
in 2020). Social
impact financing increased by €0.1 billion to
€0.7 billion.
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ING Bank Annual Report 2021
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Climate finance
in EUR million
2021
2020
Energy
1
5,923
5,322
Construction and real estate activities
10,536
9,865
Transport
2,063
1,087
Water supply, sewerage, waste management and remediation
218
117
Information and communication
497
53
Circular economy
2
-
28
Green loans (multi-purpose)
3
288
-
Other
4
-
26
Total
19,524
16,498
1
Assessment methodology has been updated and comparatives
aligned accordingly
2
Category ‘Waste management’
has been merged with ‘Circular economy’
3
Includes green loans that are aligned with more than one
Green Loan Principles category
4
‘Other’ category has been removed in 2021
Social impact finance
in EUR million
2021
2020
Basic Infrastructure
377
275
Community development
-
49
Essential services
193
209
Healthcare
82
Total
652
533
In the Bloomberg league tables, ING ranked
second for green, social and sustainability
euro bond
issues with more than €7.5 billion in bonds
issued in 2021 (fourth with €3.8 billion in
2020), and fifth for
green and sustainability-linked loans
valued at €5.4 billion (fifth with €3.3 billion
in 2020).
Greener homes
A significant part of our loan book – 42%
– consists of residential mortgages, accounting
for 68% of our
Retail Banking loans. Houses generally account
for about 22% of direct and indirect
CO2 emissions in
the EU. Our long-term vision is to empower
our mortgage customers to reach net-zero
emissions in
their homes and to achieve the same for
our mortgage portfolio by 2050. We’re
therefore working with
our customers to improve the energy consumption
of the houses we finance as a way of achieving
our
net-zero goals. However, there’s a long way
to go to help all our clients improve the
energy efficiency
of their homes.
Not knowing what renovations are most effective
or what financing or subsidies are available
to do so
is one of the factors we’ve seen that is stopping
people from taking action. Here banks
can play a role.
In addition, the energy mix varies from
country to country and the energy intensity
of homes is quite
broad. To be able to understand how energy
efficient homes are and make comparisons
across
markets a robust and standardised approach
to data is necessary at country
and European level and
ambitious regulation will be critical to encourage
a faster transition.
Our current carbon intensity measurement
covers our Dutch, German, Belgian and Polish
mortgage
portfolios, with a combined outstanding
lending amount of roughly €232 billion (78%
of total
mortgage outstandings)
and more than 1.5 million financed homes. More
countries will be added as
the data becomes available. See our integrated
climate report on ing.com for information
on the
underlying measurement, which, like the rest
of Terra reporting, relates to 2020 data.
Across our mortgage markets we provide
a range of products, services and advice
to help homeowners
make their houses more sustainable. These
include eco loans to finance renovations
to improve energy
efficiency such as insulation, solar panels
and double glazing. In Belgium, we offer
interest-free eco
renovation mortgages in collaboration with
the Flemish government. We also provide
access to
subsidies in countries where these are available.
In Germany, we work with development bank
KfW to
integrate subsidy programmes into our mortgage
offering for energy-efficient new-builds and
for
modernising existing homes, for example with
energy-efficient heating systems.
In the Netherlands, ING became a co-financier
of the Dutch government’s ‘Warmtefonds’
(Heat fund) in
May, contributing €50 million in financing. The
fund provides loans on favourable terms
to make
homes more sustainable. Since 2014, it has
provided around €600 million in financing
for this purpose.
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In November, a local hub of the European
Energy Efficient Mortgages (EEM) initiative
was set up in the
Netherlands, with ING as a founding member,
to support and promote the acceleration
of energy-
efficient housing by developing a framework
for green mortgages.
To engage customers on their sustainability
journeys our Dutch and German websites
provide
information and advice about energy-efficient
living and financing available.
In the Netherlands,
customers can also check the energy profile
of their homes as well as the options to improve
in this
area. To help them take the first step, we
provided a free energy rating for homeowners
wanting to
invest in upgrading their energy label. Around
60% of our Dutch portfolio currently has
an ‘A’, ‘B’ or ‘C’
energy label, with more homes moving into
the most energy-efficient ‘A’ band (17.4%
compared to
15% the previous year) and fewer homes
in the ‘C’ band (27.2% v 28.3%). In addition,
the CO2 intensity
of this portfolio reduced from 35kg CO2/m2
to 31.3kg at end-2020,
helped by the Netherlands’ growing
use of renewable energy sources in its electricity
network.
See ‘Reporting process’ above for more
information on how we monitor and report
on our progress.
Managing climate and environmental
risks
Our integrated climate approach considers
both how ING can impact climate change
through our
financing as well as how climate change
can impact our business. We’re working
to be more resilient
to climate risks, both physical risks, such
as the risk of flooding on our mortgage
portfolio, and
transition risks, such as stranded assets, for
example when carmakers don’t make
electric vehicles.
These risks and their financial implications
can potentially also impact our clients and
ultimately our
balance sheet. A critical process is therefore
required to identify and understand
these risks and
integrate them into our risk management
framework, including credit, market,
liquidity and
operational risks.
A climate risk assessment of around 65%
of our mortgage portfolio identified
flooding as the biggest
physical risk where the impact would vary
extensively. We have decided to develop this pilot
further
and increase the geographical scope and
data granularity to grow our understanding
of the financial
impact of climate hazards for our portfolio
management. We expect to report
more on this in 2022. As
part of this initiative we’re collecting location
data for the Belgian mortgage book to identify
physical
climate risk to our collateral. An initial assessment
of the impact on Business Banking clients
on a
sector level will be used as input for ING’s
global heatmap. In line with its local regulatory
requirements,
ING in Belgium will also collect the energy
efficiency levels of immovable property
collaterals, both
residential and commercial.
We apply strict social, ethical and environmental
criteria in our financing and investment
policies and
practices to ensure they’re in line with our
sustainability goals. Every client and transaction
is assessed,
monitored and evaluated against the requirements
of our environmental and social risk (ESR)
framework to ensure compliance and limit negative
impact on the environment and communities.
That way, climate and environmental impact
are taken into account every time we
make financing or
investment decisions.
Sustainable investment services
ING offers sustainable investment (SI) services
to its Retail Banking customers
in the Netherlands,
Belgium, Luxembourg and Germany. These
include brokerage, advisory and discretionary
management. We provide dedicated portfolios,
structured products and investment funds
and cover
all asset classes. In 2021, ING’s Retail investment
division recorded €19.2 billion in sustainability
assets
(from €13.2 billion in 2020). This also underlines
our clients’ appetite for products and services
that
integrate sustainability criteria.
To provide these clients with a portfolio that’s
in line with their values and interests
we use a diverse
set of environmental, social and governance
criteria to assess all investments. Both companies
and
investment funds are screened against these
criteria. For companies we take a two-step approach.
First, we look at their policies and achievements
on sustainability and score relative to their
peers,
choosing to invest in those companies with
the best ESG profile per sector. Second,
we exclude
companies whose products or services have
negative impacts or which are engaged
in undesirable
corporate conduct, for example conduct that
infringes
human rights. In selecting investment funds,
we
carry out quantitative and qualitative screening
to understand the ESG profile of the
asset and the
asset manager. This includes interviewing fund
managers and ensuring the underlying
holdings also
meet our sustainability criteria. For more information
on the selection process please refer to ing.com.
ING is a signatory to the UN-backed Principles
for Responsible Investment as a service
provider and
we’ve committed to incorporating ESG into
our investment decisions, policies and processes
underpinning our investment services.
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ING Bank Annual Report 2021
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Our performance and capital
management
Capital management
Risk and capital management remain
central to the stability and continuity
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 that we have enough
capital to cover our
(economic) risks at all levels, including the risks
from the ongoing pandemic, and comply
with local and
global regulations, while delivering a return
for our shareholders and investing in innovation
to
accelerate the Think Forward Strategy.
ING Bank’s capital ratios at the end of the
year improved compared to 2020 primarily
due to the partial
addition of the 2021 net profit to CET1 capital
and lower regulatory adjustments. This
was only partly
offset by higher risk-weighted assets that
were mainly driven by model impacts, reflecting
the ongoing
redevelopment of internal models and EBA
guidelines. ING Bank continues to maintain
a strong and
high quality capital level.
ING Bank N.V. has a CET1 ratio of 14.3%
at 31 December 2021, versus an overall CET1
requirement
(including buffer requirements) of 7.03%. The
Tier 1 ratio (including grandfathered securities)
increased
from 15.9% to 16.5% compared to last year.
The Banks’s total capital ratio (including
grandfathered
securities) increased to 19.5%.
See ‘Note 49 Capital management’ in the
‘Consolidated Financial Statements’
for more information.
Financial developments
In 2021, ING Bank achieved good results, despite
the challenging conditions, impacting
customers,
business clients and society from the ongoing
Covid-19 pandemic. ING Bank’s net result rose
to €4,770
million from €2,415 million in 2020. The
effective tax rate in 2021 was 27.7%,
down from 34.6% in
2020. The lower effective tax rate was mainly
caused by the reduced impact of non-deductible
amounts, whereas 2020 had included the non-deductible
impairments on goodwill and on our
stake in
TTB (previously reference was made to as TMB).
The result before tax increased 77.8%
to €6,774 million in 2021 from €3,810
million in 2020,
predominantly due to lower risk costs reflecting
improved macroeconomic indicators,
as well as higher
income. Net core lending growth (adjusted
for currency impacts, and excluding Treasury
and the run-
off portfolios) was €30.6 billion, and net core
deposits growth was €10.3 billion. At year-end,
the global
retail customer base declined to 38.2 million,
mainly by exiting the Austrian and
Czech retail banking
markets. The number of primary customers,
however, rose during the year by 481,000
to 14.3 million.
Income rose 4.8% to €18,485 million in 2021
from €17,645 million in 2020. Income was
supported by
the recognition of a €483 million conditional
TLTRO III benefit, which also included
the impact of the
retroactive adjustment in the ECB funding rate
as from 24 June 2020. The increase in income
was
mainly in Wholesale Banking, due to higher
revenues in all product groups, while the
higher income in
Corporate Line was supported by the recognition
of €72 million receivable related to the
insolvency of
a financial institution in the Netherlands and
higher interest results from foreign currency
ratio
hedging. Income at Retail Banking slightly
increased as strong growth in fee
income and the impact of
the impairment on ING’s equity stake in
TTB recorded in 2020, was largely offset
by the continued
margin pressure on liabilities.
Net interest income increased 0.1% to
€13,615 million, and was supported by the
€483 million
conditional TLTRO III benefit. Higher interest
results were recorded on lending
products (driven by a
higher total lending margin), but also in Treasury,
Financial Markets and Corporate Line. These
increases were offset by lower revenues
on current accounts and savings, reflecting
continued liability
margin pressure. ING Bank’s overall net interest
margin declined to 1.39% from 1.43% in
2020.
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Net fee and commission income increased
16.8% to €3,517 million from €3,011 million
in 2020. In
Retail Banking, net fee and commission income
rose by €374 million, or 19.2%. This increase
was
mainly in daily banking, reflecting higher
packages fees, recovery of payment
transactions and new
fee introductions, as well as higher fees from
investment products due to new
account openings, a
higher number of trades and higher assets
under management. Total fee income in
Wholesale Banking
increased by €128 million, or 12.0%, mainly
in Trade & Commodity Finance as
a result of higher
average oil prices as well as increased daily
banking fees and higher fee income in Global
Capital
Markets and Corporate Finance.
Total investment and other income rose to
€1,354 million in 2021 from €1,034 million
in 2020. The
increase was mainly caused by the recognition
of a €72 million receivable (recorded
in Corporate Line)
related to the expected recovery of the insolvency
of a financial institution in the Netherlands,
while
previous year included the €230 million
impairment on ING’s equity stake in TTB (recorded
in Retail
Banking) as well as a €58 million decrease of the
NN Group indemnity receivable following the
settlement of a tax dispute in Australia, which
was offset by an comparable amount in
the tax line
(recorded in Corporate Line).
Operating expenses increased by €35 million,
or 0.3%, to €11,195 million. Expenses in
2021 included
€1,265 million of regulatory costs, up from
€1,105 million in previous year, among
others due to an
incidental 50% increase in the Dutch bank
tax for 2021. Expenses in 2021 furthermore
included €522
million of incidental items, mainly reflecting
a €180 million provision for compensation
to Dutch
customers with certain consumer credit products,
redundancy provisions and impairments
related to
the announced exit of the retail banking markets
in France and Czech Republic, the
accelerated closure
of branches in the Netherlands, and some
other impairments. Incidental items in 2020
amounted to
€673 million, mainly reflecting €310 million
of goodwill impairments and several restructuring
provisions and impairments related to the
review of activities and measures announced
(including
those on Wholesale Banking and the Maggie
project). Expenses excluding regulatory
costs and
incidental items increased by €25 million,
or 0.3%, as the impact of collective-labour-agreement
(CLA)
salary increases and higher performance-related
expenses and IT costs was
largely offset by the
impact of continued cost-efficiency measures.
The cost/income ratio was 60.6%
versus 63.2% in 2020.
Net additions to loan loss provisions
declined to €516 million, or 8 basis points
of average customer
lending, compared with €2,675 million, or
43 basis points, in 2020. Risk costs in 2021 were
primarily
driven by additions to Stage 3 provisions
and included several model updates
in Retail Belgium as well
as additional provisioning from updated recovery
scenarios of existing, mainly Wholesale
Banking
clients, reflecting uncertainty on recovery scenarios
and valuation in certain asset classes. Provisioning
in Stage 1 and 2 was reduced, mainly due
to releases from management adjustments
taken in
previous year. It further reflects clients being
removed from the watch list and
moving back to Stage 1.
The return on IFRS-EU equity of ING Bank increased
to 10.1% in 2021 from 5.1% in 2020.
Retail Banking
Total Retail Banking
In 2021, Retail Banking results strongly
improved compared with 2020 which
was negatively affected
by the impact of the Covid-19 pandemic. The
net result rose 33.4% to €3,042 million from
€2,281
million in 2020, driven by lower risk costs
and higher fee income,
while expenses excluding regulatory
costs and incidental items declined. Net interest
income, however, decreased due to the
continued
margin pressure on liabilities.
The result before tax rose 27.0% to €4,253 million.
Income rose by €126 million, or 1.0%, supported
by
€152 million of conditional TLTRO III benefits
while 2020 had included a €230 million
impairment on
ING’s equity stake in TTB. Excluding both items,
income fell 2.1%, as strong growth
in fee income and
the increased impact of charging negative interest
rates to clients was more than offset by
lower
interest margins on liabilities. In 2021, total
customer lending rose by €11.0 billion to
€447.8 billion.
Adjusted for currency impacts, Treasury
and the run-off in WestlandUtrecht Bank (WUB)
and Austria,
Retail’s net core lending book grew by €17.5
billion, of which €15.0 billion was
in residential mortgages,
primarily in Germany, Spain and Poland.
Net core deposits growth (also adjusted for the
run-off in the
Czech Republic) was €12.9 billion in 2021.
Operating expenses increased by €144
million, or 1.9%, of which €69 million
was caused by higher
regulatory costs. In 2021, expenses furthermore
included €455 million of incidental items,
primarily
reflecting redundancy provisions and impairments
related to the decisions to exit the retail
banking
markets in France and the Czech Republic, the
closure of branches in the Netherlands,
and a provision
for compensation to customers on certain
Dutch consumer credit products.
In 2020, incidental items
amounted to €281 million, mainly reflecting
impairments and restructuring provisions
related to the
Maggie programme and our retail branch
network as well as a goodwill impairment
in Retail Belgium.
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Expenses excluding regulatory costs and
incidental items declined 1.5%; this
was primarily driven by
Retail Netherlands. The cost/income ratio was
62.3% in 2021
compared with 61.8% in 2020.
Risk costs declined to €399 million, or 9 basis
points of average customer lending, from
€1,322 million,
or 30 basis points, in 2020. Risk costs in
2021 included €702 million of Stage
3 provisioning. This was
partly offset by releases in Stage 1 and 2 provisioning
due to releases of management adjustments
taken in 2020 and further reflect clients being
removed from the watch list or moving
back to Stage 1.
Market Leaders
Retail Netherlands
The result before tax of Retail Netherlands
declined 6.8% to €1,936 million from
€2,078 million in 2020.
This decline was caused by lower income mainly
due to lower margins on customer deposits
combined
with higher expenses which included several
incidental cost items, partly offset by
lower risk costs.
Total income declined by €209 million, or
4.7%, to €4,262 million compared with
€4,471 million in
2020. Net interest income declined 6.3%,
despite the recognition of a €53 million conditional
TLTRO III
benefit and an increased charging on negative
interest rates. This decline was predominantly
due to
continued margin pressure on savings
and current accounts combined with
lower interest results from
lending products. Net core lending (which excludes
Treasury products and a €1.1 billion decline
in the
WUB run-off portfolio) grew by €0.8 billion in
2021, of which €1.5 billion was in residential
mortgages
and €-0.7 billion in other lending. Net core
deposits growth (excluding Treasury) was
€14.8 billion,
predominantly in current accounts. Net fee
and commission income increased by
€90 million, or
13.2%, mainly due to higher fee income in
daily banking products, supported by increased
fees for
payment packages, and higher fees on investment
products. Investment and other income
was €78
million lower, mainly attributable to lower results
from Treasury-related products.
Operating expenses rose by €167 million, or
7.5%, to €2,403 million from €2,236 million
in 2020. The
increase was mainly due to a €180 million
provision for compensation to customers
with certain
consumer credit products, and €109 million
of redundancy provisions and costs
related to the retail
advice organization in the Netherlands
and the accelerated closure of branches, while
2020 included
€29 million of provisions. Excluding these
incidental items, expenses declined
by €93 million, or 4.2%,
mainly due to lower external staff costs
and lower allocated group overhead expenses,
partly offset by
increased regulatory costs.
The addition to loan loss provisions was
a net release of €76 million, or -5 basis
points of average
customer lending, compared with a net
addition of €157 million, or 10 basis points,
in previous year. In
2021, net releases in the mortgage and business
lending portfolios, more than offset a net
addition in
the consumer lending portfolio.
Retail Belgium
Retail Belgium includes ING in Luxembourg.
The result before tax of Retail Belgium rose
to €583 million, compared with €122
million in 2020. The
increase was attributable to lower risk costs,
combined with higher income and lower
expenses.
Income rose by €102 million, or 4.3%, to
€2,475 million from €2,373 million in
2020. Net interest
income was 3.8% lower at €1,747 million,
despite the recognition of a €76 million
conditional TLTRO III
benefit and the introduction of negative interest
rates. The decline reflects lower margins
on savings
and current accounts and lower interest result
from lending products. Net core lending
(excluding
Treasury) increased by €0.4 billion in 2021,
of which €0.9 billion was in mortgages,
and €-0.5 billion in
other lending. Net core deposits (excluding
Treasury) declined by €2.6 billion,
predominantly in savings
and deposits. Net fee and commission income
rose by €106 million, or 25.7%, mainly driven
by higher
daily banking fees and the strong performance
in investment products. Investment and
other income
increased by €64 million, mainly due to positive
treasury-related fair value adjustments
and a €25
million capital gain on the sale of an associate.
Operating expenses declined by €70 million,
mainly due to a €43 million goodwill impairment
and €40
million of restructuring costs, both recorded
in 2020. Excluding these incidental items,
expenses
increased by 0.8%, mainly due to higher regulatory
costs, partly offset by lower staff expenses.
The addition to the provision for loan losses
declined to €225 million, or 25 basis points
of average
customer lending, from €514 million, or 57 basis
points, in 2020. Risk costs in 2021 mainly
included
collective provisioning to accommodate for
an update of models and Stage 3 additions
for specific files,
partly offset by a partial release of management
adjustments applied in 2020.
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Challengers & Growth Markets
Retail Germany
Retail Germany includes ING in Austria.
The result before tax declined 17.3% to €786
million, compared with €950 million
in 2020, mainly due
to lower income and increased expenses.
Total income fell 5.1% to €2,009 million from
€2,117 million in 2020. Net interest income
declined 8.8%
as higher revenues from lending products
and the recognition of a €16 million conditional
TLTRO III
benefit was more than offset by the impact
of the continued margin pressure on savings
and current
accounts. In 2021, net core lending growth
(which excludes Treasury products, and the
Austrian run-off
portfolio as from the second quarter of 2021) was
€7.8 billion, of which €6.8 billion was in
residential
mortgages and €0.9 billion in consumer lending.
Net core deposits declined by €3.8 billion
due to net
outflows in the second half of the year, primarily
reflecting the impact of the introduction
of negative
interest rate charging to clients with liability
balances above €50,000 as of November
2021. Net fee
income rose by €60 million, or 13.7%, predominantly
on investment products, reflecting higher
assets
under management, new account openings
and higher number of brokerage
trades. Investment and
other income declined by €28 million due to
a €26 million one-off loss related to the
transfer of the
Austrian retail banking activities to bank99
in December 2021.
Operating expenses increased by €64 million,
or 5.8%, to €1,174 million in 2021,
of which €36 million
was due to higher regulatory costs, which included
a catch-up following the Greensill insolvency. The
remaining cost increase was mainly
due to higher staff expenses and costs related
to the
discontinuation of the Austrian retail banking
activities.
The addition to the provision for loan losses
was €49 million, or 5 basis points
of average customer
lending, compared with €57 million, or
6 basis points, in 2020.
Retail Other
Retail Other consists of the Other Challengers
& Growth Markets, including the bank stakes
in Asia.
Retail Others’ result before tax rose to
€949 million, from €199 million in 2020, mainly
reflecting higher
income, driven by strong fee income growth,
whereas 2020 included a €230 million impairment
on
ING’s equity stake in TTB (Thailand) and
lower risk costs.
Total income rose by €341 million to €3,602
million from €3,261 million in 2020. Excluding
the
impairment on TTB, total income increased
by €111 million, or 3.2%. Net interest
income was down
1.7% to €2,712 million, mainly reflecting
lower margins on savings and current accounts,
partly offset
by higher interest results from lending products
and a €7 million conditional TLTRO III benefit.
Net
customer lending (adjusted for currency
effects and Treasury) grew by €8.5 billion
in 2021, with growth
in all countries, except Italy. Net core deposits
growth, also adjusted for currency impacts
and Treasury
as well as the Czech Republic run-off portfolio,
was €4.4 billion, driven by net inflows in
the non-
eurozone countries with the largest increase
in Poland. Net fee and commission
income rose by €118
million, or 28.6%, to €530 million in 2021. The
increase was mainly due to higher fee income
from daily
banking, investment and insurance products,
and was mainly visible in Spain, Poland and
Romania.
Excluding the aforementioned impairment
on TTB in 2020, investment and other income
increased by
€42 million, mainly due to higher revenues
from Financial Markets-related products.
Operating expenses declined by €17 million,
or 0.7%, to €2,452 million from €2,469
million in 2020. In
2021, expenses included €166 million of
incidental items, mainly consisting of
restructuring provisions
and impairments related to the announcements
that ING will exit the retail banking markets
in France
and the Czech Republic, while 2020 included
€167 million of impairments and restructuring
provisions
mainly related to the Maggie programme. Excluding
these incidental items, expenses declined
by €16
million as higher staff expenses and legal provisions,
were more than offset by among others
lower IT
and marketing expenses as well as lower regulatory
costs.
The addition to loan loss provisions declined
by €391 million on 2020 to €202 million,
or 20 basis points
of average customer lending. The 2021 risk
costs mainly reflect net additions in
Poland and Spain,
partly offset
by a net release in Australia.
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Our performance
ING Bank Annual Report 2021
36
Wholesale Banking
The 2021 result of Wholesale Banking also strongly
recovered from the previous year when results
were negatively affected by the impact of
the Covid-19 pandemic. The net result
increased to €2,144
million from €512 million in 2020. The result before
tax rose 247.5% to €2,874 million from €827
million
in 2020. The increase was predominantly
due to lower risk costs and higher income,
while operating
expenses declined due to lower incidental
cost items.
Total income rose 9.6% to €5,916 million in
2021, compared with €5,396 million in 2020, reflecting
higher revenues in all product groups, with
the largest increases in Lending,
and Daily Banking & Trade
Finance. Net interest income increased by
€433 million, or 11.6%, and was supported by
a €188 million
conditional TLTRO III benefit. The increase was
mainly due to higher margins on lending
products and
increased interest results from Treasury and
Financial Markets, while the margin on
customer deposits
stabilised due to the increased charging
of negative interest rates. The net core
lending book (adjusted
for currency impacts and excluding Treasury
and the Lease run-off portfolio) grew by
€13.1 billion in
2021, mainly in Lending, primarily reflecting
growth in term loans, and higher short-term
facilities in
Financial Markets. Net core deposits (excluding
currency impacts and Treasury) decreased by
€2.6
billion. Net fee and commission income rose
by €128 million, or 12.0%, on 2020,
mainly due to higher
fee income in Trade & Commodity Finance
on the back of higher oil prices, various fee
and pricing
initiatives in Payments & Cash Management
and higher deal flows in Global Capital Markets
and
Corporate Finance. Investment and other
income decreased by €41 million, primarily
due to lower
valuation results in Financial Markets, partly
offset by higher income in Corporate Investments.
Operating expenses declined 9.1% to €2,926
million from €3,218 million in 2020. Expenses
in 2021
included a €44 million impairment on Payvision,
while 2020 included a €260 million goodwill
impairment and €124 million of restructuring
provisions and impairments. Excluding
these incidental
items, expenses increased 1.7%, mainly
due to higher performance-related staff expenses
and
increased costs for legal provisions and IT, partly
offset by the impact of continued cost-efficiency
measures.
The net addition to loan loss provisions fell
to €117 million, or 7 basis points of average
customer
lending, compared with €1,351 million, or
75 basis points, in 2020. Risk costs in 2021
mainly reflect
individual Stage 3 provisioning for existing files,
including the impact of updated scenarios
reflecting
uncertainty in recovery scenarios and valuations
in certain asset classes. This was partly
offset by
releases in management adjustments
caused by improved macroeconomic
indicators.
Lending posted a result before tax of €2,141
million, up from €691 million in 2020, predominantly
due
to lower risk costs compared with the elevated
level in 2020. Lending income rose
by €231 million, or
8.0%, and was supported by the recognition
of a €100 million conditional TLTRO III
benefit. The
increase was mainly due to higher lending
margins and increased syndicated deal
activity. Expenses
increased 0.4% to €983 million as higher performance-related
staff expenses were offset by the
impact of cost-efficiency measures.
The result before tax from Daily Banking
& Trade Finance rose to €375 million from
€246 million in
2020. This increase was due to higher income,
supported by the recognition of
a €24 million
conditional TLTRO III benefit, partly offset by
higher expenses and risk costs. Income
increased 13.3%,
mainly in Trade & Commodity Finance on the back
of higher average oil prices and in Payments
& Cash
Management following various fee and pricing
initiatives. Expenses rose 2.6%, mainly
due to higher
regulatory costs, partly offset by lower staff
and IT expenses.
Financial Markets recorded a result before tax
of €278 million, compared with €230
million in 2020. The
increase was mainly due to higher income, which
was supported by the recognition of a €60 million
conditional TLTRO III benefit and higher net
fee income, partly offset by lower
valuation results. The
increase in income was partly offset by higher
expenses, mainly due to higher performance-related
staff expenses.
The result before tax of Treasury & Other
was €80 million compared with a
loss of €339 million in 2020.
The improvement was mainly due to
lower expenses, as 2020 included a €260 million
goodwill
impairment and €95 million of restructuring
provisions and related impairments
following the
announced refocusing of activities. Excluding
these incidental items, result before
tax rose by €64
million, mainly due to higher Treasury income
as well as higher income in Corporate Investments,
which was supported by a €28 million gain
on an investment in an associate,
and Corporate Finance.
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Our people
ING Bank Annual Report 2021
37
Our people
Although banking is ever more digitalised, it’s still built on relationships.
Our people are at the heart of our business and we rely on them to
support our customers and deliver on our purpose. At the same time,
we strive to provide a differentiating employee experience that keeps
our people motivated and engaged, and a diverse and inclusive
workplace where they feel free to be themselves.
Who we are
ING has over 57,000 employees worldwide
and 130 nationalities.
Our biggest workforce is in the
Netherlands.
Our people offer
Our people are at the heart of our business
and we rely on them to deliver on a differentiating
customer experience. In our people offer, introduced
in 2020, we set out what we expect from
our
people and what ING offers in return,
forming the basis of our employer brand.
Preparing for a hybrid way of working
For most of 2021, the majority of ING employees
continued to work from home due to ongoing
Covid-
19 restrictions. However, in some countries
it was possible to cautiously return to the
office in a hybrid
mode, which combines the advantages
of working from home on several days
of the week with the
benefits of collaborating with colleagues in
the office on the other days. The aim is
to offer flexibility in
balancing
work and private life while taking into
consideration the lessons over the past
year in relation
to people’s physical and mental wellbeing,
engagement, collaboration and efficiency.
However, a
strong degree of flexibility is required, given
the constantly changing situation
as new outbreaks occur
and the emergence of new variants continues
to test the resilience of our people.
In implementing
what we call ‘Hybrid Mode’, we’re taking
a step-by-step approach that provides
flexibility for local
implementation and respects local health
and safety guidelines and labour laws.
We’ll adapt and
improve as we go along, weighing up personal,
team, company and customer interests
when
determining what works best.
ING strongly encourages employees to be
vaccinated in line with local government
advice, to protect
themselves, their colleagues and their
communities. Recognising there are employees
who may not
want to be vaccinated (for example for medical
reasons or because of personal beliefs),
we will do our
best to accommodate them, while acknowledging
that in some situations,
or countries, proof of
vaccine may be required by external parties
such as business partners or clients
for instance, or for
travel purposes. In this regard, ING always follows
local government regulations, which
can differ from
country to country.
Our global and local crisis teams keep a
close eye on developments and we strive
to maintain the
highest health and safety standards in our
offices and branches. This includes
restricting business
travel to high-risk countries when necessary
and following local protocols around social
distancing and
the number of people allowed to attend
meetings and events. These often differ
from country to
country.
Supporting vitality
The wellbeing (or vitality as it’s known in
ING) of employees remained of crucial
importance in 2021 as
Covid-related challenges continued. Apart
from finding new ways to collaborate,
managers developed
methods to motivate and engage their teams
from a distance, while also managing
their own
wellbeing. For colleagues who were unable
to work from home, we made space available
in our offices.
Our local businesses came up with various initiatives
to help employees maintain their physical
and
mental vitality. These ranged from providing
ergonomic home working stations to psychological
support (in the Czech Republic and Poland);
wellbeing coaching in the Netherlands
and Belgium; and a
health budget in Germany for preventative
care. The Netherlands also launched a platform
called My
Vitality where colleagues can team up for runs,
walks and other activities.
The Wellbeing Quotient
(WQ) programme,
now fully digital, continued to run courses
on energy management, performing
under pressure and mental power for individuals
and teams in the Netherlands, Belgium
and across
Wholesale Banking.
Around 10,000 people have completed
the WQ programme since 2018.
In 2021, 2.2% of our total workforce was
absent through sickness, compared
to 3.22% in 2020.
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Our people
ING Bank Annual Report 2021
38
Culture and capabilities: our core drivers
ING’s culture and capabilities define who we
are. Together,
they drive our success and enable us to
fulfil our purpose of empowering people to stay
a step ahead in life and in business.
Our culture,
including our risk culture, starts with the Orange
Code values and behaviours we share
across our
organisation, helping us to make responsible
decisions – for ourselves and for our customers.
Our
capabilities are what enable us to deliver
on our strategy, by ensuring we have what
we need as
individuals and as an organisation to succeed
now, and in the future. It’s how we build strong
leadership, become a data-driven digital
bank that’s safe, secure and compliant,
and create long-term
value for our stakeholders.
Orange Code
Our business centres on people and trust. People
trust us with their money and with
their data.
Maintaining this trust is crucial. Everything
we do at ING is guided by our Orange Code,
a manifesto
that describes our way of working, putting
integrity above all. It is comprised of
our values – the
principles we stick to, no matter what
– and our behaviours, which are the commitments
we make to
each other and the standards by which we
measure each other’s performance. We expect
everyone to
demonstrate our Orange Code values and
behaviours every day. Not doing so
could potentially put our
customers at risk, erode the public’s
confidence in our bank and damage our
reputation. That’s why
integrity is the foundation of our culture.
Closely linked to this is our Global Code of
Conduct, which outlines the 10 core
principles we expect
from employees. These principles build on
the values and behaviours of the Orange
Code and are
based on ING’s existing policies, minimum standards
and guidelines. The Global Code of Conduct
is in
addition to local codes of conduct in
various countries. Important elements are
the ‘speak-up’ principle,
encouraging employees to report any misconduct,
and the principle that every ING employee
is
entitled to a safe working environment. ING
does not tolerate discrimination, harassment,
bullying,
sexual or other forms of intimidation,
aggression or violence.
All employees (including senior managers)
are appraised annually against the
requirements of the
Orange Code as part of ING’s performance
management process. As of 2022, all employees
will also be
required to acknowledge and commit to the
Global Code of Conduct.
Ethics and business culture
Having a strong and sound risk culture is essential
for performing our role in society responsibly
and
keeping the bank safe, secure and compliant.
Our risk culture is built on our Orange
Code and
comprises the knowledge, attitude, behaviour
and understanding of risk shared by everyone
at ING.
We strive to have a sound risk culture in which
all employees know and understand our core
values,
where there’s an environment of open
communication and effective challenge in
decision-making,
and
where management leads by example.
To continuously strengthen our risk culture,
we defined our seven risk culture principles
– putting
integrity first – and introduced a risk culture
programme in 2021. It aims to ensure
our people are
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Our people
ING Bank Annual Report 2021
39
equipped to make responsible decisions when
it comes to managing risk and is an action
plan for
monitoring our progress towards our envisioned
risk culture. This follows a self-assessment
of our risk
culture. Enhancements of our monitoring
activities include a risk culture health
index and risk culture
dashboard.
Our Big 6 capabilities
For ING to be successful now and in the future,
we have identified six capabilities our
employees need
to have in order to deliver on our purpose.
These include capabilities that will
help us provide a
differentiating and seamless digital customer
experience – data fluency, customer experience,
operations management and leadership
– and capabilities tokeep our bank safe,
secure and compliant
– cybersecurity and non-financial risk management.
The ‘Big 6’ capabilities were introduced
in the Netherlands and Belgium in
2020 and rolled out to the
rest of ING during 2021. While not every
capability is relevant to every job, and not
everyone is
expected to master all six, the idea is that
every employee understands
the basics of each.
To promote these capabilities, ING has set
up a number of specialised training
facilities via its My
Learning digital platform. This includes an
Analytics Academy to promote data fluency
and strengthen
our analytics delivery,
and Risk and KYC Academies to equip employees
with the skills and knowledge
they need to protect our customers and our
bank against financial economic crime.
Recognising the need for a strong engineering
culture to achieve our digital ambitions,
we strive to
develop and grow a global workforce of highly
skilled engineers. ING’s Tech Academy
provides both
learning and network opportunities for engineers
to remain up to date and share knowledge
and
expertise. Initiatives such as the ING Women
in Engineering days aim to increase the
diversity of our
teams. To provide additional growth and
development opportunities we organise
global performance
days for the Tech community where we
assess and calibrate engineering maturity
based on ING’s
global job profiles.
Diversity and inclusion
ING strives to create a diverse and inclusive
workplace in which everyone feels
free to be themselves.
We promote diversity not just because it is the
right thing to do, but because we can't
deliver on our
strategy without it. We believe that teams with
a healthy mix of contrasting perspectives
and
backgrounds are more creative, adapt faster
and are more inventive with their solutions;
they avoid
‘group think’ and,
by reflecting the diversity of our customers,
allow us greater insights into how we
can best meet their needs.
Our approach
At ING we strive for no group or level to
comprise more than 70% of the same gender,
nationality or
age group. Managers are ultimately responsible
for building mixed teams and choosing
the dimensions
of diversity they focus on. They are guided
as far as possible by the 70% principle
and our global
priorities: gender, nationality and age. Of
course, diversity is about more than
these three areas and
we’ll continue our efforts to include all people,
regardless of religion, race, ethnicity, ability,
sexual
orientation etc.
How are we doing?
Looking at the global make-up of ING we
collectively meet the 70% principle
across all three
dimensions. However, within individual teams
and on a country level there are different,
often complex
challenges in creating the mixed teams we strive
for, and we are not always making progress
at the
speed we would like.
We have dashboards to help us understand where
the challenges lie, identify the gaps and monitor
progress towards building mixed teams,
at different levels of the organisation.
The HR teams use these
dashboards
in their discussions with local management
teams.
Diversity at the top
Like many other financial organisations, getting
the right mix of people – especially in
leadership
positions – remains a challenge and we are
committed to making progress in this
area.
When looking at the composition of our Supervisory,
Executive and Management Boards,
we look at
diversity in a broad sense, striving not only for
factors such as, gender, nationality
and age, but also,
for example, education and work background.
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Our people
ING Bank Annual Report 2021
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The appointment in 2021 of Ljiljana
Č
ortan as ING’s chief risk officer and
member of the Executive
Board means that both our Executive and
Supervisory Boards now comprise 33% women.
ING was one
of only 16 companies in the Dutch Female
Board index to achieve this in 2021, the highest
ranked
Dutch bank.
As of 1 January 2022, we will be required
under new Dutch legislation, the Gender
Diversity Act, to set
‘appropriate and ambitious’ targets for improving
gender diversity on our Management Board
Banking
(MBB) and at senior management level
and to report annually on our progress.
The Act also introduces
a quota for new Supervisory Board appointments
to ensure at least one third of seats
are held by
women and one third by men.
At MBB and senior management level there
is still work to be done to make the necessary
progress,
particularly in terms of gender. We are
committed to addressing the imbalances
that still exist, for
example by accelerating the development
of internal candidates for top roles
and attracting more
diverse candidates from the external market.
At MBB level,
25% of our leaders are women (33% in
2020). This follows the separation of the board
roles for operations and technology in
2021, enlarging
the board with an additional (male) member.
In terms of nationality there is more
diversity at this level
with 63% of MBB members of non-Dutch nationality
.
Looking more broadly,
the number of female
managers remained stable at 37% (37% in
2020) and 30% of managers of managers
(30% in 2020).
Going forward we will report on gender diversity
for senior management at job levels
22 and above in
our new global job architecture (GJA) classification
that was introduced at end-2021.
Diversity and succession planning
Research with an external partner in
2021 helped us better understand our leadership
pipeline and
identified actions that can help us to improve
its diversity.
These include to proactively build forward-
looking plans so that succession-planned
candidates are appointed when opportunity
arises.
To bring more diversity into succession planning
we use a template that visualises the
gender and
nationality of the current role-holder and their
successors and we aim to create a
more balanced
pipeline of candidates
on succession lists for around 400 senior
roles. Diversity is considered a key part
of our annual talent review process and we
have integrated the 70% principle
into the leadership
appointment process.
The introduction in December 2021 of
a new global job classification called
Global Job Architecture
(GJA) will also help us identify competencies
and opportunities for every role at ING. Previously
job
profiles were defined locally; now we can
compare, match and understand jobs
across borders and
business lines, enabling us to make more informed
decisions about our organisational structure,
workforce planning, benchmarking and
diversity.
Gender pay gap
The gender pay gap represents the average
difference between the remuneration
of men and women.
It’s a prevalent societal issue whereby women
are generally considered to earn less than
men.
According to the European Commission, at
European level this is 14.1% less and at
Dutch level 14.7%.
These pay differences may be due to a
variety of reasons, most typically being that
there are less
women within the (higher earning) senior
management layer and women tend to
work part time more
often.
We acknowledge this is likely to be the case
at ING too and we are committed to annually
assessing
and monitoring the gender pay gap in our
organisation at a global level through the
gender-neutral
pay project.
ING is committed to paying men and women
equal pay for doing work of equal value.
The ING
Remuneration Regulations Framework (IRRF)
guides our remuneration policies in all ING
countries. One
of its principles is that these policies are gender-neutral.
All countries are required to review their
policies each year and certify that they
adhere to the principle of equal pay for
work of equal value.
The gender-neutral pay project will help them
with this.
Gender-neutral pay project
Building on the introduction of the Global Job
Architecture in 2021, which enables us
to compare like-
for-like jobs, the gender-neutral pay project
aims to define, build and deliver going forward
a
standardised, replicable annual process
and accompanying tool for determining whether
men and
women at the same job level are receiving
equal pay for equal work.
All employees in the same job family and
at the same job level within a country will be
compared
using gender-neutral characteristics (e.g. global
job level, tenure, etc.). Where these
characteristics are
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Our people
ING Bank Annual Report 2021
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equal but the remuneration is not, and the
reason for the pay difference is not supported
by mitigating
circumstances (e.g. time spent outside of
the workforce), we will take appropriate measures.
The tool
will also calculate ING’s annual global gender
pay gap. We’ve committed to publishing the
average pay
of all men compared to the average pay
of all women as a percentage in our
2022 Annual Report.
This year, ING improved its rating in the 2021
Bloomberg Gender Equality Index, scoring
70.35%
compared to 70.26%
in 2020. The index tracks the performance
of public companies in their efforts to
promote gender equality.
Inclusion
Inclusion is part of our Orange Code, which
encourages us to help others to be successful.
We have
more than 30 employee networks
and employee-led diversity initiatives. The
Lioness network, for
instance, aims to help women realise their
ambitions; Enable is an inclusion network for
all abilities;
BEING is ING’s Black Employee Inclusion Group;
while Experience aims to achieve senior
inclusion and
RING is our community for young professionals
under 36. ING is a founding partner of Workplace
Pride,
an international platform for LGBT+ inclusion
at work. In 2021, we were again recognised
as an
‘Ambassador’ by the Workplace Pride global
benchmark, which scores companies
in eight areas and
identifies best practices. ING scored 77.2% (72.3%
in 2020).
To create an environment where people
can truly feel free to be themselves
and where people
decisions are made objectively and fairly,
we need to reduce our biases. One
way is through a ‘Banking
on inclusion’ training programme for managers
and HR professionals. A total of 214 managers
participated in the training sessions for senior
leadership in 2021. In addition, an e-learning
on
unconscious bias has been available to all
employees globally since 2019
.
To reduce biases in our hiring processes, we’re
rolling out a three-step evidence-based
approach that
aims to ensure a fair and objective process for
every candidate. It’s about predictive validity
and
overcoming unconscious biases and involves
analysing jobs to establish the competencies
required,
structured interviews and diverse interview panels,
and calibrating before
making a decision.
To strengthen the inclusive culture across
our organisation, we organised a
global D&I day with over
100 global initiatives. This year’s theme
invited employees to ask,
‘How inclusive are we really?’, inviting
them to think about their unconscious biases.
Inclusiveness also means making sure everyone
has equal access to our services
and products,
regardless of their ability, and that all our employees
have equal access to our facilities and
development opportunities. But more than
this, it’s about creating equity within
our organisation to
achieve fairer outcomes based on people’s
personal circumstances. Accessibility for
our people means
supporting employees to do their own thing
and facilitating the means to do it.
As an inclusive employer, we want our benefits
to be inclusive too.
A 2020 review of our benefits
packages globally concluded that overall these
are of a good standard, particularly with
regard to
inclusive themes such as equal paternity/maternity
leave, financial education and wellbeing. We’ll
further investigate how to maintain these
standards in the long term.
In the Financial Times’ Diversity Leaders
2021 report, an independent study focusing
specifically on
gender, age, ethnicity, disability and sexual
orientation, ING was listed in 225th place
out of 850
companies, up 100 places on 2020.
Our stance on discrimination
Discrimination includes any distinction,
exclusion or preference made on the
basis of gender, cultural
background, experience, religion, race, ethnicity,
disability, family responsibility, political
opinion,
sexual orientation, social origin or any other status,
that has the effect of nullifying or impairing
equal
opportunity or treatment in employment.
Any distinction, exclusion or preference
not based on the
inherent requirements of the job is deemed to
be discrimination. We are working together to
create an
inclusive workplace and, in turn, play our part
in building an inclusive world.
To support our ongoing
efforts to create meaningful change, we have
measures such as our Global Code of Conduct
that aim
to keep discrimination from happening within
our company – towards both our customers
and
employees.
Talent
development and learning
ING expects employees to take the lead in their
own personal and professional development
and
ensure that their skills and work experience
stay relevant both within ING and in the
external
environment.
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ING Bank Annual Report 2021
42
We offer several development tools to support
employees in shaping their own career paths.
These
include an Individual Development Plan (IDP)
with a framework for identifying actions
that will improve
their performance in their current role, the
skills they might need for a next role, perhaps
even outside
ING. The IDP is available in all countries and
over a third of all employees have put
a plan in place.
As with performance management, two
formal moments are scheduled at
mid-year and year-end to
check in on progress.
ING’s International Talent Programme (ITP) is
designed for international graduates with
high growth
potential,
and we have various leadership programmes
in place as well as a library of online trainings
via the My Learning platform.
My Learning
My Learning is ING’s open, digital learning
platform that gives employees access
to our complete
learning offering in one location. Launched
in the Netherlands and Belgium in
2020, it was made
available to employees in most countries
during 2021 (except Turkey, Germany and
Luxembourg) and
learning content is now available in all nine ING
languages.
My Learning contains both ING content
as well as external content on topics that are
important to the
bank. The learnings are selected specifically for
the user; the better the platform ‘gets
to know’ the
employee, the more the recommendations
are based on the user’s role, interests,
completed learnings
and search behaviour.
Leadership programmes
Leadership is one of our Big 6 capabilities. To strengthen
the leadership skills within our organisation,
we introduced an online training in 2021 for
new and aspiring leaders, to help
them transition from an
individual contributor to an effective leader.
Available via My Learning, the Leadership
Fundamentals
Programme (LFP) is entirely self-steered
and includes a self-assessment tool
to help users identify their
learning goals and determine their own path
through the online trainings. Some 968
people
participated. LFP replaces the First-Time Leader
Programme.
For leaders and managers, we offer one-
to-one coaching on remote leadership. Part
of this focuses on encouraging them to steer
on output
rather than time spent.
For more experienced leaders we offer group
activities as well as self-steered learning
initiatives. These
are largely focused on motivating employees,
getting the most out of teams, and behaviours
that
drive performance – topics that are even more
more relevant in the context of working
from home and
the acceleration in changes we’re all experiencing.
All global leadership programmes have been
updated to reflect the context of leading
in Hybrid Mode. This includes a series
of webinars on topics
such as vitality and motivating a team from
a distance.
In 2021, ING spent €47 million on training
and development, equivalent to €820 per full-time
equivalent. In 2020 this was €43 million
and €760 respectively.
Performance management
Called Step Up, our global performance management
practice centres around so-called ‘continuous
conversations’. These are regular, informal
chats between employees and their manager
and
encompass the employee’s job, ‘stretch’
ambitions and our Orange Code behaviours.
In addition there
are three formal check-ins during the
year – target setting, mid-year review
and year-end evaluation.
When assessing performance, we always
encourage managers to look broadly
at an employee’s
performance, considering all areas affecting their
work and home life. With Covid-19
introducing
difficult circumstances for many employees
– for example, juggling home-schooling or
caring for
relatives while working – this balanced view
continued to be relevant this year. We provided
managers
with materials to support them in their
performance assessments and in conducting
continuous
conversations in the context of the pandemic.
In 2021, 94% of employees took part
in a performance
review, the same as in 2020.
Organisational health
It’s important to ING that employees feel
heard and are able to voice their opinions.
We use a
continuous listening framework to get
an ongoing sense of how our people are doing
and how they
perceive our strategic objectives – and
make sure we act on that feedback.
Every 12 to 18 months we
measure how healthy we are as an organisation
and whether we’re ready for the future in
terms of
our core organisational skills and capabilities.
Between this full diagnostic Organisational
Health Index
(OHI) survey we run smaller pulse surveys
so we can respond more rapidly to
employee feedback.
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ING Bank Annual Report 2021
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Based on the outcomes of the last full OHI in
2019, we defined three focus areas: strategic
direction,
leadership, and innovation and learning. These
were the starting point for action plans
we developed at
local, business and functional levels.
A full OHI was held again in May 2021,
with a record number of participants:
40,000 people or 67% of
our total workforce. On a global level,
our overall health score improved. More
colleagues indicated
ING’s purpose was communicated clearly
and that they better understood how they
contribute to
ING's success. More colleagues also felt their
views were included in decision-making
and that leaders
showed concern for their welfare.
This was reiterated in the shorter pulse survey
in November 2021, which showed improvements
in key
practices around direction and leadership.
We’ll use the outcomes of these surveys to
define our action
plans and priorities for 2022.
Digitalisation: using data to improve the employee experience
Throughout 2021 we continued to deliver on
our ambition to use data to ensure our employee
experience is on a par with our customer
experience. This is founded on actionable
insights to improve
the employee experience, and having the
capabilities to lead initiatives that redesign
the customer
experience and implement scalable digital solutions.
We use the Employee Experience Index©
to gain more insight into the touchpoints
that impact
employee engagement. Piloted in four
countries in 2020, the survey was rolled out
to five additional
countries in 2021 and has become a recurring
initiative offering actionable insights into
the
experiences of ING employees throughout the
employee lifecycle.
Starting a new job is one of the crucial stages
in the employee lifecycle. In 2021, we
scaled up our
digital onboarding tool that guides new hires
and their managers through the onboarding
journey,
helping to make new colleagues feel welcome
at a time when they can’t meet their teams
in person.
Launched in the Philippines and the Netherlands
in 2020, the tool was live in 13 additional
countries by
the end of 2021.
To sustain an enhanced employee experience
and strengthen our HR foundation,
we implemented the
HR unite retrofit programme in the Netherlands,
France and Australia in July 2021. It comprises
five
components: one HR system with standardised
digital processes; consistent people services
delivery
centralised in two hubs for major ING countries;
redesigned international mobility and recruitment
services; technologies to support digital self-service
and support (chatbots and livechat for employee
queries); and enhanced data management
and reporting. The HR unite programme
will be rolled out in
three phases to all ING countries (except
Russia and Turkey) by end 2024 .
Supporting this data-driven digital HR foundation,
we’ve implemented a roadmap for improving
the
way we collect, store and use employee
data. As part of this, we deployed a global
HR data lake zone
that will be used for staff reporting from early
2022, drawing employee data from
multiple sources and
countries. This will lead to improved data
governance and compliance controls and
improved data
quality due to standardised data definitions,
ultimately leading to more reliable reporting
and better
decision-making.
Organisational and people impact
The trends that have shaped our direction
so far continue to influence our business
and the
challenging external environment requires
us to remain flexible in how and
where we deliver on our
strategy. This can impact the way we operate
and the skills and capabilities we need. It
means we
sometimes need to make organisational
changes or refocus our activities. These
decisions can impact
our people; their roles can
change or cease to exist.
As part of our ongoing and careful assessment
of our activities and whether they’re
likely to achieve
the preferred scale in their market within
a reasonable time, we decided in 2021 to
exit several Retail
Banking markets. In Austria, we transferred
our Retail operations, including employees
to bank99, the
digital bank of the Austrian postal services,
and in the Czech Republic around half
of our customers
were migrated to Raiffeisenbank. Around
225 colleagues were impacted. In France, we
agreed a social
plan with the local unions for 460 affected
employees. The plan is subject to
approval by the French
Ministry of Labour.
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ING Bank Annual Report 2021
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The decision to phase out the services of our
Payvision subsidiary in the coming months
will affect
around 160 Payvision employees.
They will be supported through the transition
in close consultation
with the works council and in line with Payvision’s
employer practice standards.
In the Netherlands, where customers are increasingly
choosing to use digital channels rather than
visiting ING in person, we announced the
closure of 69 of our 134 branches in
March, moving services
to other ING branches or service points.
The vast majority of colleagues affected by
the announced
changes are expected to find new roles in
other parts of our business.
Furthermore, the 2020 decisions to simplify the
geographical and client footprint of
our Wholesale
Banking business and stop the Maggie transformation
programme resulted in a headcount reduction
of approximately 1,000 full-time equivalents
(FTEs) mainly over the course of 2021.
ING does not make decisions like these
lightly. We are committed to treating
employees impacted by
the changes with respect and care. We aim,
as far as possible, to help them develop
their skills or find
new job opportunities inside and outside
ING.
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ING Bank Annual Report 2021
45
Risk management
The Covid-19 pandemic continued to have a negative impact on the
global economy. Although economic activity continued to recover in
2021, strains on supply chains and inflation hamper the recovery. This
section explains ING’s approach towards risk management and how this
was impacted by the Covid-19 pandemic.
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
aims to
safeguard ING’s financial strength and reputation
by promoting the identification, measurement
and
management of risks at all levels of the organisation.
Taking measured risks aligned with its Risk
Appetite is core to ING’s business.
The risk management function supports
the Executive Board in formulating the risk
appetite,
strategies, policies and limits. It provides
oversight, challenges and controls throughout
ING on risk-
related items.
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’
model. 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 solvency, credit, market, funding
and liquidity, ESG and
climate change, business, operational, IT,
compliance and model risks.
Risk profile
This chart provides high-level information
on the risks arising from ING’s business
activities:
Risk profile
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Risk categories
ING’s main risks are described in the
categories below. The chapters in the risk
management section are based on how risks
are managed internally. Operational and IT
risk are part of the NFR chapter.
Overview of Risk Categories
Risk Categories
Sub-categories
defined as:
Financial Risk
Solvency risk
The risk of lacking sufficient capital to fulfil business objectives, regulatory requirements
or market expectations. A bank that is completely insolvent is unable
to pay its
debts and will be forced into bankruptcy.
Credit risk
The risk of potential loss due to default by ING’s debtors (including bond issuers) or
trading counterparties.
Market risk
The risk of potential loss due to adverse movements in market variables.
Funding and liquidity risk
The risk that ING cannot meet financial liabilities when they become due at reasonable
cost and in a timely manner.
Non-Financial Risks
Operational risk
The risk of direct or indirect loss arising from inadequate or failed internal processes,
people and systems or from external events.
Information (Technology) risk
The risk of financial loss, regulatory sanction and/or reputational damage
due to ineffectively utilising information, or inappropriately protecting
information.
Compliance risk
A threat posed to ING’s standing resulting from failure to act in line with applicable
laws and regulations, internal rules (including ING’s Orange Code and
global Code of
Conduct) and/or societal expectations.
Overarching Risks
ESG risk (including climate
risk)
ESG is the risk that environmental, social and governance issues stemming
from the banks clients result in reputational damages and/or financial
losses for ING. Climate
risk is the risk that a financial loss will be incurred due to climate change events,
either through physical risk (eg flooding) or transition risk (eg solar energy instead
of
gas).
Business and strategy risk
The value or earnings loss due to business and strategic decisions that do not
materialise as planned. This risk can be expressed in terms of volumes, margins,
expenses
and fees and commissions.
Model risk
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.
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Top
and emerging risks
The risks listed below are defined as existing
and emerging risks which could cause
the actual results to
differ, in some instances materially, from those
anticipated. They may have a material impact
on the
reputation of the company, introduce volatility
in future operating 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.
The 2021
risk assessment confirmed our top and
emerging risks. The top risks in 2021 are related
to
cybercrime, data risk management and a persistent
low interest rate environment.
On top of that, the
Covid-19 pandemic continued to impact our
business environment. Climate change risk
remains an
emerging risk, reflecting the impact that
climate change may have for the financial
position and/or
reputation of ING.
The Russian invasion of Ukraine
The Russian invasion of Ukraine and rapidly
escalating events in late February and
early March 2022 is
a significant tragedy to the people and is
causing disruption to business and economic
activity in the
region and worldwide. Subsequently, the United
States, United Kingdom and Europe initiated
sanctions
against Russia in late February and early
March 2022. In response, the Russian
central bank enforced
liquidity and currency controls.
On sanctions
The international community is leveraging
their sanction tools in response to the escalation
of Russia’s
invasion of Ukraine. Accordingly, as part of ING’s
know your customer and compliance risk governance
and procedures, ING is continuously monitoring
the situation to stay abreast on all relevant
updates to
implement effective and appropriate additional
control measures and to manage the increased
risk
and financial impacts of these developments.
Our exposures
ING has wholesale banking activities in both
Russia and Ukraine, as well as investments in
Russia, some
of which are denominated in local currency.
As a result of the Russian invasion of Ukraine
and related
international response measures, including
sanctions and capital controls, we
may be exposed to
increased risk of default of counterparties
located in Russia and Ukraine, counterparties
of which the
ultimate parent is located in Russia or may
be considered effectively controlled or influenced
through
Russian involvement, and other counterparties
in sectors affected by the international response
measures. Furthermore, we have counterparty
exposure to Russian entities in connection
with foreign
exchange derivatives for future receipt of foreign
currencies against RUB.
As of 28 February 2022, ING’s total Russia-related
exposure was approximately €6.7 billion (~0.9%
of
our total loan book), mainly consisting of
liquidity facilities and pre-export financing.
In Ukraine, our
Basis of disclosures (*)
The risk management section contains information
relating to the nature and 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
Bank Consolidated financial statements and
are indicated by the symbol (*). This is
applicable for the chapters, paragraphs,
graphs or tables within the risk management
section that are indicated with this symbol
in the respective headings or table header.
This risk management section also includes
additional disclosures beyond those required
by
IFRS 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 CRR2
and CRD V, 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.
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exposure was approximately €500 million
mainly with liquidity facilities and other lending.
Around
€700 million exposure to Russian clients
was affected by new sanctions. Early
March 2022, we
announced our decision to not do any
new business with Russian companies.
The impact on our business is being monitored
on a continuous basis. A central team
was established
for daily monitoring and we intensified monitoring
of our counterparties. Furthermore, we
are working
together with counterparties, both onshore
and offshore, to limit risks associated with
derivatives
exposures.
Below table illustrates our exposure to
Russia per 28 February 2022. Compared
to year-end 2021, as
disclosed in the credit risk portfolio section, the
exposure to Russian borrowers of €4.8 billion
increased
with approximately €500 million due to
central bank placements of deposits received
and (limited)
drawings under committed facilities.
Russia exposure
1
in EUR billion
28 Feb
2022
Russian borrowers
2
5.3
Non-Russian borrowers with Russian ownership
1.5
Total
6.7
Of which covered by ECA (0.9), CPRI (1.3) and European parent guarantees (0.3)
3
2.5
Total booked at ING in Russia
4
1.3
Of which covered by European parent guarantees
0.3
1
Credit outstandings of lending, pre-settlement (including lending related derivatives), money
market and investment
activities, excluding off-balance sheet positions such as undrawn committed exposures of €0.6
billion
2
Includes Russian borrowers with non-Russian (ultimate) ownership
3
Refers to Export Credit Agency (ECA) and Credit and Political Risk Insurance (CPRI)
4
Exposures booked at ING in Russia are partly supported by Legal lending
limit guarantees from ING Bank N.V.. These
guarantees cover current outstandings of approximately €150 million
Below table illustrates our exposure to Ukraine
per 28 February 2022.
Ukraine exposure
1
in EUR billion
28 Feb
2022
Booked at ING in Ukraine
0.4
Booked at other ING entities
0.2
Total
0.5
Of which covered by (European)
parent guarantees
0.2
1
Credit outstandings of lending, pre settlement, money market and investment activities. Off-balance
positions are not
included but are negligible
Covid-19 pandemic
In 2021, the Covid-19 pandemic continued
to have an impact on people, businesses
and the economy.
While vaccination rates continued to increase
and Covid-19 related restrictions were lifted in some
jurisdictions in the first part of 2021, the end
of 2021 was again marked by new waves of
infections.
Uncertainty concerning the ongoing pandemic
remains and we therefore continue to be
cautious and
remain ready to support our clients when they
need it. Further, the economic environment
in 2021
was marked by supply chain disruptions, rising
energy and commodity prices, significantly
increasing
house prices and increasing inflation impacting
companies and consumers.
ING is carefully monitoring the Covid-19 pandemic
and the impact on its people and business.
A central
ING team monitors the situation globally
and provides guidance on health and safety
measures, travel
advice, and business continuity for our
company. In addition, a situation in which
most or some of
ING’s employees continue working from home
may raise operational risks, including with respect
to
information security, data protection, availability
of key systems and infrastructure integrity.
Increased attention is being paid to our financial
risks. ING performed several types of stress
tests and
sectoral reviews to assess the potential impact
of the covid-19 pandemic and the uncertainties
of the
current economic environment (e.g. inflation
risk stress test) on its financial position.
These stress tests
and reviews helped ING to get further insights
into the potential impact and to define
appropriate
mitigating actions.
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Potential economic implications for the
countries and sectors where ING is active,
which could have a
material adverse effect on ING’s business
and operations, are continuously being identified,
assessed
and monitored in order to execute possible
mitigating actions.
Financial crime
We’re committed to fulfilling our role
as a gatekeeper to the financial system,
in order to protect our
customers, society and our bank from the
corrosive effects of financial crimes such
as money
laundering, terrorist financing, bribery and
corruption, sanctions evasion and
tax offences. It’s our
intention to not just comply with applicable
laws and regulations in relation to financial
crime, but also
to continue to strengthen our financial
crime control framework in a robust and sustainable
way to
prevent, detect and respond to illicit activity.
We continue to seek to harness
new and innovative
technological capabilities in order to create
a safer environment for our customers, our
bank and
society. In 2021, we adjusted our financial
crime risk appetite and framework of policies
and
procedures to reflect changes in the risk environment
and responded to external developments;
including the Pandora Papers release. We
also sought to further empower our
people with the skills
and knowledge to fight financial crime; sharing
insights with them about emerging
and evolving
threats (including in relation to financial
crime risks linked to or heightened by the
Covid-19 pandemic)
and enhancing our training framework.
However, fighting financial crime and protecting
the integrity of the financial system is
a challenge for
all banks, given the constantly changing
environment and pace at which criminals
evolve their
methods. We believe we can be more effective
in our efforts if we collectively join forces
and share
intelligence with other banks and with national,
European and international authorities
and law
enforcement to combat financial crime. We
therefore continue to proactively
participate in public-
private partnerships, such as Transaction
Monitoring Netherlands and Germany’s
Anti-Financial Crime
Alliance, and to collaborate with other banks.
Cybercrime
Cybercrime remains a continuous threat
to companies in general and to financial institutions
in
particular. Both the frequency and the intensity
of attacks are increasing on a global scale.
The
sophistication and implications of ransomware
attacks are a growing concern in the threat
landscape.
The continuous enhancement of the control
environment to protect from, and detect
and respond to,
e-banking fraud, DDoS, targeted attacks
and more specific ransomware attacks
is of the highest
priority. Additional controls 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. In
addition, ING
continues to strengthen its global cybercrime
and fraud resilience through extensive
collaboration
across the globe with financial industry peers,
law enforcement authorities, government
(e.g. National
Cybersecurity Center) and Internet Service
Providers (ISPs).
Data risk management
Data, whether customer, financial, risk or
other busines data, is at the core of the ING’s
purpose: data
leads to insights and insights empower people
to stay a step ahead in life and in
business. The ING
Data Strategy is creating a single vision
and governance, empowering business
users and building a
harmonised foundation regarding data. This
encompasses further embedding data functions
and
improving (bank-wide) data operations, and simplifying,
standardising and modernising its technology
and data platforms. Recognising that data
risk is one of the top risks of the bank, ING
is creating a
holistic view on how ING manages risk around
data including personal data protection,
data security,
data quality and data ethics.
Low/negative interest rate environment
The persistent low/negative interest rate environment,
with central banks holding their rates
at
negative or low levels, continued to negatively
impact short-term as well as long-term
market rates.
The Covid-19 pandemic intensified the
low/negative interest rate environment. Interest
rates are
expected to remain at current levels for
some time. This is posing a challenge
for bank business models
that earn net interest income from traditional
savings activities. In addition, loans
are being repriced at
lower rates which is putting more pressure
on margins and impacting long-term
profitability. ING is
continuously assessing this market environment.
ING has introduced negative interest rate
charging
and is reducing thresholds for charging negative
interest rates. Further, ING is expanding
other sources
of income such as net fee and commission
income.
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Sourcing risk
The scope of functions and services that
ING businesses source to third parties
and internal parties has
risen in recent years. As such sourcing has
evolved from being a means to control
costs to a
mechanism for building centres of excellence
internally and external partnerships
that can add real
strategic value. Apart from the clear tangible
benefits sourcing adds to ING, it also
raises new risks for
the bank. Primarily these are operational risks
associated with third parties performing
(parts of)
functions and services, and range from underperformance
and data privacy to business continuity
and
cybercrime.
With growing reliance on sourcing, ING’s
Sourcing Policy is baselining the requirements
in terms of
controls when sourcing. The Sourcing Policy
which is, at least in part, based on
regulatory requirements
allows ING to implement the required control
assurance over the functions and activities sourced
to
third parties and internal parties, throughout
the entire sourcing lifecycle.
Climate change risk
ING is increasingly aware of the risks associated
with climate change and how
these can impact our
clients and their financial stability. This includes
physical risk and transition risk. Physical
risk can be
acute, such as flood and wildfires, or chronic,
such as increased temperature and rising
sea levels.
Transition risk can be driven by policy, technological
or market changes as we shift towards a
low-
carbon global economy and potentially
lead to stranded assets.
In addition to our Climate Expert Group (CEG)
and Climate Change Committee (CCC), an
internal
programme was launched in 2020 to address
the impacts resulting from climate change.
In 2021, this
programme was brought under ING’s global
oversight of regulatory programs. The
governance of the
programme was recently strengthened with
clear allocation of responsibilities for oversight
and
execution. As such, climate risk will be included
in our risk management framework in a forward-
looking approach. In our integrated climate
report on ing.com we report on
our progress until end-
2020. The report details our approach
and sector-specific insights.
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.
Each line has a specific role and defined
responsibilities, with the execution of tasks
being distinct from the control of
these same tasks. The
three lines work closely together to identify,
assess, and mitigate risks.
This governance framework is designed in such
a way that risk is managed in line with
the risk appetite
approved by the Management Board Banking
(MBB), the Executive Board (EB) and the
Supervisory
Board (SB); and this approach is cascaded throughout
ING. The MBB is composed of the EB of
ING
Group, the heads of the business lines, the
chief technology officer (CTO) and the
chief operations and
transformations officer (COO).
The heads of ING’s banking business and support
functions and the heads of the country
units, or their
delegates, are the first line of defence. They have
primary ownership, and accountability
and
responsibility for assessing, controlling and
mitigating all financial and non-financial
risks affecting
their businesses, as well as for the completeness
and accuracy of the financial statements
and risk
reports with respect to their responsible areas.
The CTO 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. 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.
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The internal audit function forms the third
line of defence. It provides independent
assurance to the
Audit Committee (part of the SB), the EB and the
MBB on the quality and effectiveness of
ING’s internal
control, risk management, governance and
implemented systems and processes 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 SB approval.
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 an SB; both tiers play an important
role in managing and monitoring the risk
management framework.
◾
The SB is for risk management purposes
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 risk profile within the agreed risk
tolerance. The CRO reports to the SB risk
committee 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 and 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 monthly. After the MBB
and the
GCTP, the Credit and Trading Risk Committee
(CTRC) is the highest level body authorised
to
discuss and approve policies, methodologies,
and procedures related to credit and trading
risk.
◾
Global Credit Committee – Transaction Approval
(GCC(TA)) discusses and approves transactions
that entail taking credit risk (including investment
risk), country, legal, and environmental
and
social 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
held at least quarterly.
◾
The Model Risk Management Committee (MoRMC)
discusses and steers, on a monthly basis,
the
overall model strategy. MoRMC discusses
and approves policies and methodologies
related to
model risk management.
◾
Climate Change Committee (CCC) is responsible
for mandating processes for identifying
and
managing climate-related risks and opportunities,
guiding climate-related policies, strategy,
objective-setting and performance monitoring.
Further, it is responsible for monitoring
and
overseeing progress on relevant goals and targets.
The CCC meets six times a year.
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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, compliance and model) that
arise in their
daily operations. They are accountable for
the implementation and execution of appropriate
risk
frameworks affecting their businesses in
compliance with procedures and processes
at the corporate
level. Where necessary, the implementation
is adapted to local requirements.
The regional and/or business unit (BU) CROs
are involved in these activities. The local
(regional and BU)
CRO is responsible for the analysis, monitoring
and management of risks across the
whole value chain
(from 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 crime,
Foreign Account Tax Compliance Act
(FATCA), Common
Reporting Standard (CRS) and ESR.
Organisational structure (*)
The Risk Management function consists of
corporate risk departments headed by General
Managers
directly reporting to the CRO and regional/business
unit CROs functionally reporting to the CRO.
The
corporate risk departments support the CRO
to set the Bank's risk appetite, develop
the corporate
policies, rules and global procedures and
infrastructures.
In 2021, the CRO for ING in Germany started
to report functionally to the Group CRO,
instead of the
CRO C&G, seen the importance of the German
market. The following organisation chart
illustrates the
reporting lines in 2021 for the risk management
organisation:
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The banking industry has been re-assessing the
business environment it operates in
and the pandemic
has accelerated a number of trends, which
have an impact on the types of risks we
manage as a bank.
Consequently, ING has reviewed its risk organisational
structure, looking to improve governance
with a
more holistic and integrated approach towards
risk management by strengthening group risk
steering
and further simplification and automation of
processes.
With the strategic review of the risk organisational
structure, that will start as of March 2022,
the
following corporate departments will be
created:
●
‘Credit risk’
will set the credit risk strategy for ING
and will ensure credit risk and credit
restructuring will be managed from an overarching
point of view, rather than per business line.
●
‘Integrated risk’
will have central ownership on bank-wide
risk topics that are not exclusively
related to one risk type, in order to ensure that
a consistent approach and interdependencies
between the various risk types are taken
into account. The current Risk & Capital
Integration
department will move into Integrated
Risk, just as Model Development from Financial
Risk and
the Professional Practice Unit from NFR. An
Environment, Society & Governance
Risk team will
also be introduced.
●
‘Risk Culture & Behavioural risk’
will put risk culture on the agenda
of the bank globally,
provides a clear vision, aligned strategy and
methodological approach in order
to identify,
assess and bring change with regards to how
ING employees act on risks.
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
for 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 of 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
In its Enterprise Risk Management (ERM)
Framework, ING has explained the approach
to mitigate risk
outside ING’s risk appetite. The internal
control framework (ICF) is thereby translating
regulations and
internal requirements into policies articulating
specific risks and control objectives. These policies
form
the basis for translation into process control
standards, which are used by the business
to support and
promote an effective risk and control environment.
The ICF includes binding principles, definitions,
process steps, and roles and responsibilities
to create consistent bank-wide policies
and control
standards.
Global policies and control standards are developed
and maintained or updated within the ICF. These
global documents are designed by head-office
functions and are to be adhered to
by all ING entities
and support functions. In line with the
ERM approach, ownership for policies
will be with the 2nd line of
defence (2
nd
LoD), while control standards are to
be owned by the 1st line of defence (1
st
LoD). Global
policy and control standard
documents are approved by relevant approval
bodies (e.g. SB, EB, MBB and
Bank NFRC).
The policies are based on the risk taxonomy,
which is designed to prevent overlaps in policy
control
objectives. The control standard owners
are responsible for defining the key controls
that mitigate the
critical and high inherent risks in the business
processes.
The process of developing policy and process
control standard documents includes the following
steps:
identify the document owner, determine the
relevant stakeholders, define a risk-based
approach,
perform an impact assessment, involve relevant
stakeholders and (local) entities for sounding
on key
and expected controls, and determine
an approval body.
The principal role of the gatekeepers
is to provide quality assurance and to
advise on the relevant
approval bodies. The ICF gatekeepers challenge
document owners on the alignment of internal
control
documents with the agreed methodology
and risk taxonomy, and verify that
the development and
communication of those documents are
in line with the agreed process. All policies,
control standards,
and procedures are published on ING’s intranet.
New and updated documents are periodically
communicated by means of a dedicated policy
update bulletin to the country managers and senior
heads of business departments.
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Risk culture
At ING we attach great importance to a sound
risk culture, which is essential for
performing our role in
society responsibly and to keep the bank safe,
secure and compliant. Our risk culture
determines the
way in which employees identify, understand,
discuss, and act on the risks we are confronted
with and
the risks we take. In 2021, we drove several
enhancement projects based on our
2020 assessment of
our risk culture. Most notably, enhancing
our risk culture monitoring activities
and bringing non-
financial risk to life.
Orange Code and the global Code of Conduct
The Orange Code and the global Code of
Conduct are the foundation of ING’s
risk culture. The global
Code of Conduct defines the most essential
conduct principles expected from ING employees
in their
daily activities, to create additional risk awareness
and better meet expectations stated in
external
rules and guidelines. In 2021, the global
Code of Conduct has been embedded
into our employees’
performance management cycle to ensure
continuous attention to the Global Code
of Conduct, and
dialogue on how to apply it in our daily work
practice.
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 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 measure
each other’s performance.
Orange Code decision-making
To enhance risk awareness, we continued to support
monitoring risk culture and compliance risk
in the
business. This included training by compliance
and data experts to enhance balanced
decision-making
in line with the Orange Code decision-making
model to support moral learning and
well-balanced
decision-making. A four-step model aims to
find out where the moral weight lies for
a potential
decision.
Following the incorporation of the model
in the global Product and Approval Process
(PARP) policy in
2020 it has been embedded in several local
PARP policies in 2021.
Compliance is continuing to train
experts in this area within the local Compliance
teams to support the organisation in properly
applying
the model in practice in their respective
countries.
Learning
In 2021, we continued to strengthen and
expand our learning offering on risk topics
and the
governance around this. The learning focuses
on compliance, non-financial risk and financial
risk.
We established a board to approve and
monitor progress on the required learning
that is taken by all
staff. This will ensure more attendance by
the learners, bank-wide alignment,
and connection between
learning, business impact and management
actions. It has also improved feedback and
evidencing of
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outputs. The board brings together content
owners, learning experts and corporate communications
to
ensure the best fit for the training need.
We also took steps to expand our learning
for risk professionals, with the Risk Academy
which provides
focused learning for Risk staff. These take the form
of various online learning modules and frameworks
that support employees in developing their
knowledge, skills and behaviours.
Dutch Banker’s Oath
In the Netherlands, all employees of ING take
the Bankers’ Oath and pledge this
promise in a
meaningful ceremony. The Oath came into
force in the Netherlands on April 1st of
2015, as part of a
joint approach from all banks, aimed at
introducing social regulations, a revised
Dutch Banking Code
implementing an oath with associated rules
of conduct and disciplinary law. This way
the Dutch banks
show society what they stand for and are
accountable for, both as individual banks
and as a sector. In
2021, due to the Covid-19 pandemic,
ING NL changed to virtual Bankers’ Oath
ceremonies via Teams,
instead of the former physical ones, to ensure
that all new employees (around 400
a month) can still
take the Bankers’ Oath in time and in a meaningful
ceremony. Before taking the Oath, an e-learning
is
followed and the importance of the Oath
is discussed. Also, dilemmas that the employees
may come
across in their daily work are shown, to
ensure careful balancing of the interests
of all our stakeholders,
in the decisions we make. In 2020 and 2021
the whole Bankers’ Oath programme for new
joiners was
revised and updated, to ensure that all elements
still align with the current developments,
both
internally and externally.
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.
Centre of Expertise on Behavioural Risk Management (BRM)
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 that it
is less tangible compared to other
risk areas because it
focuses on behavioural patterns and their
drivers. There are patterns in how decisions
are made, how
people communicate and whether they
can take ownership. Behaviour is driven
by formal and
informal mechanisms. 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 CRO.
The global BRM
Centre of Expertise not only assesses behavioural
risk in the organisation, but also has
the mandate to
direct, challenge and support business owners
to intervene on behavioural patterns
and their
underlying drivers.
Behavioural risk assessments
Behavioural risk assessments (BRAs) identify
and analyse undesired 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 is used
as the standard across
ING to signal behavioural risks going forward.
Behavioural risk interventions
Based on the results of the executed behavioural
risk assessments, BRM mitigates behavioural
risk in a
focused manner. Effective mitigation requires
a deep understanding of what drives undesired
behaviours. Behavioural and organisational science
theories and evidence-based techniques
and tools
play an important role in designing and facilitating
interventions. 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 ‘connection, 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.
In addition, interventions are also set in motion
that focus on enabling employees
to build awareness
on behavioural risk and support them in
initiating solutions to mitigate the potential
behavioural risks.
After each assessment the results are shared
with the management teams of
the assessed units and
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with the participants of the BRA in a feedback
session. This is followed up with a dialogue
starter toolkit,
enabling teams to reflect on the results,
discuss opportunities for improvement
and call for first steps
towards sustainable solutions.
In 2021, BRM pioneered a new approach
to address behavioural risk challenges
related to decision-
making, ownership and group dynamics behavioural
challenges on a wider scale.
The used approach is
a 'World Cafe' – a large group intervention
that drives common understanding, engagement
and
ownership and enhances learning and behavioural
change.
The BRM team works closely with the business
units and departments such as HR, Internal
Audit, and
Compliance to align on and embed desired
leadership and risk behaviours (i.e.
speak up, psychological
safety, communication, guiding leadership).
Risk cycle process
ING uses a step-by-step risk management
approach to identify, 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. The cycle is designed to
determine what
the risks are, assess which of these risks
can really do harm, take mitigating
measures to control these
risks, monitor the development of the risk to
see if the measures taken are effective,
and report the
findings to management at all relevant
levels to enable them to take action when
needed.
The cycle recurs in two ways. First, the identification,
assessment, review, and update of mitigating
measures are repeated periodically. Second,
this 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 then 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 qualitatively
or quantitatively 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 both
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
both bank-wide and at the 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 the information they need to manage
risks.
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Risk Appetite Framework
The Risk Appetite Framework (RAF) is one
of the foundation pillars of the 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.
Policy
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 SB, defines the
desired risk profile
that is to be 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
(RASs) 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
EB, the 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 are 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, the regulatory
environment and the
economic context. The set of limits used is
split according to the approval levels
needed for them.
Limits that need SB approval are called boundaries
and the underlying metrics supporting the
boundaries which need EB and MBB approval
are called instruments.
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Step 1. Identify and assess ING’s key risks
The outcome of the risk identification and risk
assessment process is used as the starting
point for the
review of the RAF. Within this step, the risks
ING faces when executing its strategy are
identified in the
context of the current economic, political,
social, regulatory and technological environment.
The
assessment identifies whether the potential
impact is material and if it is sufficiently controlled
within
ING’s risk management function. It benchmarks
the current risk framework against regulatory
developments. Known risks are re-assessed
either to confirm risk levels or to
take account of potential
changes. The assessment is contextualised
by the current set of risk appetite statements.
Step 2. Set Risk Appetite Framework
Based on ING’s risk assessment and risk purpose,
boundaries for the overarching risk
frameworks are
set. Once the overarching risk appetite thresholds
have been set and approved by EB/MBB
and
subsequently by 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 Bank NFRC.
Cascading is done via a number of detailed
risk appetite statements which have
been defined per risk
type, the combination of which ensures
compliance with the overarching solvency,
concentration and
funding and liquidity RASs.
Examples of underlying risk metrics include:
◾
Solvency and Profitability (e.g. IFRS P&L-at-Risk
and FX translation risk)
◾
Funding and liquidity (e.g. Liquidity coverage
ratio (LCR) and Net Stable Funding Ratio
(NSFR))
◾
Credit risk (Exposure at Default (EAD) and
Risk Weighted Assets (RWA))
◾
Market risk trading book (e.g. Event risk,
historical value at risk (HVaR))
◾
Market risk banking book (Net interest income
(NII)-at-Risk and Revaluation-Reserve-at
Risk)
◾
Non-financial risk (eg. Expected loss tolerance
and management of audit issues)
◾
Business risk (e.g. IFRS P&L-at-Risk and
Economic Capital)
◾
Model risk (e.g. Number of inadequate
Pillar 1 models)
ING has started including climate risk into its
Risk Appetite Framework by a.o. introducing
climate risk
as one of the dimensions to determine sector
concentration as part of the credit risk
appetite
statements. In the coming years, ING will
extend the climate risk impact to other
risk types to ensure
that the potential risks stemming from e.g.
transition risk and physical risk are properly
captured in the
Risk Appetite Framework.
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.
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 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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Step 4. Monitor and manage underlying risk limits
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 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 one-year horizon, where in the strategic
dialogue 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 complementary and
forward-
looking insights into the vulnerabilities of
certain portfolios, with regards to adverse
macroeconomic
circumstances, stressed financial markets,
and changes in the (geo)political climate.
Since the
outbreak of the Covid-19 pandemic, ING assessed
the potential impact on its financial position
via
different types of stress tests. In addition to
assessing P&L, capital and liquidity position
of ING for a
range of different scenarios, idiosyncratic risks
were also included. The outcome of these
Covid-19
stress tests helped management to get insight
into the potential impact and to define
actions to
mitigate this potential impact.
In the second half of 2021, ING started preparing
for the regulatory climate risks stress
test scenario,
which will be assessed in 2022 as part of the
bi-annual ECB Single Supervisory Mechanism
(SSM) stress
test. This regulatory stress test, combined with
internal analyses done on climate risk,
will be used to
enhance ING’s internal climate risk stress
testing.
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;
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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:
Risk identification and risk assessment: It
identifies and 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
and risk drivers related to the nature of ING’s
business, activities and vulnerabilities.
Scenario definition and parameterisation:
Based on the outcome of the previous step,
a set of
scenarios is determined with the relevant scope
and set of risk drivers for each scenario,
as well
as its 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 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 and
gives a recap of the scenario with its
main
assumptions and parameters. The stress-test
report is sent to the relevant risk
committees
and/or senior management. It is complemented,
if needed, with advice for management
action
based on the stress-testing results.
Scenario control and 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
financial and regulatory reporting frameworks.
The stress-testing models are subject to review
by
Model Risk Management.
Developments in the regulatory
environment
Basel III revisions and upcoming regulations
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 not yet fully transposed into
EU regulation. The revisions are commonly
referred to as
Banking Reform package. In Europe, this
has been partly implemented in the
CRR II / CRD V (see below)
and it will be implemented further through
the CRR III / CRD VI in the coming years.
A draft was
published in October 2021 and implementation
is expected as of 1 January 2025.
CRRII/CRDV and BRRDII
On 27 June 2019, a series of measures referred
to as the Banking Reform Package (including
certain
amendments to CRR and CRD IV, commonly
referred to as CRR II and CRD 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 international standards agreed by
the Basel
Committee, the Financial Stability Board and
the G20. CRD V was implemented in Dutch
law in 2020.
The Banking Reform Package updates the
framework of harmonised rules established
following the
financial crisis of 2008 and introduces
changes to the CRR, CRD IV, 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 introduction of a leverage
ratio requirement
of 3% and a leverage ratio buffer requirement
of 50% of the global systemically important
banks (G-
SIB) buffer requirement (applicable per 1 January
2023), a sectoral systemic risk buffer, a binding
NSFR
ratio based on the Basel NSFR standard but
including adjustments with regard to
e.g. pass-through
models and covered bonds issuance, mandatory
restrictions on distributions, permission
for reducing
own funds and eligible liabilities, macroprudential
tools, a new category of ‘non-preferred’
senior debt,
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the minimum requirement for own funds
and eligible liabilities (MREL) and the integration
of the TLAC
standard into EU legislation. Further, the
EBA obtained a mandate to investigate
how to incorporate
ESG risks into the supervisory process and what
the prudential treatment of assets
associated with
environmental or social objectives should
look like.
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Solvency risk
Introduction
Solvency risk is the risk of lacking sufficient
capital to fulfil the business objectives, regulatory
requirements or market expectations. A bank
that is insolvent is unable to pay its
debts and will be
forced into bankruptcy.
The level and quality of capital is crucial for
the resilience of individual banks. Banks
are expected to
assess the risks they face, and in a forward-looking
manner ensure that all material risks are
identified,
managed and covered sufficiently by loss-absorbing
capital to ensure continuity in case of
materialisation of unexpected risks in times
of stress. Given the interdependencies to
other financial
and non-financial risks this balancing act
of capital adequacy needs to be done
within a sound and
integrated management approach coherently
linking all moving parts of the bank in line
with the long-
term business strategy.
Solvency risk management
ICAAP Framework
ING’s Internal Capital Adequacy Assessment
Processes (ICAAP) aims to ensure that
capital levels are
adequate to cover all material risks
at all levels and to ensure compliance with
regulations. ING follows
an integrated approach to assess the adequacy
of its capital position in relation to its
business
activities, underlying business strategy, market
positioning risk profile and operating
environment. This
implies taking account of the interests of its
various stakeholders such as regulators,
shareholders,
investors, rating agencies and customers.
The continued strength of ING’s capital position,
the adequacy of the financial position
and risk
management effectiveness are essential for
achieving the strategy. ING’s ICAAP ultimately
supports
this strategy and contributes thereby to
the continuity of ING Group, ING Bank and
all its business
units.
Managing ING’s capital requirements and
allocation entails finding a balance
between the forces
governing supply and demand. The uncertainties
surrounding these factors reflect changing
market
circumstances and continuous unpredictability
in regulatory and macroeconomic
forces. The process of balancing these strategic
goals is captured in the ICAAP framework
and enabled
by the building blocks and elements facilitating
the ICAAP. The following building blocks
have been
defined in the ICAAP Framework, which are
applied for both the ‘normative’ and ‘economic’
perspective
as defined in the ECB Guide to ICAAP, published
in November 2018:
●
Risk identification and assessment
●
Risk appetite
●
Capital planning
●
Capital management
●
Stress testing
●
Continuity
Solvency risk related to Covid-19
Since the outbreak of Covid-19 several
stress-test analyses have been done to
assess the potential
impact of the virus on the actual and future
solvency position, whereby also potential
risks are taken
into account. For instance, in 2021 ING
performed stress tests whereby the combination
of inflation
and Covid-19 risks was assessed in several
scenarios and sensitivity analyses.
These stress tests were
used to prepare potential mitigating actions,
but also served as starting point for the
review of ING’s
risk appetite and of the financial and capital
planning. In light of this, ING also updated
the
management actions in the Contingency
Capital and Funding Plan and the Recovery
Plan and assessed
potential additional mitigating actions to
counter this very specific crisis.
Risk identification and assessment
ING’s capital management and solvency risk
management starts with the risk identification
and risk
assessment process. Its main purpose is to
detect potential new risks and to identify
changes in the
potential impact of known risks. On an annual
basis, ING performs a thorough review
of its solvency
risks or risks to capital. Within this assessment,
bottom-up assessments are combined
with top-down
assessments, including a questionnaire
and interviews with senior management. The
results of the risk
assessment are discussed in ALCO Bank which
comprises almost the full MBB. Once approved,
the
conclusions of the risk assessment feed into
the annual review of the Risk Appetite
Framework, the
Stress Testing Framework and the Economic
Capital Framework. In addition to this
annual process, ING
also re-assesses its risks as part of its Capital
Adequacy Statement, a quarterly process
to assess ING’s
capital adequacy.
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Solvency risk appetite
As explained in the Risk Appetite Framework
section in the previous chapter, ING has
established
overarching solvency risk boundaries.
Boundaries are risk appetite statements
that are essential for
risk management activity, making it of paramount
importance to keep these boundaries within
the
defined level. The SB is responsible for approving
and monitoring the boundaries. These boundaries
are
complemented by a sequence of risk-type-specific
instruments (risk appetite statements).
These
underlying risk appetite statements are cascaded
down into the organisation and dedicated
risk
thresholds are set that are used for day-to-day
monitoring and management of ING’s
risks. ING has
solvency risk appetite statements in place
for the following metrics: CET1 ratio, total
capital ratio,
leverage ratio,
total loss-absorbing capacity (TLAC
) & minimum requirement for own funds
and eligible
liabilities (MREL) based on RWA/leverage ratio
and economic capital adequacy.
Capital planning
The capital and funding plan is an integral part
of the dynamic plan, ING’s financial
and business
planning process. Its objective is to inform
and advise the management on the capital
development
and need of ING Group and ING Bank, under
base case and adverse scenarios. It describes
how ING
shall finance the expected capital constraints
taking into consideration growth projections,
capital and
risk evolution, macro and market conditions,
both under the normative and economic
perspective. The
capital and funding plan is discussed and
approved by ALCO Bank and updated
at least twice a year.
Within these updates, ING takes account of
recent market and risk developments
and ensures that
capital planning adheres to the solvency risk
appetite set by the SB.
Capital management
Formulation of the CET1 ambition is a
key element in solvency risk management.
The target ratio,
based on the management buffer concept,
enables ING’s senior management to steer,
benchmark and
assess the bank’s current and future
capital levels much more efficiently while the
ambition level
clearly supports trust building among ING’s
key stakeholders (e.g. regulators, investors
and customers).
The capital management buffer aims to protect
the interests of key stakeholders and
plays an
important role in the overall capital adequacy
governance. The rationale behind the
concept of the
management buffer is that it provides an
additional cushion on top of the (local) regulatory
minimum
requirements (e.g. Supervisory Review and
Evaluation Process (SREP)
requirements) to withstand a
certain level of stress and to facilitate awareness
and preparedness to take management
actions. ING
reviews its capital management buffer
on a regular basis to determine its effectiveness
and
robustness,
updating it as appropriate.
Stress testing
Solvency stress testing allows ING to
examine the effect of plausible but severe
stress scenarios on the
solvency position and provides insight into
which entities or portfolios are vulnerable
to which type of
risks or in which type of scenarios. Solvency
stress testing is an important tool in identifying,
assessing,
measuring and controlling risks to capital, providing
a complementary and forward-looking
perspective
to other solvency risk management tools.
For solvency stress testing, ING follows
the same process
steps that are described in the overall section
on stress testing.
ING distinguishes the following three types
of stress test analyses:
●
Sensitivity analysis: Within these analyses,
ING assesses the impact of a pre-defined
shock in
one or more risk drivers. The key purpose
of sensitivity analyses is to monitor the impact
of this
pre-defined (or standardised) shock over time
to get an understanding of how
the risk profile of
the bank has developed.
●
Scenario analysis: Scenario analyses are used
to assess an integral impact of historical,
statistical and/or hypothetical circumstances
on the financial position of ING. These stress
tests
often build on a qualitative scenario narrative
and reflect risk topics that are deemed relevant
for ING given, for example, its business
model. Scenarios can be derived from
historical
realisations, but also reflect e.g. potential macroeconomic,
geopolitical or climate risk related
events. These scenarios can be used for one-off
analyses. They can also be translated
into a set
of regular or standardised stress tests
that are assessed on a quarterly basis.
●
Reverse stress testing: The purpose of reverse
stress testing is to identify scenarios that
could
lead to a pre-defined outcome. This could
for example be a pre-defined solvency
level. The
added value of reverse stress testing is to
explore risk drivers and stress scenarios
outside the
existing range.
The outcomes
of solvency stress test analyses are taken
into account in capital planning, but
also for
setting risk appetite statements and the
capital management buffer.
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Contingency and Recovery Planning
Contingent capital events are unexpected situations
or business conditions that may increase the
risk
with respect to ING’s capital position. These
events may be ING-specific, or arise from
external factors.
The Contingency Capital and Funding Plan
(CCFP) sets out the organisation and
actions in case of
contingency events. The CCFP has a suite of
monitoring metrics that are aligned with
the risk appetite
statements that are in place for managing ING’s
capital, liquidity and funding position. The
Recovery
Plan is designed by ING to detect and act
upon possible major and unforeseen
deterioration of its
solvency position in a timely fashion. This
plan has integrated several risk appetite statements
to allow
timely identification of possible stress on the
company. Incorporating risk appetite statements
into
both plans ensures a seamless continuum between
the ING’s business-as-usual management
and its
contingency or recovery management.
Assessing capital adequacy: Capital Adequacy Statement (CAS)
The CAS is ING Group’s quarterly assessment
of its capital adequacy and takes into
account different
elements with respect to its capital position.
The degree to which ING’s capital position
is considered
adequate depends on a variety of internal
and external drivers:
●
Current supervisory requirements and (expected)
requirements going forward;
●
Current internal requirements and (expected)
requirements going forward;
●
Coherence of the available capital with the
(realisation of) strategic plans; and
●
The ability to meet internal and external requirements
in the case of stressed events or should
a risk materialise.
The CAS assesses the adequacy of ING’s
capital position in relation to above-mentioned
drivers and
states the extent to which the capital position
consequently is considered as adequate.
On a quarterly
basis the CAS document is prepared. Additionally
each year, the EB/MBB signs and provides
a
comprehensive assessment of ING’s capital
adequacy, supported by the ICAAP outcomes,
in the form
of a Capital Adequacy Statement.
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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, while
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.
ING has organised support functions at two
levels: Tier 1, operational unit level, and
Tier 2, head office
level. 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,
CRO Belux and CRO Germany 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, including the
measures taken since the start of the Covid-19
crisis;
◾
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.
Credit risk categories
(*)
Credit risk uses the following risk categories
to differentiate between the different
types of credit risk:
◾
Lending risk:
is the risk that the client (counterparty,
corporate or individual) does not pay the
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
from 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 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 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
: arises when there is an exchange
of value (funds or instruments) and receipt
from its counterparty 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 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 the
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
Note
5
Financial assets at fair value through other comprehensive income
credit facilities
Note
7
Loans and advances to customers
Note
42
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 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 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
14
Financial liabilities at fair value through profit or loss
-Securities financing
Note
41
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
14
Financial liabilities at fair value through profit or loss
Note
16
Other liabilities
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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 ING Risk Appetite Framework.
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
provides:
◾
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 set at different levels within
ING and specifies the scope and focus of
the credit
risk which ING takes,
and the composition of the credit portfolio,
including its concentration and
diversification objectives in relation to business
lines, sectors and products. The introduction
of climate
risk via sectors is a first important step with
the objective to promote ING’s Terra approach,
focusing on
sectors’ necessary pathway to contribute
to a low-carbon world and also mitigate potential
climate
and environmental risks to ING and its business
environment.
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 SB. 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 to identify, measure and monitor
single name concentration and industry
sector concentration (systemic risk). The
same concept of boundaries and instruments
is
applicable.
◾
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 described above, ING performs
sensitivity analyses regularly to assess
portfolio risks
and concentrations. These sensitivity analyses
are consistent with the stress scenario
established in the Group-wide credit risk appetite
framework.
In light of Covid-19 ING
incorporated pandemic specific scenarios
for the stress tests to gain insight into
the potential
effects of Covid-19 on the credit risk
in the portfolios.
◾
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.
◾
Strategy and risk appetite papers
: 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 support that business.
A strategy and risk appetite paper is always
prepared by the front office responsible for
the internal business mandate and requires
an
approval from the designated approval
authority. Strategy and risk appetite
papers may also
have geographical and/or business limitations
(e.g. local vs. global).
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◾
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, including the
use of automated decision-making
in certain
cases. 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. Where necessary,
underwriting standards have been reviewed
and refined to limit the credit risk to portfolios
particularly sensitive to Covid-19.
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 approximately
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 created where a large set of
default or detailed loss data is available.
They are characterised by sufficient data points
to facilitate meaningful statistical estimation
of the model parameters. The model parameters
are estimated with statistical techniques
based on the data set available;
◾
Hybrid models
contain characteristics of statistical models
combined with knowledge and
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.
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 European Banking Authority (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 first three categories (1-19) are risk ratings
for performing loans. The ratings are
calculated in IT
systems with internally developed models
based on manually or automatically
fed data. 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 indicators.
Risk ratings assigned to clients are reviewed
at least annually, with the performance
of the underlying
models monitored regularly. Some of these
models are global in nature, such
as those 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.
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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 at least
annually. Since 2020, portfolios and clients
most at risk of being affected by the pandemic
were
subject to more frequent (e.g. quarterly)
reviews.
After the introduction of IFRS9 in 2018 and introduction
of the new definition of default (DoD) in
2020,
we’re now updating the credit models.
Credit risk systems
Credit risk tools 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 with the philosophy of using a
single source of data in an integrated way.
This includes
applying a combination of the ING policy,
the regulatory environment in which
we operate and the
daily processes that are active throughout
the Group. Disciplined application in
these three areas is
essential for achieving high data quality standards.
The Credit Risk Control Unit (CRCU), which is part
of the Financial Risk department, ensures
compliant
and continuously improving rating systems.
Credit risk portfolio (*)
ING’s credit exposure is mainly related to
lending to individuals and businesses followed
by
investments in bonds and securitised assets,
and money market. 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. For money
market, exposure is mainly deposits to
Central Banks.
The last major credit risk source involves pre-settlement
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.
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Portfolio analysis per business line (*)
Outstandings per line of business (*)
1, 2, 3
in EUR million
Wholesale Banking
Retail Benelux
Retail Challengers &
Growth Markets
Corporate Line
Total
Rating class
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Investment grade
1 (AAA)
81,615
74,735
331
357
27,089
34,782
2,363
2,375
111,398
112,248
2-4 (AA)
56,982
63,239
5,863
6,119
41,646
38,586
15
18
104,506
107,961
5-7 (A)
72,052
66,537
28,456
23,143
59,040
54,381
482
431
160,029
144,491
8-10 (BBB)
124,622
104,987
125,469
120,714
57,394
53,346
2,502
2,400
309,986
281,447
Non-Investment grade
11-13 (BB)
61,996
65,832
60,296
61,797
42,554
39,823
37
164,883
167,451
14-16 (B)
16,699
20,925
14,560
17,759
10,800
10,299
-
-
42,059
48,983
17 (CCC)
1,712
1,822
2,158
2,543
731
844
178
128
4,779
5,338
Substandard grade
18 (CC)
865
1,690
904
1,170
477
514
-
-
2,245
3,374
19 (C)
126
518
1,162
1,306
451
600
-
-
1,739
2,423
Non-performing loans
20-22 (D)
3,937
4,415
5,035
5,614
3,153
3,203
-
295
12,124
13,526
Total
420,606
404,699
244,232
240,520
243,334
236,377
5,577
5,647
913,749
887,243
Industry
Private Individuals
30
25
161,125
160,884
184,810
172,390
-
-
345,965
333,299
Central Banks
83,878
84,697
-
22,573
27,921
643
632
107,094
113,250
Real Estate
26,472
26,271
22,691
24,064
3,536
3,297
-
-
52,699
53,632
Commercial Banks
39,582
42,088
230
201
6,390
8,211
3,006
3,092
49,208
53,591
Central Governments
40,530
43,753
1,730
1,691
3,686
4,482
1,696
1,697
47,642
51,623
Natural Resources
51,937
43,905
1,225
1,090
692
553
-
-
53,855
45,549
Non-Bank Financial Institutions
46,597
40,581
1,473
1,488
395
323
124
164
48,590
42,556
Transportation & Logistics
24,123
24,692
4,206
3,571
1,269
696
-
-
29,597
28,960
Food, Beverages & Personal Care
14,003
14,706
6,926
6,162
2,411
1,975
-
-
23,340
22,843
Services
9,449
8,878
11,290
11,302
974
808
30
4
21,743
20,993
Lower Public Administration
6,163
5,698
5,079
4,756
8,029
9,010
-
-
19,271
19,464
Utilities
22,452
17,062
1,370
1,358
113
136
-
-
23,935
18,556
General Industries
11,487
10,943
5,554
4,346
3,086
2,359
-
-
20,127
17,648
Other
43,903
41,398
21,333
19,607
5,369
4,214
77
58
70,682
65,279
Total
420,606
404,699
244,232
240,520
243,334
236,377
5,577
5,647
913,749
887,243
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Outstandings per line of business (*) - continued
1, 2, 3
in EUR million
Wholesale Banking
Retail Benelux
Retail Challengers &
Growth Markets
Corporate Line
Total
Region
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Europe
Netherlands
74,175
72,236
152,597
149,686
173
645
2,826
3,047
229,771
225,614
Belgium
32,205
36,517
84,748
84,104
948
642
19
19
117,919
121,282
Germany
22,669
21,102
508
542
118,734
119,032
46
45
141,956
140,722
Poland
15,454
18,296
45
55
26,560
20,750
4
-
42,063
39,101
Spain
10,130
9,157
83
66
27,294
25,255
35
35
37,542
34,512
United Kingdom
28,193
30,582
187
193
109
170
78
73
28,567
31,018
Luxemburg
26,632
20,080
4,769
4,373
468
864
18
13
31,887
25,330
France
18,786
15,651
606
618
7,123
6,447
3
6
26,517
22,721
Rest of Europe
64,028
61,213
364
525
17,826
20,573
16
13
82,233
82,324
America
71,471
64,688
186
210
1,559
1,535
35
20
73,251
66,454
Asia
45,439
44,961
91
91
132
166
2,498
2,376
48,159
47,594
Australia
8,957
8,134
18
22
42,405
40,294
1
51,382
48,451
Africa
2,467
2,082
31
36
4
3
-
-
2,501
2,121
Total
420,606
404,699
244,232
240,520
243,334
236,377
5,577
5,647
913,749
887,243
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
Geographical areas are based on country of residence, except for private individuals
for which the geographical areas are based on the primary country of
risk.
Overall portfolio (*)
During 2021, ING’s portfolio size increased by
€26.5 billion (+ 2.99%) to €913.7 billion outstandings.
The
net volume growth was concentrated in the
Lending risk categories in Wholesale Banking
and growth
in exposures to Private Individuals.
Foreign exchange rate changes had a positive
impact on portfolio growth and increased
total
outstanding by €11.5 billion. This was driven
by the appreciation of the US Dollar
(+8.3%), the British
Pound (+7.0%), and the Australian Dollar (+1.8%)
partly offset by the depreciation of
the Turkish Lira (-
40.2%) against the Euro.
Rating distribution (*)
Due to the Covid-19 pandemic, governments
and banks introduced numerous measures
to support
individuals and businesses financially.
The overall rating distribution in the portfolio
has not been
materially affected by Covid-19. For details
on portfolios most sensitive to Covid-19 see
the next
paragraph ‘Covid-19 sensitive sectors’.
Overall, the rating class concentration slightly
improved in 2021. The share of investment
grade rating
classes increased from 72.8% to 75.0%, while
the share of non-investment grade decreased,
from
25.0% to 23.2%. Sub-standard grade outstandings
decreased from 0.7% to 0.4% of the total portfolio,
whereas non-performing loans decreased from
1.5% to 1.3%.
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With respect to the rating distribution within
the business lines, in Wholesale Banking
investment-
grade rated assets increased, mainly
driven by Natural Resources, Non-Bank
Financial Institutions and
Utilities, while for non-investment grade
assets the outstandings decreased, across
multiple sectors.
The rating distribution for Retail Benelux
improved mostly because of Dutch
residential mortgages,
shifting from rating class BB to BBB and A,
driven by the continuing increase in the house
price index
and improving Loan to Values. The rating
distribution of residential mortgages
in Belgium also
improved, reducing concentration in B ratings
and lower, while increasing in BBB
and BB.
In Retail Challengers & Growth Markets, the
distribution across rating classes remained
rather stable in
2021. Overall share of investment grade
decreased from 76.6% to 76.1%. The increase
in non-
investment grade is explained primarily by
the portfolio in Poland.
Industry (*)
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.
The industry composition within Retail is
concentrated in private individuals with 66%
for Retail Benelux
and 76% for Retail Challengers & Growth.
In Market Leaders, the overall volumes remained
stable
throughout 2021 in the Netherlands and in
Belgium. In C&G, the increase in volume is
in Private
Individuals, primarily in Germany, and to a
lesser extent in Poland, Spain and Australia.
Within Wholesale Banking, an increase in exposures
is noted in Natural Resources of €8.0 billion,
notably in Switzerland and in Belux (also
as a consequence of higher commodity prices,
i.e. financing of
same volume requires higher value LC's), in
Non-Bank Financial Institutions and in Utilities,
compensated to a certain extent by a decrease
in Central Governments and Commercial
Banks.
Covid-19 sensitive sectors (*)
ING has assessed the elevated risk of our portfolio
as a result of the continued impact of the
Covid-19
pandemic and the related measures and restrictions.
The following sectors are considered to be
most
impacted (directly or indirectly) by the Covid-19
pandemic, resulting in management adjustments
to
the model-based Loan Loss Provisions.
Refer also to the explanation of the economic
sector-based
management adjustment in the “management
adjustments” section.
Aviation (Transportation & Logistics):
exposure decreased to €4.3 billion outstanding
in 2021 (0.5% of
total portfolio). In terms of rating, the portfolio
improved. Main concentration remains
in BB and B
rating classes. The sub-standard grade
outstanding decreased to 0.3% from 1.2%
of the Aviation
portfolio, and the non-performing grade
decreased to 1.9% from 4.5%.
Hospitality & Leisure (Services and Food, Beverages
& Personal Care):
exposure decreased by €0.6
billion to €5.4 billion outstanding (0.59% of total
portfolio). Of the total portfolio, 58.1% is
in non-
Investment grade. Sub-standard grade
decreased to 9.0% from 9.7%, whereas
non-performing loans
increased to 7.4% from 6.2%.
Non-food retail (Other):
exposure increased by €0.5 billion to
€7.9 billion (0.87% of total portfolio).
Outstanding in investment grade improved
from 42.4% to 43.6%, non-investment grade
decreased
from 53.1%
to 50.8%. Sub-standard grade increased
to 1.9% from 1.0%, while the non-performing
loans remained flat at 3.6%.
Real Estate
: credit outstandings slightly decreased
and amounted to €52.7 billion as at
31 December
2021 (5.8% of total portfolio) from €53.6 billion
(6.0% of total portfolio) in 2020. Rating distribution
improved with concentrations increasing in
Investment grade and reducing in Speculative
grade. The
NPL grade increased to 1.3% from 1.2% in
2020, while Substandard grade improved to
0.5% from
1.0%.
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Outstandings by economic sectors and geographical area (*)
1
in EUR million
Region
Total
Industry
Netherlands
Belgium
Germany
Poland
Spain
United
Kingdom
Luxemburg
France
Rest of
Europe
America
Asia
Australia
Africa
2021
Private Individuals
113,846
42,961
95,583
14,397
23,895
157
3,388
3,115
13,215
167
155
35,058
27
345,965
Central Banks
46,902
18,253
17,811
112
3,027
2,853
8,569
1,039
4,485
2,856
1,168
18
107,094
Real Estate
17,426
10,011
1,520
2,357
1,528
436
4,201
3,254
3,461
3,521
935
4,045
4
52,699
Commercial Banks
1,378
318
3,887
707
392
4,156
3,205
5,520
6,353
7,089
13,526
2,265
413
49,208
Central Governments
4,911
7,396
1,179
7,473
4,417
67
203
2,065
7,695
10,927
299
533
477
47,642
Natural Resources
3,734
1,180
1,208
722
291
4,487
2,497
405
15,471
9,473
12,593
1,013
780
53,855
Non-Bank Financial Institutions
3,043
921
3,146
1,718
72
7,764
4,798
1,790
3,947
17,772
3,209
411
48,590
Transportation & Logistics
4,572
2,209
506
1,177
723
1,760
582
982
6,837
3,410
5,682
645
514
29,597
Food, Beverages & Personal Care
6,581
2,869
616
2,146
489
711
1,600
1,232
2,580
3,131
1,140
235
12
23,340
Services
4,615
9,115
1,105
866
119
523
450
1,470
861
1,539
479
565
36
21,743
Lower Public Administration
343
5,158
5,787
636
-
296
2,732
467
1,197
46
2,608
19,271
Utilities
1,545
1,213
3,024
822
1,270
2,980
397
1,433
4,202
4,106
1,355
1,368
220
23,935
General Industries
5,389
2,891
1,011
2,612
381
395
532
271
3,363
2,116
1,151
15
20,127
Other
15,485
13,424
5,573
6,319
940
2,277
1,168
1,210
9,297
8,803
4,732
1,454
70,682
Total
229,771
117,919
141,956
42,063
37,542
28,567
31,887
26,517
82,233
73,251
48,159
51,382
2,501
913,749
Rating class
Investment grade
180,787
78,195
119,311
26,856
29,522
22,820
26,150
20,622
52,875
53,725
36,777
38,200
79
685,920
Non-Investment grade
45,530
35,600
21,250
14,148
7,647
5,234
5,568
5,774
27,993
18,184
10,534
11,998
2,259
211,721
Sub-standard grade
1,230
868
390
290
89
56
81
2
308
203
191
217
58
3,985
Non-performing loans
2,224
3,256
1,006
768
284
458
87
119
1,056
1,139
656
966
105
12,124
Total
229,771
117,919
141,956
42,063
37,542
28,567
31,887
26,517
82,233
73,251
48,159
51,382
2,501
913,749
1
Geographical areas are based on country of residence, except for private individuals
for which the geographical areas are based on the primary country of
risk.
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Outstandings by economic sectors and geographical area (*)
1
in EUR million
Region
Total
Industry
Netherlands
Belgium
Germany
Poland
Spain
United
Kingdom
Luxemburg
France
Rest of
Europe
America
Asia
Australia
Africa
2020
Private Individuals
114,219
42,443
88,178
12,216
21,775
186
3,203
2,644
14,717
169
173
33,346
29
333,299
Central Banks
43,615
22,840
23,601
31
3,058
6,247
3,855
811
3,655
0
4,090
1,424
23
113,250
Real Estate
18,349
10,540
1,374
2,478
1,460
313
3,846
3,511
3,839
2,889
828
4,197
7
53,632
Commercial Banks
1,722
265
4,546
607
468
6,931
3,478
6,218
6,926
7,434
13,222
1,476
298
53,591
Central Governments
6,636
6,762
2,010
8,956
4,435
55
175
2,130
10,020
8,949
344
712
439
51,623
Natural Resources
2,830
1,214
1,102
626
286
3,435
959
316
13,542
8,193
11,442
821
782
45,549
Non-Bank Financial Institutions
2,743
940
3,301
1,502
126
6,348
4,054
1,547
4,096
14,435
3,089
376
0
42,556
Transportation & Logistics
4,162
2,016
1,503
1,018
539
1,934
641
782
6,229
3,628
5,468
743
295
28,960
Food, Beverages & Personal Care
6,623
2,783
306
1,932
515
782
1,663
789
2,202
3,975
1,072
191
10
22,843
Services
4,281
9,307
584
783
159
520
454
411
1,054
2,314
612
515
0
20,993
Lower Public Administration
432
4,875
7,526
721
0
-
583
1,693
528
1,026
30
2,050
0
19,464
Utilities
1,731
1,277
1,815
618
610
2,105
583
402
2,975
3,196
1,716
1,292
237
18,556
General Industries
4,176
2,802
1,030
2,134
252
234
266
194
3,014
2,477
1,053
16
0
17,648
Other
14,094
13,218
3,843
5,478
829
1,926
1,572
1,273
9,527
7,769
4,456
1,293
0
65,279
Total
225,614
121,282
140,722
39,101
34,512
31,018
25,330
22,721
82,324
66,454
47,594
48,451
2,121
887,243
Rating class
Investment grade
169,193
78,294
118,082
26,045
26,622
25,924
19,528
16,688
51,233
43,987
35,879
34,545
127
646,147
Non-Investment grade
51,818
38,113
21,185
11,979
7,468
4,837
5,530
5,870
29,051
20,758
10,696
12,651
1,816
221,772
Sub-standard grade
1,794
1,159
516
215
102
101
191
37
679
476
94
349
83
5,798
Non-performing loans
2,808
3,715
939
862
320
156
81
126
1,360
1,232
925
905
95
13,526
Total
225,614
121,282
140,722
39,101
34,512
31,018
25,330
22,721
82,324
66,454
47,594
48,451
2,121
887,243
1
Geographical areas are based on country of residence, except for private individuals
for which the geographical areas are based on the primary country of
risk.
Portfolio analysis per geographical area
(*)
The portfolio analysis
per geographical area re-emphasises
the international distribution of ING’s
credit
portfolio. The share of the Netherlands in the
overall portfolio decreased to 25.1%
(25.4%).
The most noticeable trend in the Netherlands
was the increase in exposure with Central
Banks.
Outstandings to private individuals are stable
at 62% (63%) of total outstandings (excl.
Central Banks).
In Belgium no substantial moves were
observed in the portfolio, apart from a
decrease in Central Banks
(-€4.6 billion).
In Market Leaders, in terms of rating distribution,
the share of investment grade increased
in both the
Netherlands and Belgium. Apart from the increase
in investment grade assets, the outstanding
with
non-investment grade reduced in 2021 for both
Netherlands and Belgium. Also, for both
countries, the
share of sub-standard grade and NPL decreased
in 2021. For sub-standard, from
0.8% to 0.5% and
from 1.0% to 0.7%. For non-performing loans
(NPL), from 1.2% to 1.0% and from 3.1% to
2.8%
respectively.
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In Challenger & Growth Markets, ING has
a strong market position in residential mortgages
in
Germany, Poland and Spain. Residential
mortgage exposures increased in these
countries. In Germany,
an increase in mortgages is compensated by
lower outstandings with the Central bank.
The top five countries within Rest of Europe
based on outstanding were: Italy (€16.7
billion),
Switzerland (€11.1 billion), Romania (€9.5 billion),
Turkey (€8.3 billion) and the Russian
Federation (€4.8
billion). Outstandings in Rest of Europe were
impacted by the sale of the retail portfolio
in Austria (-€1.3
billion), and Turkey (FX impact), compensated
by increased outstandings in Romania
and Ireland.
In Europe, outside the Benelux, rating distribution
in most countries improved. The share
of non-
investment grade decreased in most countries,
apart from Poland (mostly in Natural Resources
and in
General Industries), and the United Kingdom
(increase in Natural Resources). In the
UK, a noticeable
increase in the share of NPL to 1.6% (from
0.5%), was due mainly to the Food, Beverages
and Personal
Care sector impacted by a single file, whereas
in the other European countries, share
of NPL decreased
or remained flat.
The increase in exposure in the Americas was
mainly driven by FX impact. In Australia,
outstanding
increased, mostly driven by mortgages (Private
individuals).
In terms of rating distribution for America region,
an increase in investment grade to 73.0%
(from
66.3%), non-investment grade decreased
to 25.1% from 31.1%. Sub-standard
grade decreased to
0.3%, while NPL slightly improved to 1.5% (from
1.8%).
Australia’s rating distribution improved with
a shift of outstanding from non-investment
to investment
grade.
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.
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 be 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 licences). 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)
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 (e.g.
commercial real estate) and market indices
(e.g. 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.
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Where collateral values are used in the calculation
of stage 3 individual Loan Loss provisions,
haircuts
may be applied to the valuation in specific
circumstances, to sufficiently include all relevant
factors
impacting the future cash flows. ING increased
the haircuts applied to collateral values
used in stage 3
individual provisions as at 31 December
2021 to reflect the increased risk of inflated
asset prices in
certain sectors of the economy. The haircut
is applied on real estate, shipping and aviation
collateral
values used in the calculation of the loss-given-default
in recovery scenarios. The haircut reflects
the
risks of adverse price developments between
the moment of valuation of an
asset and the actual
settlement/cash receipt.
Cover values (*)
This section provides insight into the types
of cover 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 ‘Credit restructuring’
(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 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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Cover values including guarantees received (*)
in EUR million
Cover type
Value to Loan
2021
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
Partially covered
Fully covered
Consumer Lending
344,188
690,752
6,533
25,688
40,618
6.3%
7.6%
86.1%
Business Lending
413,670
160,694
23,454
112,095
332,989
44.2%
20.2%
35.5%
Investment and Money Market
112,360
43
63
1,100
167
98.9%
0.8%
0.3%
Total Lending, Investment and Money Market
870,218
851,490
30,050
138,882
373,774
36.0%
12.8%
51.2%
Pre-settlement
43,531
Total Bank
913,749
Cover values including guarantees received (*)
in EUR million
Cover type
Value to Loan
2020
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other
No Cover
Partially covered
Fully covered
Consumer Lending
331,288
609,967
6,208
26,117
38,438
6.7%
7.5%
85.8%
Business Lending
388,060
161,474
20,431
94,913
302,357
43.1%
21.2%
35.7%
Investment and Money Market
121,809
95
121
782
245
99.2%
0.1%
0.7%
Total Lending, Investment and Money Market
841,157
771,536
26,761
121,811
341,039
36.9%
12.7%
50.4%
Pre-settlement
46,086
Total Bank
887,243
In 2021, the collateralisation level of the portfolio
increased as a result of an increase
in the cover value
in lending to private individuals.
Excluding the pre-settlement portfolio,
51.2% of ING’s outstandings
were fully collateralised in 2021 (2020: 50.4%).
Since investments traditionally do not require
covers,
the percentage for ‘no covers’ in this portfolio
is above 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. Relative to the overall
developments in
the housing markets and the impact on
provisioning, note the paragraphs on
‘management
adjustments’ in the Loan Loss provisioning
section, that were made to reflect potential
impact of
higher inflation, higher rates and market
uncertainty.
Consumer lending portfolio (*)
The consumer lending portfolio accounts
for 37.7% (2020: 37.3%) 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. A significant part of ING’s residential
mortgage
portfolio is in the Netherlands (35.3%), followed
by Germany (26.9%), Belgium and Luxembourg
(13.2%) and Australia (10.9%).
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 (*)
in EUR million
Cover type
Value to Loan
2021
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Performing
Residential Mortgages (Private Individuals)
308,023
674,576
5,014
22,379
33,539
–
0.5%
7.6%
91.8%
Residential Mortgages (SME)
1
5,912
9,520
168
109
1,598
0.2%
0.6%
1.4%
5.4%
92.4%
Other Consumer Lending
25,537
200
1,317
3,085
4,009
79.7%
0.3%
0.1%
0.1%
0.3%
19.5%
Total Performing
339,472
684,296
6,499
25,573
39,146
6.0%
–
0.1%
0.5%
7.0%
86.3%
Non-performing
Residential Mortgages (Private Individuals)
3,336
6,149
31
97
1,270
0.4%
–
0.3%
1.0%
4.8%
93.4%
Residential Mortgages (SME)
1
194
302
1
6
51
0.1%
0.2%
0.7%
1.6%
7.4%
90.0%
Other Consumer Lending
1,186
5
1
12
151
92.3%
0.4%
0.2%
0.4%
0.5%
6.3%
Total Non-performing
4,716
6,456
33
115
1,472
23.5%
0.1%
0.3%
0.9%
3.8%
71.4%
Total Consumer Lending
344,188
690,752
6,533
25,688
40,618
6.3%
–
0.1%
0.5%
7.0%
86.1%
1
Consists mainly of residential mortgages to small individual business clients
Cover values including guarantees received - Consumer
lending portfolio (*)
in EUR million
Cover type
Value to Loan
2020
Outstandings
Mortgages
Financial
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Performing
Residential Mortgages (Private Individuals)
294,642
594,073
5,147
23,210
30,927
0.1%
0.7%
7.3%
92.0%
Residential Mortgages
(SME)
1
5,681
9,010
151
126
1,532
0.3%
0.7%
1.4%
6.1%
91.5%
Other Consumer Lending
25,780
197
861
2,619
4,336
81.5%
0.3%
0.1%
0.2%
0.3%
17.6%
Total Performing
326,103
603,281
6,160
25,955
36,795
6.4%
0.0%
0.1%
0.7%
6.7%
86.1%
Non-performing
Residential Mortgages (Private Individuals)
3,698
6,379
45
141
1,414
0.2%
0.1%
0.4%
1.2%
5.9%
92.2%
Residential Mortgages (SME)
1
184
301
9
54
0.1%
0.2%
0.5%
1.8%
7.7%
89.7%
Other Consumer Lending
1,303
6
4
12
175
91.8%
0.3%
0.2%
0.3%
0.6%
6.7%
Total Non-performing
5,185
6,686
49
162
1,643
23.2%
0.1%
0.3%
1.0%
4.6%
70.6%
Total Consumer Lending
331,288
609,967
6,208
26,117
38,438
6.7%
0.0%
0.1%
0.7%
6.7%
85.8%
1
Consists mainly of residential mortgages to small individual business clients
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The collateralisation levels of the consumer
lending portfolio continued to improve
during 2021. The
rise in collateralisation levels was due to rising
housing prices observed in different mortgage
markets,
specifically noticeable in the Netherlands
but also in Belgium, Germany and Australia.
Relative to the
overall developments in the housing markets
driving a decrease of loan loss provisions relating
to the
mortgages portfolio’s,
note management adjustments recognised
to maintain an appropriate level of
provisions. See paragraph on ‘management
adjustments’ in the Loan Loss provisioning
section.
ING’s residential mortgage outstanding increased
mainly in Poland (18.8%),
Spain (11.5%) and
Germany (8.4%). In 2020 the increases where
respectively 10.3%,
7.4% and 4.9%. Mortgage
outstanding in the Netherlands decreased slightly
(0.2%). For the residential mortgages portfolio,
the
cover type guarantees relate to mortgages
covered by governmental insurers under the
Dutch
national mortgage guarantee (NHG) scheme
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 45.3% of ING’s total
outstanding (2020: 43.8%). 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.
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Cover values including guarantees received - Business lending
portfolio (*)
in EUR million
2021
Cover type
Value to Loan
Industry
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Central Banks
81,485
18
100.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Real Estate
52,079
103,229
1,096
6,956
32,670
3.6%
0.7%
2.3%
0.9%
4.9%
87.7%
Natural Resources
50,451
1,221
2,470
29,319
33,451
28.9%
14.2%
13.7%
8.9%
11.1%
23.2%
Transportation & Logistics
28,184
3,602
171
8,803
44,881
16.1%
6.4%
2.1%
4.5%
12.2%
58.7%
Non-Bank Financial Institutions
25,340
1,105
13,330
3,970
52,196
39.5%
4.8%
0.4%
2.3%
6.6%
46.3%
Food, Beverages & Personal Care
20,277
8,846
440
12,658
39,597
22.9%
4.6%
5.0%
9.3%
15.9%
42.3%
Services
20,671
10,162
1,814
7,883
23,324
28.1%
5.2%
5.9%
4.9%
9.8%
46.2%
Commercial Banks
19,160
5
276
1,535
3,966
74.6%
3.6%
0.6%
1.5%
5.1%
14.5%
Utilities
21,245
172
997
4,944
11,520
50.5%
15.0%
4.9%
3.9%
3.2%
22.3%
General Industries
19,067
5,447
310
6,592
23,701
33.1%
4.8%
3.9%
7.9%
9.1%
41.1%
Chemicals, Health & Pharmaceuticals
14,384
7,442
185
5,586
11,674
30.6%
6.1%
2.9%
5.8%
12.6%
42.1%
Builders & Contractors
14,089
8,036
208
4,967
17,591
22.7%
6.4%
6.2%
7.2%
11.4%
46.1%
Others
1
47,237
11,427
2,138
18,881
38,418
44.2%
3.7%
5.2%
3.6%
10.6%
32.7%
Total Business Lending
413,670
160,694
23,454
112,095
332,989
44.2%
5.0%
4.0%
3.8%
7.3%
35.6%
of which Total Non-performing
7,264
2,649
162
3,810
7,090
27.5%
5.9%
6.0%
6.0%
17.2%
37.4%
1
‘Others’ comprises industries with outstandings lower than €10 billion.
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Cover values including guarantees received - Business lending
portfolio (*)
in EUR million
2020
Cover type
Value to Loan
Industry
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Central Banks
79,464
–
23
–
–
100.0%
–
–
–
–
–
Real Estate
52,743
99,824
1,176
6,644
28,378
3.3%
0.7%
2.1%
1.5%
7.4%
85.1%
Natural Resources
43,209
1,453
2,192
23,503
35,739
24.5%
14.4%
13.0%
7.2%
15.9%
25.0%
Transportation & Logistics
27,395
7,251
182
7,487
37,220
18.2%
5.1%
2.4%
3.9%
11.7%
58.8%
Non-Bank Financial Institutions
21,934
1,139
10,771
3,766
46,286
42.1%
3.6%
2.3%
3.6%
4.6%
43.7%
Food, Beverages & Personal Care
20,594
8,346
430
9,473
33,918
25.0%
5.1%
5.9%
9.6%
14.0%
40.3%
Services
19,632
10,623
1,855
8,394
23,917
27.9%
5.8%
7.0%
5.3%
7.2%
46.9%
Commercial Banks
18,012
313
107
1,546
3,868
75.0%
1.0%
3.4%
1.7%
8.1%
10.8%
Utilities
16,948
185
1,011
4,464
9,723
42.3%
19.1%
5.2%
4.3%
3.0%
26.0%
General Industries
16,417
5,563
241
5,736
20,781
31.5%
4.0%
5.7%
9.6%
9.9%
39.3%
Chemicals, Health & Pharmaceuticals
14,120
7,558
194
4,391
12,332
26.0%
5.7%
3.6%
7.7%
13.6%
43.5%
Builders & Contractors
13,895
7,583
309
4,490
15,711
26.3%
6.2%
6.4%
8.9%
10.4%
41.7%
Others
1
43,696
11,635
1,938
15,020
34,484
40.0%
5.1%
4.3%
6.1%
10.5%
34.1%
Total Business Lending
388,060
161,474
20,431
94,913
302,357
43.1%
4.9%
4.2%
4.2%
7.9%
35.7%
of which Total Non-performing
8,261
3,027
230
3,803
6,915
29.1%
5.2%
5.0%
8.5%
14.2%
38.1%
1
‘Others’ comprises industries with outstandings lower than €10 billion.
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ING Bank Annual Report 2021
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Cover values including guarantees received - Business lending
portfolio (*)
2021
Cover type
Value to Loan
Region
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Europe
Netherlands
107,200
62,780
3,774
12,668
58,622
53.2%
1.7%
2.3%
3.5%
7.6%
31.8%
Belgium
50,231
36,207
1,219
21,476
56,704
25.5%
1.9%
2.5%
2.9%
5.9%
61.3%
Germany
31,563
3,168
195
4,443
6,946
75.0%
4.1%
2.0%
1.6%
0.8%
16.5%
Luxembourg
23,628
9,051
1,083
3,085
33,378
59.5%
1.0%
3.7%
1.3%
4.3%
30.1%
Poland
18,245
9,349
121
4,046
30,961
30.2%
4.5%
4.2%
6.0%
10.7%
44.4%
United Kingdom
15,321
1,716
2,901
5,168
12,128
47.8%
17.7%
4.0%
6.4%
7.1%
17.1%
Switzerland
10,082
78
762
4,469
5,697
23.3%
19.3%
27.1%
13.3%
4.1%
12.9%
France
10,971
7,144
117
1,598
6,493
43.4%
2.5%
2.4%
3.3%
4.0%
44.3%
Rest of Europe
50,046
13,206
2,276
24,520
46,560
37.8%
6.9%
3.8%
3.3%
9.2%
39.1%
America
45,156
7,097
9,156
10,898
43,960
37.2%
9.4%
5.8%
3.8%
11.0%
32.8%
Asia
37,978
1,240
1,559
15,215
27,765
40.9%
6.1%
5.8%
6.0%
9.9%
31.3%
Australia
10,805
9,652
242
2,291
3,110
34.3%
6.1%
1.0%
1.4%
2.6%
54.6%
Africa
2,444
6
49
2,219
667
13.9%
9.1%
7.3%
9.7%
22.4%
37.5%
Total Business Lending
413,670
160,694
23,454
112,095
332,989
44.2%
5.0%
4.0%
3.8%
7.3%
35.6%
of which Non-performing
7,264
2,649
162
3,810
7,090
27.5%
5.9%
6.0%
6.0%
17.2%
37.4%
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83
Cover values including guarantees received - Business lending
portfolio (*)
2020
Cover type
Value to Loan
Region
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Europe
Netherlands
101,000
61,180
3,298
9,245
59,268
51.7%
1.6%
2.5%
3.9%
8.6%
31.8%
Belgium
50,245
36,071
1,174
22,424
53,041
24.8%
1.6%
3.0%
3.1%
6.9%
60.7%
Germany
35,069
3,233
118
2,711
4,788
80.4%
4.0%
2.1%
1.4%
1.2%
10.9%
Luxembourg
16,332
8,403
1,671
2,849
29,875
46.4%
1.5%
6.0%
1.5%
3.4%
41.1%
Poland
16,176
9,414
168
3,720
25,652
28.3%
4.5%
3.8%
7.9%
11.3%
44.2%
United Kingdom
13,864
4,659
1,971
4,028
9,906
44.6%
16.1%
7.2%
3.0%
8.3%
20.8%
Switzerland
9,544
46
684
3,540
6,980
27.2%
21.7%
16.6%
7.1%
7.2%
20.3%
France
9,513
7,543
150
2,021
4,096
39.2%
5.1%
4.1%
2.7%
2.0%
46.8%
Rest of Europe
46,302
13,817
2,460
18,446
41,326
35.4%
7.7%
4.6%
4.7%
9.1%
38.5%
America
40,508
5,967
6,872
7,442
40,815
37.9%
7.4%
6.1%
5.5%
10.2%
33.0%
Asia
37,435
978
1,728
15,174
23,607
40.6%
5.0%
5.5%
6.6%
11.9%
30.5%
Australia
10,019
10,153
83
1,650
2,273
26.4%
7.7%
2.1%
2.4%
4.7%
56.8%
Africa
2,053
10
53
1,661
730
8.0%
6.6%
3.0%
19.9%
26.8%
35.7%
Total Business Lending
388,060
161,474
20,431
94,913
302,357
43.1%
4.9%
4.2%
4.2%
7.9%
35.7%
of which Non-performing
8,261
3,027
230
3,803
6,915
29.1%
5.2%
5.0%
8.5%
14.2%
38.1%
The tables above on cover values 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
Natural Resources (€7.2
billion, 16.8%) followed by Utilities (€4.3 billion,
25.4%). The largest decrease in outstanding
was
observed in Real Estate (€0.7 billion), where
the total cover percentage increased.
The proportion of the business lending portfolio
with no cover increased, which was mainly
witnessed
in the Netherlands to 53.2% (from 51.6%),
caused by increased Central Bank outstanding.
Most
industry types experienced an increase in total
covers.
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ING Bank Annual Report 2021
84
Credit quality (*)
Credit risk categories (*)
Regular
Watch List
Restructuring
1
Non-
performing
1
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
Account Ownership
Front Office
Front Office
Front Office
Front Office
Credit Risk Management
Regular
Regular
Credit Restructuring
Credit Restructuring
Primary Manager
Front Office
Front Office
Credit Restructuring
Credit Restructuring
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
(*)
1
in EUR million
2021
2020
Performing not past due
819,183
785,800
Business lending performing past due
8,121
6,252
Consumer lending performing past due
1,142
953
Non-performing
12,021
13,497
Total lending and investment
840,466
806,503
Money market
29,752
34,654
Pre-settlement
43,531
46,086
Total
913,749
887,243
1 Past due based on new definition of default, prior period outstandings updated
Past due obligations (*)
Retail Banking continuously measures its portfolio
in terms of payment arrears and determines
on a
monthly basis 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, as well as business
lending. 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 the facility or obligor – depending on
the level at
which the non-performing status is applied
- is more than 90 days past due and to risk
rating 21 or 22
in case of an exit scenario.
ING has aligned the regulatory concept of non-performing
with that of the definition of default.
Hence,
in Wholesale Banking, obligors are classified
as non-performing when a default trigger occurs:
◾
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:
◾
The borrower (or third party) has started
insolvency proceedings;
◾
A group company/co-borrower has NPL status;
◾
Indication of fraud (affecting the company’s
ability to service its debt);
◾
There is doubt as to the borrower’s ability
to generate stable and sufficient cash
flows
to service its debt;
◾
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.
◾
The obligor has failed in the payment of principal,
interest or fees, the total past due
amount is
above the materiality threshold and this remains
the case for more than 90 consecutive days.
Further, Wholesale Banking has an individual
name approach, using early warnings
indicators to signal
possible future issues in debt service.
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Ageing analysis (past due but performing): Consumer lending
portfolio by geographic area, outstandings (*)
1,2,3
in EUR million
2021
2020
Region
Past due for 1–
30 days
Past due for
31–60 days
Past due for
61–90 days
Past due for
>90 days
Total
Past due for 1–
30 days
Past due for
31–60 days
Past due for
61–90 days
Past due for
>90 days
Total
Europe
Belgium
599
53
61
714
355
12
4
0
371
Germany
105
27
11
0
143
73
26
20
32
152
Poland
35
5
3
43
36
6
5
47
Netherlands
31
9
3
0
43
24
7
2
8
41
Luxemburg
73
3
1
1
78
41
0
0
41
Spain
13
7
5
26
14
10
8
0
33
France
2
0
0
0
2
1
0
0
0
2
United Kingdom
0
0
0
1
0
0
0
0
Rest of Europe
52
9
5
66
61
14
7
0
83
America
0
0
0
0
0
0
0
1
1
Asia
0
0
0
0
1
0
0
0
1
Australia
17
7
1
25
67
15
4
96
182
Total
927
123
91
1
1,142
674
91
50
138
953
1
Based on consumer lending. The amount of past due but performing financial assets
in respect of non-lending activities was not significant.
2
The absolute and relative materiality thresholds used for determining a defaulted status
do not apply for the purposes of classification as past due. Below these thresholds, arrears
of more than 90 days are reported as past due.
3
Based on new definition of default, prior period has been adjusted.
The past due but performing outstanding of
consumer lending increased by €189 million.
The largest
increase was observed in Belgium (€343
million), in term loans (€143 million)
and in Residential
Mortgage (€105 million). The largest decreases
are reported by Australia, Rest of Europe
and Germany.
Australia’s decrease (€157 million)
is mainly visible in the >90 days past
due bucket.
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Ageing analysis (past due but performing): Business lending
portfolio by geographic area, outstandings (*)
1,2
in EUR million
2021
2020
Region
Past due for
1–30 days
Past due for
31–60 days
Past due for
61–90 days
Past due for
>90 days
Total
Past due for
1–30 days
Past due for
31–60 days
Past due for
61–90 days
Past due for
>90 days
Total
Europe
United Kingdom
1,036
108
16
0
1,159
636
485
4
0
1,124
Belgium
1,676
178
8
0
1,863
977
60
28
2
1,067
Netherlands
553
16
4
0
574
532
29
1
4
565
Luxemburg
586
270
0
1
856
468
73
5
6
553
Poland
94
5
2
1
102
66
8
4
0
78
Germany
5
0
2
0
7
45
0
–
0
45
Spain
95
0
1
0
96
44
–
–
–
44
France
36
5
0
0
41
30
1
0
0
31
Rest of Europe
571
57
1
1
629
492
8
2
3
504
America
2,076
71
0
0
2,146
1,595
131
–
–
1,726
Asia
276
–
25
0
302
37
108
–
0
146
Australia
327
17
0
1
345
61
306
1
1
369
Total
7,331
727
60
3
8,121
4,983
1,209
44
16
6,252
1
The absolute and relative materiality thresholds used for determining a defaulted status do
not apply for the purposes of classification as past due. Below these thresholds, arrears of
more than 90 days are reported as past due.
2
Based on new definition of default, prior period has been adjusted.
Total past due but performing outstanding
of business lending increased by €1.87 billion.
These
increases are mainly contributed by increased
outstanding in the 1-30 days past due bucket
(€2.35
billion), partly offset by decreased outstanding
in 31-60 days past due bucket (€482 million).
The top 3
areas of increase in the 1-30 days bucket are
Belgium (€699 million), America (€481 million)
and
United Kingdom (€400 million). In 2020, ING
recognised management adjustment
to cover the
elevated risk of clients using payment holiday
facilities.
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 handles accounts
or portfolios requiring an active approach,
which may
include renegotiation of terms and 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 increasing
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:
◾
Restoring the client’s financial stability;
◾
Supporting the client’s turnaround;
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◾
Restoring the balance between debt
and equity; and
◾
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 prefers
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.
Forbearance
(*)
Forbearance occurs when a client is unable
to meet their financial commitments
due to financial
difficulties they face or are about to face
and ING grants concessions towards
them. 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.
For ING retail units, clear criteria have been
established to determine whether
a client is eligible for the
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 European Banking Authority
(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.
Since the outbreak of Covid-19, ING has supported
clients affected by the pandemic among
others by
providing payment holidays. Refer to ‘Payment
holidays’ below for more information
on payment
holidays.
Summary Forborne portfolio (*)
in EUR million
2021
2020
Business Line
Outstandings
Of which:
performin
g
Of which:
non-
performing
% of total
portfolio
Outstandings
Of which:
performin
g
Of which:
non-
performing
% of total
portfolio
Wholesale Banking
9,798
7,455
2,343
3.1%
10,176
7,849
2,327
3.2%
Retail Banking
10,018
6,339
3,679
2.1%
9,640
6,341
3,299
2.0%
Total
19,816
13,793
6,022
2.5%
19,816
14,190
5,626
2.5%
Summary Forborne portfolio by forbearance type (*)
in EUR million
2021
2020
Forbearance type
Outstandings
Of which:
performin
g
Of which:
non-
performing
% of total
portfolio
Outstandings
Of which:
performin
g
Of which:
non-
performing
% of total
portfolio
Loan modification
18,311
13,128
5,183
2.3%
17,877
12,937
4,940
2.3%
Refinancing
1,505
666
839
0.2%
1,939
1,252
686
0.2%
Total
19,816
13,793
6,022
2.5%
19,816
14,190
5,626
2.5%
As per 31 December 2021, ING’s total forborne
assets remained stable at €19.8 billion
compared to 31
December 2020. Wholesale Banking decreased
by €0.4 billion, whereas Retail Banking
increased by
€0.4 billion.
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Wholesale Banking (*)
As per December 2021, Wholesale
Banking forborne assets amounted to
€9.8 billion, which
represented 3.1% of the total Wholesale
Banking portfolio (Lending and Investment
credit
outstanding).
Wholesale Banking: Forborne portfolio by geographical area
(*)
in EUR million
2021
2020
Region
Outstandings
Of which:
performing
Of which:
non-
Outstandings
Of which:
performing
Of which:
non-
performing
performing
Europe
Netherlands
1,012
811
201
842
700
142
Belgium
329
321
8
255
175
81
Germany
868
658
210
845
676
170
United Kingdom
1,344
913
432
1,738
1,606
132
Italy
286
261
25
353
317
36
Norway
79
29
50
78
32
47
Poland
181
160
21
199
101
98
Rest of Europe
2,381
2,181
200
2,404
2,149
255
America
1,900
1,326
574
2,338
1,541
796
Asia
685
292
393
555
194
362
Australia
568
416
152
365
251
113
Africa
164
88
76
202
109
94
Total
9,798
7,455
2,343
10,176
7,849
2,327
Wholesale Banking: Forborne portfolio by economic sector (*)
in EUR million
2021
2020
Industry
Outstandings
Of which:
performing
Of which:
non-
Outstandings
Of which:
performing
Of which:
non-
performing
performing
Natural Resources
2,047
1,177
870
2,370
1,397
973
Transportation & Logistics
1,336
1,061
274
1,453
1,253
201
General Industries
366
321
45
661
605
55
Food, Beverages & Personal Care
1,202
749
452
1,475
1,216
260
Real Estate
1,665
1,570
95
529
365
165
Chemicals, Health & Pharmaceuticals
347
324
22
394
364
30
Builders & Contractors
177
135
41
449
370
78
Utilities
407
271
136
290
141
149
Services
793
687
106
750
643
106
Retail
361
304
57
346
296
49
Automotive
581
535
46
768
714
54
Other
516
318
197
691
485
206
Total
9,798
7,455
2,343
10,176
7,849
2,327
The main concentration of forborne assets
in a single country was in the United
Kingdom with 14%
(2020: 17%) of the total Wholesale Banking
forborne assets and 18% (2020: 6%) of the
total non-
performing forborne assets.
Wholesale Banking forborne assets decreased
by €378 million compared to 2020, of which
the
performing forborne assets decreased by
€394 million. The decrease of the performing
forborne assets
was visible across most industries, offset by
an increase for Real Estate. On a regional basis,
the
decrease was mainly visible in the United
Kingdom and America.
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Wholesale Banking forborne assets were
mainly concentrated in Natural Resources,
Real Estate,
Transportation & Logistics and Food Beverages
& Personal Care. Together they accounted
for 64% of
the total Wholesale Banking forborne
assets and 72% of the total Wholesale
Banking non-performing
forborne assets. Back in 2020, the main
concentration was witnessed Natural Resources,
Food
Beverages & Personal Care-
and Transportation & Logistics with
52% of the total WB forborne. In 2021,
a significant increase in forborne assets
was visible in Real Estate (+€1.1 billion),
offset by a decrease in
Natural Resources (-€0.3 billion), General Industries
(-€0.3 billion), Food, Beverages & Personal
Care (-
€0.3 billion) and Builders & Contractors (-€0.3
billion).
Relative to the views towards sectors,
also note
the sector based approach as explained in the
Management adjustments paragraph in the
Loan Loss
Provisioning section.
Retail Banking (*)
As per end of December 2021, Retail Banking forborne
assets amounted to a total of €10.0 billion,
which represented 2.1% of the total Retail
Banking portfolio (Lending and Investment
credit
outstanding).
Retail Banking: Forborne portfolio by geographical area (*)
in EUR million
2021
2020
Region
Outstandings
Of which:
performin
g
Of which:
non-
Outstandings
Of which:
performin
g
Of which:
non-
performing
performing
Europe
Netherlands
4,171
3,224
947
4,415
3,447
968
Belgium
3,319
2,035
1,284
2,672
1,621
1,051
Germany
497
306
191
578
410
168
Turkey
146
97
49
307
218
89
Poland
450
152
298
349
112
237
Romania
115
49
66
114
59
55
Italy
129
47
82
49
13
37
Spain
35
11
23
22
10
12
Rest of Europe
99
68
30
80
42
37
America
9
7
2
10
9
1
Asia
3
1
1
3
1
2
Australia
1,045
340
705
1,041
399
643
Africa
1
0
0
0
0
0
Total
10,018
6,339
3,679
9,640
6,341
3,299
The main concentration of forborne assets
in a single country was in the Netherlands
with 42% (2020:
46%) of the total Retail Banking forborne assets
and 26% (2020: 29%) of the non-performing
forborne
assets. Then Belgium followed with 33%
(2020: 28%) of the total Retail Banking
forborne assets. Out of
the total of €10.0 billion,
an amount of €4.6 billion is related to mortgages
(2020: €4.6 billion).
Payment holidays
Globally, 2021 has been still dominated by
the Covid-19 pandemic and the distressing
human and
economic cost thereof. Despite increasing vaccination
rates and a further reopening of economies
during the year, the end of 2021 was marked
again by increasing infection rates due
to the spread of
new virus variants. In many countries,
governments have adopted economic support
programs (such
as tax advantages, unemployment regulations
or guarantees) to address the adverse
systemic
economic impact of the coronavirus. In addition,
various initiatives have been taken by ING
to support
our clients to manage these extraordinary
times by way of granting temporary payment
holidays,
(guaranteed) new money facilities etc.
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Governments in almost all Retail Banking
countries have adopted measures providing for
payment
holidays. During 2020 and 2021, in line with the
EBA moratoria guidelines, approximately
137,000
customers had been granted payment holidays
under schemes that were eligible under
the EBA
moratoria guidelines. The total exposure of
loans for which a payment holiday was
granted amounts
to €15.3 billion, of which over 57% were for
customers located in the Netherlands and Belgium.
At the
end of 2021, 99.8% of granted payment holidays
had expired.
The
payment
holiday
schemes
offered
in the
various
countries
differ
in terms
of scope,
benefit
duration
and
key conditions
and are
mainly
applied
to business
lending,
mortgages
and consumer
loans.
The various measures taken by ING to
alleviate the impact of Covid-19 also impacted
the loan
classification in terms of forbearance and
consequently IFRS 9 staging. In light of
this, the EBA has
provided guidelines that expired on 30 September
2020, which defined eligibility criteria for
a payment
holiday arrangement offered to a large
group of customers to be classified as a “general
payment
moratorium”. Based on the guidelines,
the granting of these payment holidays
did not lead to
forbearance classifications. A small number
of payment holidays were granted outside
this scheme
and were flagged as forborne. ING followed
the EBA guidelines and when a payment
holiday was
provided to a customer as part of a “general
payment moratorium”, ING did not
consider this measure
to classifiable as forbearance. EBA further
extended these guidelines in the first
week of December
2020, valid until 31 March 2021, with certain extra
conditions. ING decided not to make use
of the
extension of these guidelines and took the
decision to treat exposures subject to a payment
holiday
under new or extended schemes (after
September 2020) as IFRS 9 stage 2 or stage
3 exposures.
Limited exceptions, due to local regulatory
requirements, were specifically approved
by the highest
credit policy approval body (GCTP).
To address the elevated risk for clients
with payment holidays a
management adjustment was considered
necessary.
Please refer to the paragraph on ‘Management
adjustments’ in the Loan Loss Provisioning
section.
Non-performing loans (*)
ING’s loan portfolio is under constant review.
Loans to obligors that are considered
more than 90 days
past due on material exposure are reclassified
as non-performing. For business lending portfolios,
there
generally are reasons for declaring a loan
non-performing prior to the obligor 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
in EUR million
Wholesale
Banking
Retail Benelux
Retail Challengers
& Growth Markets
Corporate Line
Total
Industry
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Private Individuals
2,424
2,879
2,445
2,480
-
-
4,869
5,359
Natural Resources
1,325
1,434
46
63
27
36
-
-
1,398
1,533
Food, Beverages & Personal
681
668
428
420
130
138
-
-
1,239
1,226
Transportation & Logistics
575
786
180
201
52
44
-
-
807
1,031
Services
224
313
499
474
63
58
-
-
786
844
Builders & Contractors
93
148
224
398
112
133
-
-
429
680
Real Estate
132
217
495
416
59
21
-
-
686
655
General Industries
66
138
272
232
123
133
-
-
461
502
Non-Bank Financial
56
18
24
26
4
3
-
-
85
47
Retail
140
85
103
170
47
54
-
-
290
309
Other
2
541
579
340
335
90
103
-
295
971
1,312
Total
3,833
4,386
5,035
5,614
3,153
3,203
-
295
12,021
13,497
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 (*)
in EUR million
Region
Total
Industry
Netherlands
Belgium
Germany
Poland
Spain
United
Kingdom
France
Luxemburg
Rest of Europe
America
Asia
Australia
Africa
2021
Private Individuals
776
1,578
721
206
232
8
16
35
497
3
4
791
1
4,869
Natural Resources
67
44
-
20
-
27
116
577
421
90
37
1,398
Food, Beverages &
Personal Care
299
176
25
111
-
226
7
2
37
228
128
1
1,239
Transportation & Logistics
385
55
1
35
47
20
3
165
29
49
17
807
Services
199
385
45
5
66
4
22
52
6
1
786
Builders & Contractors
43
188
4
83
-
-
2
58
50
-
-
429
Real Estate
167
303
-
61
88
21
21
9
-
-
16
-
686
General Industries
110
173
18
91
-
4
3
34
27
-
461
Non-Bank Financial
Institutions
7
8
-
4
-
9
14
8
34
1
-
85
Retail
40
70
34
30
-
-
56
1
21
21
14
2
290
Other
1
119
275
201
81
12
14
6
83
64
48
67
971
Total
2,212
3,255
1,005
768
284
447
119
87
1,056
1,060
656
966
105
12,021
1
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 (*)
in EUR million
Region
Total
Industry
Netherlands
Belgium
Germany
Poland
Spain
United
Kingdom
France
Luxemburg
Rest of Europe
America
Asia
Australia
Africa
2020
Private Individuals
1,040
1,760
712
214
239
7
18
38
555
5
4
766
1
5,359
Natural Resources
75
48
0
20
25
0
0
171
659
394
93
49
1,533
Food, Beverages &
Personal Care
324
165
80
114
15
11
68
1
76
240
132
1
0
1,226
Transportation & Logistics
346
54
1
42
47
18
0
3
110
40
352
18
0
1,031
Services
190
495
0
42
5
0
1
4
28
73
6
0
844
Builders & Contractors
66
361
1
93
0
0
4
107
47
0
0
680
Real Estate
144
255
86
15
80
15
17
26
16
655
General Industries
111
161
7
91
0
5
0
93
32
1
1
0
502
Non-Bank Financial
Institutions
9
13
3
0
0
4
13
4
1
47
Retail
66
140
0
41
3
6
1
36
13
3
0
309
Other
1
427
259
138
116
0
12
14
8
143
120
23
7
45
1,312
Total
2,799
3,710
939
862
320
156
126
81
1,359
1,220
925
905
95
13,497
1
Economic sectors not specified in above overview are grouped in Other.
The non-performing portfolio decreased in
2021, mainly due to decreased outstandings
in Private
Individuals, in Builders & Contractors and in the
Transportation & Logistics industry. The
decrease is
visible in all businesses and also in almost
all sectors. In the Netherlands, the Non Performing
in Private
Individuals decreased mainly because of
cures (ending their default probation).
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Loan loss provisioning
(*)
ING recognises
loss allowances based on the expected
credit loss (ECL) model 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 issued, and undrawn
committed revolving
credit facilities.
ING distinguishes between two types of
calculation methods for credit loss allowances:
◾
Individual Lifetime ECL for credit-impaired
(Stage 3) financial instruments
with exposures above €1
million;
◾
Collective 12-month ECL (Stage 1) and Lifetime
ECL (Stage 2) for portfolios of financial
instruments,
as well as Lifetime ECL for credit impaired
exposures (Stage 3) below €1 million.
IFRS 9 models (*)
The IFRS 9 models leverage on the internal
rating-based (IRB) models (PD, LGD,
EAD), which include
certain required conservatism. To include IFRS
9 requirements, such regulatory conservatism
is
removed from the ECL parameters (PD, LGD
and EAD). The IFRS 9 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 IFRS 9 model
parameters are estimated based on statistical
techniques and supported by expert judgement.
ING has aligned the definition of default for
regulatory purposes with the definition
of ‘credit-impaired’
financial assets under IFRS 9 (Stage 3). To
comply with the new regulatory technical standards
(RTS)
and EBA guidelines, ING updated its definition
of default in the first quarter of 2020.
Consequently, ING
updated this definition also for IFRS
9 purposes, which accordingly is taken into
account in updates of
IFRS9 models.
More information can be found in section
1.6 of the Consolidated Financial Statements.
Climate and environmental risks in IFRS 9 models (*)
ING is evolving in its credit risk management framework to develop a better understanding
of emerging
climate and environmental risks. Banks, including ING, are in the process of collecting
and analysing
empirical historical data and moving towards embedding these emerging
risks into their credit risk
management processes and eventually into their IFRS 9 ECL models.
At this point in time it is not yet possible to incorporate climate risk separately into IFRS
9 ECL models given
the lack of sufficient empirical historical data. The impact of climate risk is however
currently implicitly
embedded in ING’s ECL models through the macroeconomic forecasts
used for both the baseline and two
alternative scenarios (downside and upside). In particular, where climate and
environmental factors have
impacted the economy in the recent past or present, these impacts are reflected
in projected macro-
economic indicators (e.g. GDP growth and unemployment rates).
We note that ING’s ECL models are primarily sensitive to the short-term economic
outlook (we use a 3 year
time horizon for macroeconomic outlook after which a mean reversion
approach is applied), and therefore
the longer-term environmental/climate risk is not yet incorporated.
With regard to our evaluation of climate-related matters, where such events
have already occurred (e.g.
floods), the impact of such events are individually assessed in the calculation
of stage 3 Individual provisions
and factored into ING’s normal credit monitoring and identification processes.
For example, we consider
whether the affected assets have suffered a significant increase in credit risk (or
are credit impaired) and
whether the ECL is appropriate.
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Reconciliation gross carrying amount (IFRS 9 eligible) and statement
of financial position
in EUR million
2021
2020
Gross
Carrying
Amount
Allowances
for credit
losses
Cash and
on-demand
bank
positions
Reverse
Repurchase
transactions
Cash
collateral
other
Statement
of
financial
position
Gross
Carrying
Amount
Allowances
for credit
losses
Cash and
on-demand
bank
positions
Reverse
Repurchase
transaction
s
Cash
collateral
other
Statement
of
financial
position
Amounts held at Central Banks
104,875
-6
1,650
1
106,520
109,242
-3
1,851
-2
111,087
Loans and Advances to Banks
15,213
-22
1,674
3,403
3,287
36
23,591
16,660
-23
2,161
4,869
3,639
-1,942
25,364
Financial Instruments FVOCI Loans
837
-1
3
838
1,053
-2
4
1,056
Financial Instruments FVOCI Debt securities
27,201
-12
150
27,340
32,781
-12
208
32,977
Securities at Amortised Cost
47,358
-19
980
48,319
49,223
-17
1,381
50,587
Loans and Advances to customers
622,100
-5,274
1,487
3,178
6,059
627,550
589,355
-5,779
1,551
4,679
8,501
598,306
Total on-balance (IFRS 9 eligible)
817,585
-5,334
3,324
4,890
6,466
7,229
834,158
798,314
-5,836
4,011
6,420
8,319
8,150
819,378
Guarantees and irrevocable facilities (IFRS 9 eligible)
134,122
-34
118,418
-17
Total Gross Carrying Amount (IFRS 9 eligible)
951,707
-5,368
916,732
-5,854
This table presents the reconciliation between
the Statement of Financial Position
and the gross
carrying amounts used for calculating the
expected credit losses. No expected credit
loss is calculated
for cash, on-demand bank positions, reverse
repurchase transactions, cash collateral
received in
respect of derivatives and other. Therefore
these amounts are not included in
the total gross carrying
amount (IFRS 9 eligible). Other includes
value adjustments on hedged items, deferred
acquisition cost
on residential mortgages and a receivable
which is offset against a liquidity facility.
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Portfolio quality (*)
The table below describes the portfolio composition
over the different IFRS 9 stages and rating
classes.
The Stage 1 portfolio represents 93.5% (2020:
92.1%) of the total gross carrying amounts,
mainly
composed of investment grade, while
Stage 2 makes up 5.2% (2020: 6.5%) and
Stage 3 makes up 1.3%
(2020: 1.5%) total gross carrying amounts,
respectively.
Gross carrying amount per IFRS 9 stage and rating class (*)
1,2,3
in EUR million
12-month ECL (Stage 1)
Lifetime ECL not credit
impaired (Stage 2)
Lifetime ECL credit
impaired (Stage 3)
Total
2021
Rating class
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Investment grade
1 (AAA)
107,788
3
0
0
107,788
3
2-4 (AA)
106,673
5
197
0
106,870
5
5-7 (A)
152,255
17
1,001
1
153,256
17
8-10 (BBB)
328,301
73
7,232
14
335,533
87
Non-Investment grade
11-13 (BB)
162,912
208
14,679
86
177,592
294
14-16 (B)
26,852
185
17,931
404
44,783
589
17 (CCC)
5,377
10
4,354
198
9,730
207
Substandard grade
18 (CC)
2,314
173
2,314
173
19 (C)
1,769
142
1,769
142
Non-performing loans
20-22 (D)
12,072
3,851
12,072
3,851
Total
890,158
501
49,476
1,016
12,072
3,851
951,707
5,368
1 Compared to the credit risk portfolio, the differences are mainly undrawn committed amounts
(€133.3 billion) not included in Credit outstandings and non-IFRS 9 eligible assets (€95.1 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’.
3 IAS 37 provisions are established for non-credit replacement guarantees not in the scope
of IFRS 9. Total IAS 37 provisions (€114.4 million) are excluded.
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Gross carrying amount per IFRS 9 stage and rating class (*)
1,2,3
in EUR million
12-month ECL (Stage 1)
4
Lifetime ECL not credit
impaired (Stage 2)
4
Lifetime ECL credit
impaired (Stage 3)
Total
2020
Rating class
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Investment grade
1 (AAA)
109,734
3
46
0
0
0
109,780
3
2-4 (AA)
108,776
6
646
0
0
0
109,422
6
5-7 (A)
137,991
27
707
1
0
0
138,698
28
8-10 (BBB)
297,292
88
4,839
12
0
0
302,131
100
Non-Investment grade
11-13 (BB)
159,076
239
18,513
133
0
0
177,588
372
14-16 (B)
28,335
208
23,742
570
0
0
52,077
777
17 (CCC)
2,817
9
5,113
259
0
0
7,930
269
Substandard grade
18 (CC)
0
0
3,384
248
0
0
3,384
248
19 (C)
0
0
2,323
254
0
0
2,323
254
Non-performing loans
20-22 (D)
0
0
0
0
13,398
3,797
13,398
3,797
Total
844,021
581
59,313
1,476
13,398
3,797
916,732
5,854
1 Compared to the credit risk portfolio, the differences are mainly undrawn committed amounts
(€118.4 billion) not included in Credit outstandings and non-IFRS 9 eligible assets (€89.1
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’.
3 IAS 37 provisions are established for non-credit replacement guarantees not in the scope
of IFRS 9. Total IAS 37 provisions (€74.8 million) are excluded.
4 Prior year numbers adjusted reflecting model adjustment in residential mortgages Netherlands.
Changes in gross carrying amounts and loan loss provisions (*)
The table below provides a reconciliation
by stage of the gross carrying amount
and allowances for
loans and advances to banks and customers,
including loan commitments and financial
guarantees.
The transfers of financial instruments represent
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.
Please note the following comments with respect
to the movements observed in the
table below:
◾
Stage 3 gross carrying amount decreased by
€1.3 billion from €13.4 billion as per
31 December
2020 mainly as a result of generally low inflow
into NPL in 2021, primarily due to Government
support measures;
◾
Stage 2 gross carrying amount decreased
by €9.8 billion from €59.3 billion
as per 31 December
2020. This is mainly caused by the Significant
Lifetime PD trigger (-/-€7.9 billion) driven
by
favourable macro-economic forecasts and
the Watch List trigger (-/-€6.6 billion), offset
by
increases
in other triggers which are mainly more than
30 Days Past Due (€2.4 billion) and
Forbearance (€1.6 billion).
For the latter, a 2-year probation period is required
before a client
can move back to Stage 1;
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◾
Transportation & Logistics (including Aviation),
Real Estate, Services and Food, Beverages
&
Personal
Care (latter two including Hospitality
& Leisure) were the sectors particularly
impacted
by the Covid-19 pandemic. In 2021 these
sectors showed material releases in
Stage 2 amounts
compared to 31 December 2020 of €1.0
billion, €1.7 billion, €2.2 billion and €1.3 billion
respectively, as the impact of the pandemic
turned out to be less harsh than expected
last year
and several files were being taken off
the watchlist.
These sectors however still are the largest
Stage 2 contributors representing 10%,
9%, 8% and 8% of the total Stage 2 gross
carrying
amounts respectively;
◾
Changes in models/Risk parameters is mainly
related to the most important redeveloped
models in 2021, being Netherlands mortgages,
Germany mortgages and the models
in
Belgium.
Additional information on macroeconomic
scenarios is included in the section
‘Macro-economic
scenarios and sensitivity analysis of key
sources of estimation uncertainty’.
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Changes in gross carrying amounts and loan loss provisions (*)
1, 2
in EUR million
12-month ECL (Stage 1)
Lifetime ECL not credit
impaired (Stage 2)
Lifetime ECL credit
impaired (Stage 3)
Total
2021
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Opening balance
844,020
581
59,313
1,476
13,398
3,797
916,732
5,854
Transfer into 12-month ECL (Stage 1)
15,157
20
-14,322
-279
-835
-54
-0
-313
Transfer into lifetime ECL not credit impaired (Stage 2)
-19,737
-32
20,537
206
-800
-74
-0
100
Transfer into lifetime ECL credit impaired (Stage 3)
-2,166
-13
-1,589
-96
3,755
820
-0
712
Net remeasurement of loan loss provisions
-130
-228
404
46
New financial assets originated or purchased
208,501
149
208,501
149
Financial assets that have been derecognised
-125,819
-73
-11,935
-104
-1,898
-237
-139,652
-414
Net drawdowns and repayments
-29,799
-2,526
-694
-33,019
Changes in models/risk parameters
12
41
130
184
Increase in loan loss provisions
-67
-460
989
462
Write-offs
-0
0
-854
-854
-854
-854
Recoveries of amounts previously written off
45
45
Foreign exchange and other movements
-13
1
-125
-138
Closing balance
890,158
501
49,476
1,016
12,072
3,851
951,707
5,368
1
Stage 3 Lifetime credit impaired provision includes €4 million on Purchased
or Originated Credit Impaired.
2
The addition to the loan provision (in the consolidated statement of profit
or loss) amounts to € 516 million of which € 462 million related to IFRS-9 eligible financial
assets, € 43 million related to non-credit replacement guarantees and € 11 million
to
modification gains and losses on restructured financial assets.
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Changes in gross carrying amounts and loan loss provisions (*)
3
in EUR million
12-month ECL (Stage 1)
2
Lifetime ECL not credit
impaired (Stage 2)
2
Lifetime ECL credit
impaired (Stage 3)
1
Total
2020
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Opening balance
819,491
490
38,519
881
10,955
3,275
868,965
4,646
Transfer into 12-month ECL (Stage 1)
9,139
24
-8,899
-200
-240
-18
0
-194
Transfer into lifetime ECL not credit impaired (Stage 2)
-39,093
-76
39,601
651
-509
-57
0
518
Transfer into lifetime ECL credit impaired (Stage 3)
-3,592
-30
-1,879
-163
5,471
1,518
0
1,325
Net remeasurement of loan loss provisions
0
109
0
450
0
700
0
1,259
New financial assets originated or purchased
161,333
178
0
0
161,333
178
Financial assets that have been derecognised
-116,035
-85
-6,987
-107
-897
-236
-123,919
-428
Net drawdowns and repayments
12,778
-1,043
-181
11,444
Changes in models/risk parameters
7
7
Increase in loan loss provisions
119
638
1,908
2,666
Write-offs
-1,200
-1,200
-1,200
-1,200
Recoveries of amounts previously written off
39
39
Foreign exchange and other movements
-28
-42
-226
-297
Closing balance
844,020
581
59,313
1,476
13,398
3,797
916,732
5,854
1
Stage 3 Lifetime credit impaired provision includes €4 million on Purchased
or Originated Credit Impaired.
2
Prior year numbers adjusted reflecting model adjustment in residential mortgages Netherlands.
3
The addition to the loan provision (in the consolidated statement of profit
or loss) amounts to € 2.675 million of which € 2.666 million related to IFRS-9 eligible
financial assets, € -4 million related to non-credit replacement guarantees and € 13 million to
modification gains and
losses on restructured financial assets.
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Exposure per stage, coverage ratio and stage ratio’s
2
in EUR million
2021
2020
Balance sheet
Gross Carrying
Amount
Allowances for
credit losses
Coverage
ratio
Stage Ratio
Gross Carrying
Amount
Allowances for
credit losses
Coverage
ratio
Stage Ratio
Loans and advances to Banks (including Central Banks)
120,089
28
0.0%
125,902
26
0.0%
Stage 1
119,896
24
0.0%
100%
125,643
21
0.0%
100%
Stage 2
193
4
2.0%
0%
259
5
2.0%
0%
Loans and advances to Customers
622,100
5,274
0.8%
589,355
5,779
1.0%
of which: Residential mortgages
310,068
513
0.2%
297,145
513
0.2%
Stage 1
297,915
37
0.0%
96%
283,361
36
0.0%
95%
Stage 2
8,777
128
1.5%
3%
10,065
141
1.4%
3%
Stage 3
3,376
348
10.3%
1%
3,719
336
9.0%
1%
Of which: Consumer Lending (excl. Residential mortgages)
32,423
1,409
4.3%
32,154
1,337
4.2%
Stage 1
28,554
217
0.8%
88%
27,854
187
0.7%
87%
Stage 2
2,654
367
13.8%
8%
2,866
347
12.1%
9%
Stage 3
1,215
825
67.9%
4%
1,435
802
55.9%
4%
Of which: Loans to public authorities
14,333
12
0.1%
14,335
8
0.1%
Stage 1
13,906
2
0.0%
97%
14,076
3
0.0%
98%
Stage 2
344
5
1.5%
2%
189
2
1.0%
1%
Stage 3
84
4
5.1%
1%
70
4
5.1%
0%
Of which: Corporate Lending
265,276
3,340
1.3%
245,721
3,921
1.6%
Stage 1
229,906
185
0.1%
87%
201,087
300
0.1%
82%
Stage 2
28,568
505
1.8%
11%
36,936
977
2.6%
15%
Stage 3
6,801
2,649
39.0%
3%
7,698
2,644
34.4%
3%
Other IFRS 9 Eligible Financial Instruments
1
209,518
66
0.0%
201,475
48
0.0%
Stage 1
199,982
35
0.0%
95%
192,000
35
0.0%
95%
Stage 2
8,941
6
0.1%
4%
8,999
3
0.0%
4%
Stage 3
596
24
4.1%
0%
476
10
2.2%
0%
Total Gross Carrying Amount (IFRS 9 eligible)
951,707
5,368
0.6%
916,732
5,854
0.6%
1
Includes Off balance sheet IFRS 9 eligible guarantees
and irrevocable facilities
2
The exposure classification to residential mortgages,
consumer lending and corporate lending is
aligned to the regulatory definition
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Modification of financial assets
The table below provides the following information:
- 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.
- Financial assets that were reclassified to stage
1 during the period.
Financial assets modified (*)
in EUR million
2021
2020
Financial assets modified during the period
Amortised cost before modification
2,595
2,840
Net modification results
-47
-144
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
448
312
Modifications that have been provided in 2020
and 2021 under general payment moratoria
(payment
holidays) are not included in this analysis.
Refer to ‘Payment holidays’, above, for
details.
Macroeconomic scenarios and sensitivity analysis of key sources of estimation
uncertainty (*)
Methodology (*)
Our methodology in relation to the adoption
and generation of macroeconomic scenarios
is described
in this section. We continue to follow this
methodology in generating our probability-weighted
ECL,
with consideration of alternative scenarios
and management adjustments supplementing
this ECL
where, in management's opinion, the consensus
forecast does not fully capture the extent
of recent
credit or economic events. The macroeconomic
scenarios are applicable to the whole
ING portfolio in
the scope of IFRS 9 ECLs.
The IFRS 9 standard, 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, ING’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.
Baseline scenario (*)
As a baseline for IFRS 9, ING has adopted a
market-neutral view combining consensus
forecasts for
economic variables (GDP, unemployment)
with market forwards (for interest
rates, exchange rates and
oil prices). The Oxford Economics’ Global
Economic Model (OEGEM) is used to
complement the
consensus with consistent projections for
variables for which there are no consensus
estimates
available (most notably house prices and
– for some countries - unemployment), to
generate
alternative scenarios, to convert annual
consensus information to a quarterly frequency
and to ensure
general consistency of the scenarios. As the
baseline scenario is consistent
with the consensus view it
can be considered as free from any bias.
The relevance and selection of macroeconomic
variables is defined by the ECL models
under credit risk
model governance. The scenarios are reviewed
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.
Alternative scenarios and probability weights
(*)
Two alternative scenarios are taken into
account; an upside and a downside scenario.
The alternative
scenarios have technical characteristics as they
are 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 the way risk management
earnings-at-risk is defined within the Group.
The upside
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scenario is represented by the 10th percentile
of the distribution. The applicable percentiles
of the
distribution imply a 20% probability for each
alternative scenario. Consequently, the baseline
scenario
has a 60% probability weighting. Please note
that, given their technical nature,
the downside and
upside scenarios are not based on an explicit
specific narrative.
Macroeconomic scenarios applied (*)
The loan loss provisions are based on the December
2021 consensus forecasts.
Baseline assumptions (*)
The general picture that the consensus conveys
is that supply chain disruption, elevated
energy prices
as well as covid related mobility restrictions will
fade in the course of 2022. While slowing,
the
economic recovery continues in the period
2022-2024 and inflation peaks in 2021-2022.
The monetary
policy stance in the US and the eurozone is
expected to become gradually less loose.
However, with
global monetary conditions remaining loose,
housing markets remain overall well
supported but the
rate of increase of house prices is expected to
decrease in most markets over the forecast
period.
The December 2021 consensus expects
global output (ING definition), after a
strong rebound in 2021 of
5.7%, to continue to recover. For 2022, a growth rate of
4.1%
is being anticipated which is expected
to
level off to an at or below
3% growth rate for the years thereafter.
Eurozone GDP has reached again its pre-pandemic
level in Q4 2021. As for the US, economic
momentum in the eurozone is seen gradually
normalising after the strong rebound
in 2021.
Inflationary pressures, supply-side disruptions
and a challenging health situation weigh
on the outlook.
Elsewhere in Europe, the consensus sees
economic growth for Poland in 2022
at 4.9%,
below the rate
of economic growth in 2021 (5.2%). For the years thereafter some slowing down to 4.2
%
(2023) and
3.5%
(2024) is expected. For Turkey, after strong
economic performance in 2021
(9.3%),
economic
growth is expected to decrease to at or
around
3.5%
in 2022-2024.
While already running above pre-pandemic
levels again, demand in the US economy
remains resilient.
Consumers may spend down excess savings
generated during the episodes of pandemic-related
uncertainty. This, together with robust income
growth driven by a resilient jobs market should
provide
support to domestic demand. Elevated job
openings, hirings, and quits point to sturdy
labour market
fundamentals and the consensus expects
the labour market to tighten further
in 2022 and 2023.
However, reduced supply of inputs caused
by disruption to global supply chains
and increased inflation
are weighing on economic activity. As a result,
the consensus expects the growth
rate of the US
economy to level off from 5.6%
in 2021 to 4.0
%
in 2022 and 2.5
%
or below in 2023-2024.
The consensus expects GDP growth for China
to be in
a 5
- 5.5
%
range in 2022-2024, down from a
strong rebound of 8.0
%
in 2021. The slowdown reflects the government’s
relatively tight regulatory
and credit stance regarding real estate
developers and measures to rein in house
price increases and
mortgage approvals slowing down real estate
investment.
In Australia, economic growth is expected
to strengthen in the course of 2022.
The consensus sees
economic growth slowing to at or below
3% in 2023 and 2024 after expanding by
3.8%
in 2022.
When compared to the December 2020
consensus forecast, used for the 2020 Annual
Report, the
December 2021 forecast assumes a stronger
economic recovery. Global GDP is expected
to increase
by
5.7%
in 2021 (compared to 5.0
%
assumed before) and
4.1%
in 2022
(3.8%
assumed before). This
upward adjustment follows on from a more
effective than expected roll-out of vaccination
programs,
higher than assumed fiscal stimulus and generally
better than expected realizations.
Alternative scenarios and risks (*)
Although vaccination against Covid-19 has
progressed swiftly in many countries,
uncertainty
surrounding the forecasts remains larger than
usual. This reflects continued uncertainty
around the
development and impact of the pandemic.
The pandemic could worsen (again) as,
given globally still
low rates of vaccination, the emergence
of new, possibly more virulent, variants
cannot be excluded.
To reflect the general increase of uncertainty
surrounding the forecasts, the dispersion
of the
alternative scenarios was widened in 2020.
Specifically, the forecast bandwidths
projected for the end
of the forecast horizon has been applied to
the near-term as well. As the forecast-error distributions
widen over time, this means that the
distributions became wider in the near-term and
thus allow for a
wider range of possible outcomes. Meanwhile,
at the end of the scenario horizon they
remained
unchanged and are hence comparable to
scenarios generated prior to the pandemic.
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In the scenarios applied at year end 2021 the
above-mentioned near-term dispersion has
been halved,
following Oxford Economics’ research showing
that the harm from lockdowns has halved
from what it
was in the first half of 2020. The downward
skew following on from the outcomes
of Oxford Economics’
Global Risk Survey has been maintained.
As a result of this, the near-term dispersion
of the forward-
looking distributions (from which the alternative
scenarios are derived) remains larger than
in normal
times, but it now also reflects the adaptability
of economies to the pandemic.
The upside scenario – though technical in nature
– implies, for most countries,
a quick return of output
to its pre-coronavirus baseline forecast
and more positive medium-term prospects
than envisaged in
the baseline scenario. In this scenario unemployment
rates quickly fall back from their peaks and
reach
new lows in the mid-2020s.
The downside scenario, while being equally
technical in nature, results in a renewed
global downturn in
the near-term. The downside scenario reflects
the risk of the coronavirus pandemic remaining
a drag
on the global economy, if new highly transmissible
and more virulent variants (than Omicron)
result in
renewed restrictions. The subsequent recovery
would be more sluggish, as the combination
of
persistent restrictions, increased risk aversion
and long-term scarring weigh heavily
on the global
economy. The downside scenario also captures
the risks of supply chain disruptions
and higher
inflation hampering economic growth.
Management adjustments applied this year (*)
In times of volatility and uncertainty where
portfolio quality and the economic environment
are
changing rapidly, models alone may not be
able to accurately predict losses. In these
cases,
management adjustments can be applied to
appropriately reflect ECL. Management
adjustments can
also be applied where the impact of the
updated macroeconomic scenarios is
over- or under-
estimated by the IFRS 9 models.
ING has internal governance frameworks and
controls in place to assess the appropriateness
of all
management adjustments.
Management adjustments to ECL models (*)
in EUR million
2021
2020
Model time lag overlay
0
394
Economic sector based adjustments
341
0
Payment holiday adjustments
32
244
Reserve Based Lending adjustment
0
25
Mortgage portfolio adjustment
124
0
Other Post Model Adjustments
135
17
Total management adjustments
632
680
An economic sector-based management
adjustment of €341 million was taken
in December 2021
because of delays in defaults occurring in the
Covid-19 related crisis, mainly as a result
of government
support programmes, while GDP growth forecasts
as well as unemployment rates and house
prices
improved over 2021 and which triggered releases
of the model based provisions. As it is
expected that
additional defaults as a result of the Covid-19
crisis will still come in, especially in certain sectors
where
a significant change to the business models
is observed,
a sector-based management adjustment
was
calculated. In determining the sector-based
management adjustment, a heatmap
approach was used
to adjust the probability of default for sectors
where businesses are significantly impacted
by the
pandemic. Refer also to the section ‘Covid-19
sensitive sectors’. The Acquisition Finance
portfolio is also
in scope of the sector based management
adjustment, given the highly leveraged nature
of the
product.
The economic sector-based management
adjustment replaced the time lag overlay
of €394 million
that was recognised as at 31 December
2020 and which was calculated using a scenario
with a time
lag between GDP growth forecasts deteriorating
and defaults occurring, but did not
differentiate
between sectors. Also the management
adjustment that was recognised in 2020 for
the Reserved
Based Lending book was released in 2021,
mainly as result of increased oil prices.
As mentioned earlier, per the guidance from
EBA that expired on 30 September 2020,
Covid-19 related
payment holidays granted have not automatically
been classified as forbearance, and hence,
have not
automatically triggered recognition of
lifetime ECL in Stage 2. Payment holidays have
also been
granted in certain countries in 2021, though
to a much lesser extent than in 2020. Looking
forward, it is
expected that the phasing out of all the support
measures in 2022 could lead to more
insolvencies and
unemployment. This could lead to more clients
getting into financial difficulties and to higher
levels of
defaults. To the extent ING believes that
this elevated risk is not yet covered in
the IFRS 9 models, a
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management adjustment has been recognised.
As at 31 December 2021 this management
adjustment is reported in Retail Banking in
Belgium, Italy and Australia. As many payment
holiday
programs have already expired, this management
adjustment has decreased to €32 million
as at 31
December 2021 coming from €244 million
a year ago.
ECL of mortgage portfolios determined by the
models continued to decrease rapidly
during 2021,
driven by significant increase of house prices
in various countries. Management
adjustments of €124
million in total, mainly in stage 2 and 3, have
been recognised in ING Netherlands,
Belgium, Germany
and Australia to maintain an appropriate
level of ECL and reflecting a potential impact
of higher
inflation and rates on clients’ ability to pay
and a potential impact of market uncertainty
on the
recovery value of residential real estate. The
management adjustment for the Netherlands
mortgage
portfolio was determined by developing three
alternative macroeconomic forecast scenarios,
in
addition to the consensus base, up- and
down-scenarios, that reflect a correction
in the house prices in
the next 3 years bringing it back in line with
the historical growth rate. For other countries,
management adjustments were determined
by calculating the impact of lower
house prices on LTVs
and LGDs.
Other Post Model Adjustments mainly relate
to the impact of model redevelopment
or recalibration
and periodic model assessment procedures
that have not been incorporated in the
ECL models yet.
These result from both regular model maintenance
and ING’s multiyear program to update
ECL models
for the new definition of default. These
adjustments will be removed once updates
to the models have
been implemented.
Analysis on sensitivity (*)
The table below presents the 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. The countries included in
the analysis are the most significant
geographic regions,
in terms of both gross contribution to reportable
ECL, and sensitivity
of ECL to forward-looking
macroeconomics. Accordingly, ING 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. ING also observes that, in general,
the Wholesale Banking business is more
sensitive to the
impact of forward-looking macroeconomic scenarios.
The purpose of the sensitivity analysis is to
enable the reader to understand the
extent of the impact
from the upside and downside scenario
on model-based reportable ECL. The
table does not include
any management adjustments, except for
the overlay for time lag in defaults
of €394 million as at 31
December 2020. The current sector based
management adjustment as per 31
December
2021 is not
included in the table,
which mainly explains the decreases
in reportable amounts.
In the table below the Real GDP is presented
in percentage year-on-year change, the
unemployment
in percentage of total labour force and the
house price index (HPI) in percentage
year-on year change.
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Sensitivity analysis as at December 2021
(*)
2022
2023
2024
Un-weighted
ECL (Eur mln)
Probability-
weighting
Reportable
ECL (Eur mln)
1
Netherlands
Upside scenario
Real GDP
5.1
2.9
2.7
259
20%
307
Unemployment
3.2
2.9
2.9
HPI
23.3
10.9
0.9
Baseline Scenario
Real GDP
3.4
2.0
1.7
289
60%
Unemployment
3.7
4.1
4.3
HPI
13.1
2.8
0.8
Downside scenario
Real GDP
-1.5
1.2
0.7
411
20%
Unemployment
5.6
6.8
7.8
HPI
0.3
-7.7
0.6
Germany
Upside scenario
Real GDP
6.2
3.1
1.6
457
20%
483
Unemployment
2.9
2.2
1.9
HPI
12.9
7.9
5.3
Baseline Scenario
Real GDP
4.0
2.3
1.4
475
60%
Unemployment
3.4
3.1
3.1
HPI
10.4
4.6
1.9
Downside scenario
Real GDP
-0.6
0.9
0.8
535
20%
Unemployment
5.0
5.4
5.7
HPI
5.3
0.4
-2.1
Belgium
Upside scenario
Real GDP
4.6
2.5
2.0
364
20%
393
Unemployment
5.6
5.6
5.9
HPI
3.9
2.7
2.9
Baseline Scenario
Real GDP
3.1
2.0
1.8
383
60%
Unemployment
6.1
6.3
6.3
HPI
3.0
2.3
2.3
Downside scenario
Real GDP
-0.4
1.4
1.4
451
20%
Unemployment
7.6
8.6
9.0
HPI
0.4
1.0
1.0
United States
Upside scenario
Real GDP
6.7
2.4
3.1
28
20%
75
Unemployment
3.5
2.5
2.4
HPI
10.4
8.1
8.7
Baseline Scenario
Real GDP
4.0
2.5
2.1
55
60%
Unemployment
4.0
3.7
3.7
HPI
9.1
3.0
3.3
Downside scenario
Real GDP
-0.7
1.1
0.3
183
20%
Unemployment
6.5
7.4
8.0
HPI
5.3
-3.2
-3.0
1 Excluding management adjustments.
Sensitivity analysis as at December 2020 (*)
2021
2022
2023
Un-weighted
ECL (Eur mln)
Probability-
weighting
Reportable
ECL (Eur mln)
1
Netherlands
Upside scenario
Real GDP
5.3
3.3
2.8
383
20%
468
Unemployment
5.1
3.9
3.0
HPI
8.1
6.3
4.7
Baseline Scenario
Real GDP
2.8
2.9
1.9
441
60%
Unemployment
5.8
5.2
4.7
HPI
-1.9
-1.6
4.5
Downside scenario
Real GDP
-4.9
4.8
1.4
636
20%
Unemployment
7.7
7.8
7.9
HPI
-12.3
-11.0
4.3
Germany
Upside scenario
Real GDP
7.6
3.3
1.5
504
20%
558
Unemployment
3.0
2.2
1.8
HPI
3.5
8.3
6.6
Baseline Scenario
Real GDP
3.9
3.4
1.6
541
60%
Unemployment
4.1
3.5
3.5
HPI
0.4
4.8
3.1
Downside scenario
Real GDP
-2.4
3.5
1.3
662
20%
Unemployment
5.6
5.3
5.6
HPI
-3.5
0.8
-0.9
Belgium
Upside scenario
Real GDP
6.9
3.3
2.4
494
20%
559
Unemployment
7.3
6.2
5.8
HPI
-0.2
4.2
4.8
Baseline Scenario
Real GDP
4.5
3.3
2.3
540
60%
Unemployment
7.5
6.3
6.3
HPI
-1.7
3.5
3.8
Downside scenario
Real GDP
-0.4
4.0
2.2
681
20%
Unemployment
9.4
9.1
8.8
HPI
-3.6
2.5
2.9
United States
Upside scenario
Real GDP
5.6
4.1
3.8
93
20%
189
Unemployment
5.0
3.0
1.9
HPI
6.2
9.4
9.3
Baseline Scenario
Real GDP
4.0
3.2
2.5
134
60%
Unemployment
6.0
4.7
4.1
HPI
4.3
4.1
4.0
Downside scenario
Real GDP
-6.3
6.8
1.9
448
20%
Unemployment
8.5
7.9
7.6
HPI
1.2
-1.9
-2.3
1 Sensitivity does only include the effect of time lag overlay, other management adjustments
are excluded.
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When compared to the sensitivity analysis
of 2020 the macroeconomic inputs
for 2021 and 2022 are
more favourable, as at that time expectations
around the possible consequences of
the spread of the
coronavirus were more pessimistic, especially
with regard to house prices and the
unemployment
rates. The macroeconomic inputs used in
the 2021 sensitivity analysis reflect that,
after declining
sharply in 2020, a strong bounce back in macro-economic
forecast has been realised in 2021 and
is to
a lesser
extent also expected for 2022. Furthermore
the widened dispersion around upside
and
downside scenarios in 2021 is half of the size
of that in 2020, reflecting continuing
but decreased short
term uncertainty related to the impact of
Covid-19 compared to a year ago.
The decrease in reportable ECL compared
to 2020 is mainly caused the €394m Model
Time lag Overlay
that was included in the model ECL amounts
as per December 2020, while current
comparable
Economic Sector based management adjustment
is not included in the December 2021
model ECL
amounts. This due to the improvement
of the methodology applied to determine
the adjustment,
which is now recognised in addition to the model
ECL, and better reflects that the uncertainty
is more
prominent in specific sectors.
While the table above does give a high-level
indication of the sensitivity of the outputs
to the different
scenarios, it does not provide insight into the
interdependencies and correlations
between different
macroeconomic variable inputs. On total
ING level, the unweighted ECL for all
collective provisioned
clients in the upside scenario was €2,126 million,
in the baseline scenario €2,294 million
and in the
downside scenario €2,964 million compared to
€2,394 million reportable collective provisions
as per 31
December 2021 (excluding all management
adjustments). This reconciles as follows
to the reported
ECL’s:
Reconciliation of model (reportable) ECL to total ECL
(*)
in EUR million
2021
2020
Total model ECL*
2,394
3,245
ECL from individually assessed impairments
2,342
2,323
ECL from management adjustments**
632
286
Total ECL
5,368
5,854
* The prior period has been updated to improve consistency
and comparability
** The overlay of €394m as per 2020 is included
in Total model ECL.
Criteria for identifying a significant increase
in credit risk (SICR) (*)
All assets and off-balance sheet items that
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.
ING considers the
credit risk of an asset to have significantly
increased when either a threshold for absolute
change in
lifetime probability of default (PD) or a relative
change in lifetime PD is hit.
It should be noted that the lifetime PD thresholds
are not the only drivers of stage allocation.
An asset
can also change stages as a result of other
triggers, such as having
over 30 days arrears, being on a
Watch List or being forborne. Refer to section
1.6.8 of Note 1 ‘Basis of preparation
and significant
accounting policies’
for an exhaustive list. Furthermore, this
analysis is rudimentary in a sense that
other parameters would change when an
asset changes stages.
Absolute lifetime PD threshold
The absolute threshold is a fixed value
calibrated per portfolio/segment and
provides a fixed threshold
that, if exceeded by the difference between
lifetime PD at reporting date and lifetime
PD at origination,
triggers Stage 2 classification. The thresholds
for the absolute change in lifetime PD
vary between
75bps for Retail portfolios, 100bps for Wholesale
and 250bps for SMEs, based on the characteristics
of
the specific portfolio. ING is in the process
of refining the thresholds on a portfolio
level, which has been
implemented for a few Turkish, Polish and
German models and resulting in deviating
absolute lifetime
PD thresholds.
Relative Lifetime PD threshold
The relative threshold defines a relative
increase of the lifetime PD beyond which
a given facility is
classified in Stage 2 because of significant
increase in credit risk. The relative threshold
is dependent on
the individual PD assigned to each facility
at the moment of origination and a scaling factor
calibrated
in the model development phase that is optimised
depending on the observed default rates
and overall
average riskiness of the portfolio. While the
scaling factor is associated with a
whole portfolio/segment,
the PD at origination is facility-specific and, in this
sense, the relative threshold may
differ facility by
facility.
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Ultimately the relative threshold provides
a criterion to assess whether the ratio (i.e.
increase) between
lifetime PD at reporting date and lifetime
PD at origination date is deemed a
significant increase in
credit risk. If the threshold is breached, SICR
is identified and Stage 2 is assigned to the
given facility.
The threshold for the relative change in lifetime
PD is inversely correlated with the PD at origination;
the higher the PD at origination, the lower the
threshold. The logic behind this
is to allow facilities
originated in very favourable ratings to downgrade
for longer without the need of a Stage
2
classification. In fact, it is likely that said facilities
will still be in favourable ratings even
after a
downgrade of a few notches. On the contrary,
facilities originated in already unfavourable
ratings
grades are riskier and even a single-notch
downgrade might represent a significant
increase in credit
risk and thus a tighter threshold will be in
place. Still, the relative threshold is
relatively sensitive for
investment grade assets while the absolute
threshold primarily affects non-investment
grade assets.
In the table below the average increase in
PD at origination needed to be classified in
Stage 2 is
reported, taking into account the PD at origination
of the facilities included in each combination
of
asset class and rating quality. In terms
of rating quality, assets are divided into
“Investment grade” and
“Non-investment grade” facilities. Rating 18
and 19 are not included in the table since facilities
are not
originated in these ratings and they constitute
a staging trigger of their own (i.e. if a facility
is ever to
reach rating 18 or 19 at reporting date, it
is classified in Stage 2). In the table
values are weighted by
IFRS 9 exposure and shown for both year-end
2020 and year end 2021.
In order to represent the thresholds as
a ratio (i.e. how much should the PD at
origination increase in
relative terms to trigger Stage 2 classification)
the absolute threshold is recalculated
as a relative
threshold for disclosure purposes. Since breaching
only relative or absolute threshold triggers
Stage 2
classification, the minimum between the relative
and recalculated absolute threshold is taken
as value
of reference for each facility.
Quantitative SICR thresholds
(*)
2021
2020
Average threshold ratio
Investment
grade (rating
grade 1-10)
Non-
investment
grade (rating
grade 11-17)
Investment
grade (rating
grade 1-10)
Non-
investment
grade (rating
grade 11-17)
Asset class category
Mortgages
2.7
2.2
2.7
2.1
Consumer Lending
2.8
1.7
2.8
1.7
Business Lending
4.0
2.2
4.0
2.1
Governments and Fin. Institutions
7.9
2.2
7.7
2.0
Other Wholesale Banking
4.5
2.0
3.9
1.8
As it is apparent from the disclosures above,
as per ING’s methodology, the threshold is
tighter the
higher the riskiness at origination of the assets,
illustrated by the noticeable difference
between the
average threshold applied to investment
grade facilities and non-investment grade facilities.
In
addition to the above, asset classes having
usually more favourable ratings at origination
(i.e. Central
Governments and Financial Institutions) show
an average threshold higher than the rest in
investment
grade assets. Changes in the threshold averages
between the two reporting years can be
caused by
model updates (the staging parameters
have been recalibrated) and/ or by changes
in portfolio
composition.
Sensitivity of ECL to PD lifetime PD thresholds
The setting of PD threshold bandings requires
management judgement and is
a key source of
estimation uncertainty. On Group level, the total
ECL collective-assessment for performing
assets is
€1,003 million (2020: €1,678 million) (without
taking management adjustments
into account).To
demonstrate the sensitivity of the ECL to
these PD thresholds bandings, analysis
was run on all
collectively-assessed assets, which assumed
all assets (Stage 1 and 2) 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 hypothetical
collective-assessment ECLs of €634 million
(2020: €1,242 million) and €2,232 million
(2020: €3,552
million) respectively. Please note that in this
analysis all other ECL risk parameters (except
for the
stage) were kept equal.
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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 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 need 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. The goal of risk
identification is to detect potential new risks
and any changes in known risks. See ‘Risk
Governance’ 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 EB/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 the
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 based on management
decisions. To adhere to the established
limit
framework, ING implements hedging and risk
mitigation strategies that range from the
use of
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.
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Several committees govern communication
between the parties involved in market
risk management,
such as MRMC (reporting to ALCO Bank)
and CTRC (reporting to GCTP).
The Market Risk Model
Committee (MRMC) is the dedicated authority
within ING for the approval of all trading
risk,
counterparty credit risk and banking risk models,
methodologies and related parameters.
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
ALCO Bank and
the senior executive management of related
business functions.
The Trading and Banking Book Boundary
Policy 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. 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. In exceptional cases
when a re-designation is deemed
necessary, the re-
designation should be approved by ALCO. The
boundary requirements for banking book
and trading
book instruments and risk transfer are
detailed in the Trading and Banking Book
Boundary Policy.
The following sections 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,
customer behaviour 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 with 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. 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.
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,
and 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.
As a result of this framework, ING centralises
interest rate risk management
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 based 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;
◾
Commercial business; and
◾
Group Treasury exposures including strategic
interest rate positions.
Group Treasury is responsible for managing
the investment of own funds (core
capital). Capital is
invested for longer periods to keep earnings
stable. 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.
Commercial activities can result in linear
interest rate risk, for example, when
re-pricing causes the
tenors of assets to differ from those of liabilities.
Also, interest rate risk can arise from customer
behaviour and/or convexity risk, depending on
the nature of the underlying product
characteristics.
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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, amongst others, 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 unforeseen
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 to hedge their value and minimise
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 account of different
elements, such as pricing strategies, volume
developments and the level and shape of the
yield
curve. Savings volumes are typically assumed
to be relatively stable and not sensitive to
rate
changes;
◾
Interest rate risk for mortgages arises through
prepayment behaviour. In modelling
this risk,
both interest rate dependent pre-payments
and constant prepayments are considered.
Next to
the dependence on interest rates, modelled
prepayments 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 dependent prepayment
behaviour; these portfolios are match-funded taking
the constant prepayment model into
account.
They typically do not contain significant
convexity risk. Wholesale banking loans
can
have an all-in rate floor or a floor on a reference
rate.
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 backtested
and updated when deemed necessary in
an annual
procedure. Model parameters and the resulting
risk measures are approved by (local)
ALCO.
Linear risk transfers take place from commercial
business books to the treasury book (Group
Treasury),
if necessary, by 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 monthly. However, if deemed
necessary, additional risk transfers can
take place, for
instance due to 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.
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 figures
provide the
value perspective. Please note that the
expected interest rate risk coming forward
from the business is
assumed to be linearly hedged but no additional
corrective management actions are taken into
account in the NPV-at-Risk measure. In the
NII-at-Risk measure a more dynamic hedging
process is
taken into account.
During 2021, the following activities related to
the risk measurement for IRRBB were performed:
◾
Annual review of the risk appetite for IRRBB
includes further enhancement;
◾
More in-depth assessment of sub-risk types
such as tenor basis risk,
vega optionality risk and a
client behaviour risk earnings and value metrics;
◾
Annual review of the interest rates scenarios
used for calculating NII-at-Risk and NPV-at-Risk;
◾
Savings/ current account model updates
and prepayment model updates for market
developments;
◾
Specific Covid-19 related stress test; and
◾
IRRBB related impact as part of firm-wide inflation
risk stress test.
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Net interest income (NII) at Risk
(*)
The NII-at-Risk measures the impact of
changing interest rates on the forecasted net
interest income
(before tax) of the banking book, excluding
the impacts of credit spread sensitivity
and fees. Future
projected balance sheet developments
are included in this risk metric.
In its risk management ING monitors the
NII-at-Risk under a three-year timeframe. Interest
rates are
stressed during the first year versus the prevailing
curve, taking gradual changes over the first
year.
The rate changes considered comprise both upward
and downward scenarios, as well
as parallel (equal
movements across the yield curve) and non-parallel
scenarios.
The impact of changing interest rates on
ING’s NII is predominantly caused by
the following factors:
◾
Change in returns of (re-)investments of client
deposits;
◾
Change in deposits client rates (mainly savings),
(partially) tracking changes in market interest
rates;
◾
Change in funding profile of mortgages,
due to less or more expected prepayments;
◾
Higher/Lower returns of (re-)investments
of capital investments;
◾
Open interest rate positions, leading to
changes in return because of different
market rates.
For projecting the change in client deposits
rates ING uses a client rate model that
describes the
relation to market interest rates and client
deposits rates. The model is calibrated under
a range of
interest rate scenarios. Per scenario the
actual change in client deposits rate may deviate
from this
calibrated model.
For projecting the change in the funding profile
of mortgages ING uses prepayment models
for the
various mortgage portfolios.
The NII-at-Risk figures in the tables below
reflect a parallel, gradual interest rate movement
(“ramped”)
under the assumption of balance sheet developments
in line with the dynamic plan with a time
horizon of one year.
NII-at-Risk banking books per business
- year one (*)
in EUR million
2021
2020
Ramped, unfloored
Ramped, unfloored
parallel
▼
parallel
▲
parallel
▼
parallel
▲
By business
Wholesale Banking
46
-33
135
-83
Retail Banking Benelux
-122
132
-114
105
Retail Challengers & Growth Markets
-93
75
-52
-14
Corporate Line Banking
-58
58
-52
52
Total
-226
232
-83
60
EUR ramped is at +/- 100bps in 1 year
USD ramped is at +/- 120bps in 1 year
The NII-at-Risk is primarily driven by the
difference in sensitivity of client liabilities, mainly
savings,
versus the sensitivity of client assets and investments
to rate changes. The investment of own funds
only impacts the earnings sensitivity marginally,
as only a relatively small part has to be
(re)invested
within the one-year horizon.
NII-at-Risk banking book per currency - year one (*)
in EUR million
2021
2020
Ramped, unfloored
Ramped, unfloored
parallel
▼
parallel
▲
parallel
▼
parallel
▲
By currency
Euro
-181
179
-146
120
US Dollar
-23
23
41
-36
Other
-23
30
23
-25
Total
-226
232
-83
60
EUR ramped is at +/- 100bps in 1 year
USD ramped is at +/- 120bps in 1 year
Per year-end 2021, the NII is projected to
be higher when interest rate rise. In this
scenario the one-
year (re-) investment returns are higher than
the modelled increase in client deposits
rates and
modelled extra funding costs due to higher
funding costs for mortgages.
The projected change in NII numbers in the
tables above include projected changes
in client deposits
rates. Without increasing client deposits rates
the NII-at-Risk for the parallel ramped up scenario
would
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be significantly higher, meaning that the
actual client deposits rate tracking of
market interest rates in
such scenario is a key driver in the NII
development of the bank.
The change in NII under a declining or upward
interest rate scenario are not equal. This
is primarily
caused by different expected reactions in
prepayment behaviour of mortgages
and different pricing
developments of commercial loans and deposits
products (mainly savings). This is
caused by
embedded options, explicit or implicit pricing
floors and other (assumed) pricing
factors.
Year-on-year variance analysis (*)
In 2021, interest rates remained at very
low levels and for short tenors at even
negative levels. Interest
rates in the longer tenors increased towards
the end of year. The change in NII sensitivity
is driven by
balance sheet developments, specifically in relation
to mortgages and savings. The production
of
mortgages in the longer tenors in the Eurozone
was significant. The increase in
funds entrusted
volume, the impact of explicit and implicit floors
on savings rates in the Eurozone and savings
model
updates also had an impact on NII sensitivity.
Models are reviewed and recalibrated
annually to reflect
actual client behavior accurately. The pre-existing
hedges as executed by Group Treasury were
also
adjusted during the year. As Group Treasury
is included in the Wholesale Banking risk
numbers, this
adjustment changed the Wholesale Banking
NII-at-Risk. The total NII-at-Risk remains relatively
limited
in comparison with ING’s total interest income.
Net Present Value (NPV) at Risk (*)
NPV-at-Risk measures the impact of changing
interest rates on the value of the positions
in the
Banking Book. This does not include the positive
earnings in our commercial books. The
NPV-at-Risk is
defined as the outcome of an instantaneous
increase or decrease in interest rates
from applying
currency-specific scenarios. The NPV-at-Risk
asymmetry between the downward and
upward shock is
mainly caused by convexity risk in the
mortgage and savings portfolio.
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 changes in value are expected
to materialize over
time in the profit and loss account if interest
rates develop according to forward
rates throughout the
remaining maturity of the portfolio.
NPV-at-Risk banking books per business (*)
in EUR million
2021
2020
unfloored
unfloored
parallel
▼
parallel
▲
parallel
▼
parallel
▲
By business
Wholesale Banking
-1,477
1,444
-68
171
Retail Banking Benelux
-953
-202
-1,425
541
Retail Challengers & Growth Markets
832
-1,111
-506
-17
Corporate Line Banking
1,820
-1,712
1,946
-1,820
Total
223
-1,580
-54
-1,125
The prior period has been updated to improve consistency
and comparability.
EUR +/- 100bp shock scenario
USD +/- 120bp shock scenario
Year-on-year variance analysis
(*)
The change in NPV-at-Risk in segments Retail
Benelux and Retail Challengers & Growth Markets
was
more or less off-set by an opposite NII-at-Risk
change for Wholesale Banking. The
NPV change for the
Retail Business line was driven by increased
production in fixed rate mortgages and the
development
of the savings and current account volumes
combined with savings model updates. The
resulting
impact on retail sensitivity was hedged by
Group Treasury in line with the internal
ALM practices. The
Group Treasury exposure is reported under
business line Wholesale Banking.
An important part of the
overall NII sensitivity can be attributed
to the Corporate Line, in which core
capital is invested
strategically.
IBOR transition (*)
Interbank offered rates have been widely
used as benchmarks to set interest
rates across a broad
range of financial products and contracts. In
line with the recommendations from the
Financial
Stability Board, a fundamental review of these
important interest rates benchmarks has
been
undertaken. While some interest benchmarks
have been reformed, such as EURIBOR,
others such as
EONIA and LIBOR have or will be replaced by
risk-free rates (RFR) and discontinued.
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The reform of EURIBOR was completed in
2019 and allows for the continued use in
both existing and
new contracts. In 2021, the Working Group
on Euro Risk-Free Rates completed its
work on developing
recommended fallbacks for EURIBOR contracts
based on €STR. These recommendations
will be used to
improve fallback language in EURIBOR contracts.
EONIA ceased to be published on 3 January
2022, and is succeeded by €STR. EONIA
and €STR are both
overnight rates and the spread between them
was established and fixed in 2019. ING
transitioned
nearly all EONIA dependent products in the
course of 2021, with only a limited number
utilising the
statutory fallback mechanism put in place
by the EU.
GBP, CHF, JPY, and EUR LIBOR rates ceased on
31 December 2021, whereas the most used USD
LIBOR
tenors will continue to be published until the
end of June 2023 to support legacy products.
The USD
LIBOR extension was seen as a welcome step
given the range and volume of USD LIBOR
contracts and
has bought time for the market to develop
and assess the alternatives to USD LIBOR.
The use of USD
LIBOR for new contracts is (subject to
very limited exceptions) no longer permitted.
During 2021, ING focused on the transition of
EONIA and non-USD LIBOR contracts
and conducting new
business using the recommended alternatives.
This was supported by our investment in
and ability to
offer a wide range of products to our
clients using alternative rates. In 2022, we
will shift our focus to
USD LIBOR, and expect to be able to leverage
the experience gained transitioning the
other LIBOR rates.
To enable these changes, the financial sector
has issued several guidance papers
and other initiatives
to help phase in key components of this transition.
For example ISDA issued an IBOR fallback
supplement to help ensure clear and
agreed fallback rates apply on the discontinuation
of key IBORs.
For loans, various recommendations have been
made to help drive the inclusion of consistent
robust
fallback provisions.
Public authorities have also recognised that
certain contracts do not contain provisions
for any
alternatives, contain inappropriate alternatives,
or cannot be renegotiated or amended
prior to the
expected cessation dates of the relevant benchmark
rates (‘tough legacy’ contracts). In response,
the
European Commission has implemented
legislation that gives the Commission
the power to replace
critical benchmarks if their termination would
significantly disrupt or otherwise affect the
functioning
of the financial markets in the EU. In addition,
the UK government has granted additional
powers to
the Financial Conduct Authority (FCA) to enable
the temporary publication of a ‘’synthetic’’
LIBOR using
a different methodology and inputs. The
FCA has used these powers to ensure 1-, 3- and
6-months
GBP and JPY LIBOR settings continue to be
available using a “synthetic” methodology
for a limited time
to support legacy contracts. The FCA has
not yet decided whether it will require
the LIBOR benchmark
administrator to publish synthetic USD LIBOR
rates after June 2023.
At the beginning of 2021, ING Bank had significant
exposures to IBORs that either were
discontinued at
the end of 2021 or will cease in the future.
Due to the discontinuation of these
interest rate
benchmarks, ING Bank, its customers, and
the financial services industry more
widely has faced (and is
still facing until the IBOR transition is
completed) a number of risks. These risks include
legal risks,
financial risks, operational risks, and conduct
risk. Legal risks are related to any required
changes to
documentation for new and existing transactions.
Financial risks (predominantly limited to
interest
rate risk) as a consequence of changes in the
valuation of financial instruments linked
to such
benchmarks and declining liquidity may
impact a contract directly or the ability to
hedge the risks in
that contract. Changes in valuation, interest
calculation methodology or documentation
may also
result in complaints or litigation. Operational
risks due to the requirement to adapt IT
systems, trade
reporting infrastructure and operational
processes to the new benchmark rates.
Conduct risk also plays
a particular role in each benchmark transition.
For example, the renegotiation of loan
contracts
requires active engagement from both parties
or multiple parties in the case of syndicated
loans,
which is one of the key challenges and may
lead to negotiations and the required
contractual updates
occurring later than planned and concentrated
in a period close to actual cessation,
which has been
the case for GBP LIBOR. ING will continue
to reach out to impacted clients in order
to best support the
relevant timelines and regulatory guidelines.
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The ING IBOR programme has a robust
governance in place, with progress being
tracked by business
line steering committees reporting into a
central IBOR steering committee. The programme
assesses
and coordinates the actions necessary to
manage the required changes to internal
processes and
systems, including pricing, risk management,
legal documentation, hedge arrangements,
as well as
the impact on our customers. ING continues
to monitor market developments,
with a focus on USD
market, to anticipate the impact on the program,
our customers and any related risks.
During 2021, ING transitioned significant part
of its non-derivative financial instruments
linked to
benchmarks ceasing in 2021 to their designated
replacement rates. The total of non-derivative
financial assets linked to non-USD LIBOR are reduced
from EUR 8,004 million to EUR 765 million
(32
contracts remaining) and the non-derivative financial
liabilities linked to non-USD LIBOR reduced
from
EUR 1,078 million to EUR 23 million (34 contracts
remaining).
The major part of the remaining non-
derivative financial instruments (98%) is
linked to USD LIBOR that will cease at the end
of June 2023. In
addition, ING reduced
its committed undrawn credit facilities
linked to non-USD LIBOR from EUR 6,735
million to EUR 534 million (includes 15 contracts
that are fully undrawn) during 2021. The remaining
non-derivative financial instruments linked to
non-USD LIBORs
will either transition before the next
interest rate reset date with only a limited
number making use of synthetic LIBORs.
Therefore the
remaining exposure to non-USD LIBORs is expected
to reduce further during the first quarter of
2022.
The tables below summarize ING’s approximate
exposures by significant benchmark rate,
excluding
contracts that will expire before transition
is required. For all benchmarks except USD
LIBOR the
transition
deadline has been taken as 31 December
2021. For USD LIBOR the transition date is 30 June
2023 as USD LIBOR will be available to support
existing contracts until that date. The 31 December
2021 table excludes exposures whose
contractual terms were amended during
2021, including those
where transition will occur in 2022 and prior
to the next interest rate reset date, as well
as contracts
that mature in early 2022 to which no
amendment is required.
Non derivative Financial instruments to transition to
alternative benchmarks (*)
in EUR million at 31 December 2021
Financial Assets non-
derivative
Financial Liabilities
non-derivative
Off balance sheet
commitments
Carrying value
Carrying value
Nominal value
By benchmark rate
GBP LIBOR
764
350
USD LIBOR
41,805
1,542
16,435
CHF LIBOR
1
JPY LIBOR
EUR LIBOR
EONIA
23
184
Total
42,570
1,565
16,969
Non derivative Financial instruments to transition to
alternative benchmarks (*)
in EUR million at 31 December 2020
Financial Assets non-
derivative
Financial Liabilities
non-derivative
Off balance sheet
commitments
Carrying value
Carrying value
Nominal value
By benchmark rate
GBP LIBOR
6,912
259
3,732
USD LIBOR
31,057
4,096
9,376
CHF LIBOR
345
42
321
JPY LIBOR
225
41
79
EUR LIBOR
422
8
2,564
EONIA
100
728
39
Total
39,061
5,173
16,111
Comparatives for non-derivative financial
assets and liabilities have been updated to
improve
consistency and comparability with the current
period disclosure.
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ING has also completed the transition of a significant
part of its derivative financial instruments
linked
to benchmarks ceasing in 2021 to their
designated replacement rates. In total,
the derivative financial
instruments linked to non-USD LIBOR were
reduced from EUR 153,391 million
to EUR 822 million (19
contracts). The majority of derivatives linked
to non-USD LIBOR rates were transacted with
clearing
houses and transitioned through a standardized
exercise to the designated replacement rates
in
December 2021. For non-centrally cleared
derivatives the main transition occurred
using the ISDA IBOR
fallback arrangements.
The remaining derivative financial instruments
linked to non-USD LIBOR will
either be transitioned before the next interest
rate reset date or will make use of synthetic
LIBORs.
Therefore a rapid drop of the remaining
exposures to non-USD LIBORs is expected
at the beginning of
the first quarter of 2022.
Derivative Financial instruments to transition to alternative
benchmarks (*)
31 December 2021
31 December 2020
in EUR million
Nominal value
Nominal value
By benchmark rate
1
GBP LIBOR
822
27,031
USD LIBOR
441,094
357,805
CHF LIBOR
9,710
JPY LIBOR
87,057
EONIA
29,593
Total
441,916
511,196
1 For cross currency swaps all legs of the swap are included that are linked to a main
IBOR that is significant to ING Bank.
Comparatives have been updated to improve
consistency and comparability with the
current period
disclosure.
ING Bank also has exposure to interest
rate benchmark reform in respect of
its cash collateral balances
across some of its Credit Support Annex
agreements. This exposure is not included within
the table
above. However, during 2021 ING transitioned
those portions of Credit Support Annex
agreements
linked to benchmarks ceasing in 2021 to their
designated replacement rates.
Given that IBOR reform may have various
accounting implications, the International
Accounting
Standards Board (IASB) has undertaken a two-phase
project:
●
Phase 1 addresses those issues that affect financial
reporting before the replacement of an existing
benchmark. Phase 1 amendments to IFRS
were issued by the IASB in 2019
and were early adopted
by ING Bank in the same year. This allows
ING to apply a set of temporary exceptions
to continue
hedge accounting even when there is uncertainty
about contractual cash flows arising from
the
reform. Under these temporary exceptions,
interbank offered rates are assumed
to continue
unaltered for the purposes of hedge accounting
until such time as the uncertainty is resolved.
●
Phase 2 focuses on issues that may affect financial
reporting when the existing benchmark rate
is
reformed or replaced. Phase 2 amendments
to IFRS were issued by the IASB in
2020 and became
effective in 2021. Phase 2 amendments
to IFRS relate mainly to accounting for
changes in the basis
for determining the contractual cash flows
of financial assets and liabilities due to the
IBOR reform
and impact on hedge accounting when
an existing benchmark rate is reformed
or replaced with an
alternative risk-free rate. Refer to section
1.4.1 of Note 1 ‘Basis of preparation
and significant
accounting policies’
of the financial statements.
As explained above, Phase 1 and Phase
2 IBOR amendments to IFRS, amongst other
changes, provide
specific hedge accounting reliefs that
allow hedge accounting relationships to
continue when IBOR
Reform is ongoing. Phase 1 reliefs cease to
apply when uncertainty arising from
IBOR Reform is no
longer present with respect to the timing
and amount of the IBOR-based cash
flows of the relevant
instruments. It is ING Bank’s policy to cease
to apply Phase 1 reliefs when the applicable
contract
(either hedging instrument or hedged item)
is actually modified. During 2021,
ING transitioned
significant part of its financial instruments
(designated in hedge accounting relationships)
linked to
benchmarks ceasing in 2021. As a result,
for these hedge accounting relationships
the applicable Phase
1 reliefs ceased to apply and Phase 2 became
applicable. For USD LIBOR, and although the
administrator of LIBOR confirmed on 5
March 2021 its plans for the cessation
of USD LIBOR rates at the
end of June 2023, there is still uncertainty
with respect to the timing of the transition
as well as the
transition strategy for individual hedged
items and/or hedging instruments
linked to USD LIBOR.
Therefore, for USD LIBOR financial instruments
designated in hedge accounting the applicable
Phase 1
reliefs will continue to apply until the relevant
contract is modified. At that point in time,
Phase 2 reliefs
will become applicable.
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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 protect the CET1 ratio
against adverse impact from FX rate
fluctuations, whilst
limiting the volatility in the profit and
loss account due to this CET1 hedging.
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 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 an open structural FX exposure
exists.
In order to measure the sensitivity of the CET1
ratio against FX rate fluctuations, an Historical
Value at
Risk approach is used. It measures the
drop in the CET1 ratio based on historical
FX rates. The impact is
taken into account under the Solvency RAS.
EBA Structural FX Guidelines
The EBA guidelines on structural FX positions
become effective in 2022. These guidelines
aim to
harmonize the implementation and treatment
of structural FX positions, which may be
excluded from
the calculation of net open currency positions
under CRR article 352(2) subject to permission
by the
competent authorities. The implementation
of these guidelines is expected to have
limited impact on
the existing management of structural FX
positions of ING Bank and its CET1 Ratio.
Foreign currency exposures banking books (*)
in EUR million
Foreign Investments
Hedges
Net exposures
2021
2020
2021
2020
2021
2020
US Dollar
1
8,218
7,126
-99
-10
8,119
7,117
Pound Sterling
1,593
1,285
1,592
1,285
Polish Zloty
2,761
2,631
-142
-369
2,620
2,262
Australian Dollar
3,774
3,544
-2,511
-2,269
1,263
1,275
Turkish Lira
729
1,078
729
1,078
Chinese Yuan
1,976
1,912
-107
1,869
1,912
Russian Rouble
256
344
-174
-126
82
218
Other currency
5,860
5,992
-3,453
-3,456
2,407
2,536
Total
25,167
23,913
-6,486
-6,231
18,681
17,683
1
US Dollar net exposure move is mainly driven
by EURUSD FX rate.
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 / local management when monitoring
these positions.
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Risk Profile
(*)
Equity price risk arises from the possibility
that an equity security’s price will fluctuate,
affecting the
values of the equity security itself as well
as other instruments whose value react
similarly to the
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 1,587 million
(2020: EUR 1,475
million) and equity securities held at fair
value through other comprehensive income
(FVOCI) of EUR
2,457 million (2020: EUR 1,862 million). The
value of equity securities held at FVOCI is
directly linked to
equity security prices with increases/decreases
being recognised 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 (*)
In 2021, the revaluation reserve equity securities
increased by EUR 101 million from EUR
1,181 million
to EUR 1,282 million. In 2021, the equity securities
at fair value through OCI increased by
EUR 595
million mainly due to new investments in
HQLA eligible equity instruments.
Revaluation reserve equity securities at fair value through other
comprehensive income (*)
in EUR million
2021
2020
Positive re-measurement
1,291
1,201
Negative re-measurement
-9
-20
Total
1,282
1,181
Market risk in trading
books (*)
Within the trading portfolios, the 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 2021,
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 the 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 global 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. On
an overall level in
2021, there were five outliers for hypothetical
P&L and 0 outliers for actual P&L.
The outliers occurred
by the market movements for that, ING
Bank is in the Yellow zone and as a result the
regulatory capital
multiplier has changed from 3.75 to 4.15. In
general, ING reports 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 the 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.
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Incremental risk charge (*)
The Incremental risk charge (IRC) for ING is
an estimate of the default and migration risks
for credit
products (excluding securitisations) 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. Trading positions
(excluding securitisations) 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 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 on a yearly
basis 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 additional
assessments,
specific to the Trading Book, with various
frequencies: sensitivity analyses (single-risk
factor and multi-
risk factor), ad-hoc stress tests (e.g. Covid-19
scenarios) and 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 worldwide impact for ING. As with
HVaR, the risk
appetite for event risk is limited to 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 equity products, for
example, 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.
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.
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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
2016 to 2021.
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
in EUR million
Minimum
Maximum
Average
Year end
2021
2020
2021
2020
2021
2020
2021
2020
Interest rate
1
4
12
20
42
8
26
5
15
Equity and commodity
1
1
4
14
2
3
2
3
Foreign exchange
1
3
7
1
3
1
2
Credit spread
2
4
11
32
4
15
2
7
Diversification
2
-5
-17
-4
-4
Total VaR
2
4
12
26
52
10
29
6
22
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 over
2021 has decreased compared to 2020, due
to the increase in
market volatility, while IRC remained in
line with 2020. The average for all the risk
classes has
decreased compared to 2020, mainly driven
by market movements. The VaR at the period
end of 2021
decreased from EUR 22 million to EUR 6
million at period end of 2021, due to the
market recovery from
the COVID crisis.
ING doesn’t calculate Comprehensive
Risk capital charge and therefore it appears N/A
in the table
below.
EU MR4: Consolidated trading
HVaR
1
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EU MR3: Internal Model Approach values for trading portfolios
in EUR million
2021
2020
VaR (10 day 99%)
1 Maximum value
78
161
2 Average value
27
83
3 Minimum value
12
31
4 Period end
18
60
Stressed VaR (10 day 99%)
5 Maximum value
105
304
6 Average value
80
116
7 Minimum value
64
72
8 Period end
74
83
Incremental Risk Charge (99.9%)
9 Maximum value
195
134
10 Average value
71
74
11 Minimum value
37
38
12 Period end
65
89
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 the 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
in EUR million
2021
2020
RWA
RWA
Outright products
1 Interest rate risk (general and specific)
6
2
2 Equity risk (general and specific)
3 Foreign exchange risk
4 Commodity risk
Options
5 Simplified approach
6 Delta-plus method
7 Scenario approach
8 Securitization (specific risk)
9
Total
6
2
The MRWA under standardised approach
slightly increased in 2021 as compared
to end of 2020. The
FX exposure continued to be lower than 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 the third quarter
of 2021,
collective investment undertakings are
capitalised in market risk under standardised
approach under
interest rate risk and foreign exchange risk.
Internal model approach
Market risk regulatory capital increased slightly
during 2021 compared to 2020. The increase
is driven
by an increase in HVaR and SVaR due to increased
market volatility as a result of the Covid-19
pandemic, while IRC slightly decreased.
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EU MR2-A: Market risk under Internal Model Approach
in EUR million
2021
2020
RWA
Capital
requirements
RWA
Capital
requirements
1
VaR
(higher of values a and b)
1,179
94
3,214
257
(a)
Previous day’s VaR (VaRt-1)
21
60
(b)
Multiplication factor (mc)
x average of previous 60 working days
(VaRavg)
94
257
2
SVaR
(higher of values a and b)
6,336
507
4,419
354
(a)
Latest available SVaR (SVaRt-1))
112
83
(b)
Multiplication factor (ms)
x average of previous 60 working days
(sVaRavg)
507
354
3
IRC
(higher of values a and b)
1,314
105
1,113
89
(a)
Most recent IRC measure
94
89
(b)
12 weeks average IRC measure
105
77
4
Comprehensive risk measure
(higher of values a, b and c)
(a)
Most recent risk measure of comprehensive risk measure
(b)
12 weeks average of comprehensive risk measure
(c)
Comprehensive risk measure - Floor
5
Other
200
16
180
14
6
Total
9,029
722
8,925
714
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,
interest rate risk per currency, and
credit spread risk per
country, 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 (*)
in EUR million
2021
2020
Foreign exchange
Foreign exchange
US Dollar
-160
US Dollar
203
Taiwan Dollar
42
Chinese Yuan Renminbi
-63
Romanian Leu
32
Japanese Yen
-44
Japanese Yen
27
Great-Britain Pound
-37
South Korean Won
-24
Romanian Leu
-16
Most important interest rate and credit spread sensitivities at
year-end (*)
in EUR thousand
2021
2020
Interest Rate (BPV)
1
Interest Rate (BPV)
1
Euro
-501
Euro
-787
US Dollar
185
US Dollar
-319
British Pound
-75
Great-Britain Pound
-120
Taiwan Dollar
73
Russian Ruble
-86
Japanese Yen
-57
Australian Dollar
-64
Credit Spread (CSO1)
2
Credit Spread (CSO1)
2
Netherlands
535
Germany
134
Germany
408
Republic of Korea
-129
United States
171
United States
118
France
112
Belgium
115
China
110
Netherlands
50
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.
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Credit spread sensitivities per risk class and sector at
year-end (*)
2021
2020
in EUR thousand
Corporate
Financial
Institution
s
Corporate
Financial
Institution
s
Credit Spread (CSO1)
1
Risk classes
1 (AAA)
-5
4
-4
2–4 (AA)
-7
18
2
-120
5–7 (A)
141
578
80
-14
8–10 (BBB)
204
12
301
-14
11–13 (BB)
40
-1
55
14–16 (B)
52
-6
18
-6
17–22 (CCC and NPL)
-6
-12
2
Not rated
1
Total
424
584
462
-158
1 Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase
in credit spreads.
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Funding and
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ING Bank Annual Report 2021
125
Funding and liquidity risk (*)
Introduction (*)
Funding and liquidity (F&L) risk is the risk that
ING 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 has established
a funding and liquidity risk
framework to manage risks within pre-defined
boundaries.
A high-level overview of the F&L framework
is provided in the next figure.
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ING Bank Annual Report 2021
126
Governance (*)
Funding and liquidity risk management within
ING falls under the supervision of the ALCO
Bank
function that approves the funding and
liquidity risk appetite and subsequently
cascades it throughout
the organisation. ALCO Bank has delegated
the responsibilities concerning the Internal
Capital and
Liquidity Adequacy Assessment Process (ICLAAP)
and documents, as per the ICLAAP framework
of ING,
to the ICLAAP Committee. The ICLAAP Committee
therefore focuses on technical liquidity
documents
and oversees business processes and deliverables
concerning ILAAP. The EB, 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 risks.
ING’s funding and liquidity risk governance
is based on the three lines of defence structure
to ensure a
clear division of responsibilities as well
as an independent risk control challenging
process.
Group Treasury and the business lines have
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 which is replicated with Group
Treasury.
At the second line of defence, Financial Risk
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 and 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 information and regulatory
reporting
related to funding and liquidity risk management.
For the third line of defence Corporate
Audit Services is responsible for independently
assessing the
design, effectiveness and implementation
of the funding and liquidity framework.
Funding and liquidity management strategy 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
under normal and stressed market circumstances
across
various territories, 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 around 50 percent
and 20
percent of 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.
Funding mix
1
(*)
2021
2020
Funding type
Customer deposits (retail)
51%
52%
Customer deposits (corporate)
25%
24%
Interbank
9%
6%
Lending/repurchase agreements
5%
9%
CD/CP
3%
2%
Long-term senior debt
4%
5%
Subordinated debt
2%
2%
Total
100%
100%
1
Liabilities excluding trading securities and IFRS equity
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Funding and liquidity adequacy and risk
appetite (*)
ING distinguishes between 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 across
the Group.
Taking into consideration the abovementioned
factors, ING regularly 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. A Liquidity Adequacy Statement
is formulated at least
quarterly to substantiate and reflect the
management’s view on the current funding
and liquidity
position as well as the potential future
challenges. The quarterly adequacy statement
is an important
part of ING’s ILAAP process.
ING assesses its F&L adequacy through three
lenses – stress, sustainable and regulatory:
◾
ING evaluates its ability to withstand a period
of prolonged F&L stress (idiosyncratic, market-wide
and combined – idiosyncratic plus market-wide)
which is characterised by customer
deposit
outflows, deterioration of funding markets
access and lower liquidity value of the
counterbalancing capacity;
◾
ING assesses the extent to which its customers,
professional counterparties and investors are
comfortable with extending funding in tenors,
currencies and instruments necessary to
sustainably fund ING under a going-concern
situation;
◾
ING manages its position to meet 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
(SFtL) 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 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
minus inflows) over a 30-day stress scenario
defined by the regulator. ING’s liquidity buffer
forms a
part of the counterbalancing capacity which
serves as a liquidity cushion under normal
and stressed
conditions.
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The liquidity buffer consists mainly of high
grade Level 1 assets, such as government
and central bank
assets. 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
internal risk appetite limits 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 a focus on the unconventional
monetary measures employed by
central
banks in recent years including the measures
taken since the start of the Covid-19 crisis;
and
◾
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 severe 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 or scenarios.
The stress testing framework encompasses
the funding and liquidity risks of
the consolidated balance
sheet of ING Bank including all entities,
business lines as well as on- and off-balance
sheet positions.
The net liquidity position is the main stress
testing measure, capturing the liquidity position
after
stressed net outflows, and is measured
at different time buckets. The net liquidity
position is impacted
differently under specific F&L stress scenarios
and 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, allowing ING to
assess the net liquidity position at
different time
horizons.
The design of the framework is based on
empirical evidence supplemented by expert
judgment. The framework can be extended to
additional ad hoc scenarios. 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 and funding position;
◾
Business actions (if needed);
◾
Contingency funding plan; and
◾
Early warning indicators.
The funding and liquidity stress testing framework
is also subject to regular internal validation
by
model validation.
In line with supervisory expectations, ING’s
liquidity position is stress tested at least
monthly using
scenarios that are 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 with a focus
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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Environmental, social and governance risk
Introduction
Environmental, social and governance risk is
the risk that environmental and social issues
stemming
from the bank’s clients result in reputational
damages and/or financial losses
for ING. Climate risk is the
risk that a financial loss will be incurred due
to climate change, either through
physical risk (e.g.
flooding) or transition risk (e.g. solar energy
instead of gas).
Environmental and Social Risk
Governance
ESR is a risk function part of the second
line of defence of ING. The ESR Team is
responsible for
developing policy and procedures. The department
takes the lead in communicating them internally
and in training internal stakeholders. The
ESR Team also performs an advisory role
to support the deal
principals, senior credit officers and approval
authorities on individual transactions. The
degree of the
ESR Team engagement in transactions is
dependent upon (i) the risk profile of the project
and (ii) ING’s
exposure. In some locations an ESR delegated
advisor may be appointed if mutually agreed
by the
head of ESR and regional head. Such a role would
support the Senior Credit Officer (SCO) who
would be
responsible for
ESR issues in the region.
Committees involved in managing environmental
and social risks include the Global Credit
& Trading
Risk Committee (GCTP ) and the Global Credit
Committee GCC(TA ). The GCTP approves
the policies,
methodologies, and procedures related
to ESR. The GCC(TA) approves transactions
that entail taking
higher environmental and social risk.
The ESR function encompasses the following
activities:
●
Create and maintain policies for sensitive
industry sectors.
●
Assess transactions for environmental and social
risk.
●
Monitor high-risk clients to ensure compliance
with sustainability criteria.
●
Spread ESR awareness throughout ING.
●
Participate in European and global advisory
groups (i.e. OECD advisory group, steering
committee to the Equator Principles, Thun
Group of Banks) to help bring all banks
to the same
high standard.
External developments and ING’s actions
After the UN Paris Agreement and the United
Nations Sustainable Development Goals (UN
SDGs) were
signed by world leaders in 2015, the European
Commission published the European Green Deal
in
December 2019 with the overarching aim of
making Europe climate-neutral by
2050 and emitting net
zero greenhouse gases from then on. Among
other objectives, the Green Deal targets mobilisation
of
the business community in the transition to
a circular economy, as well as achieving clean
energy and
a toxic-free environment. The European
Climate Law, provisionally agreed between
the European
Parliament and the Council in April 2021, is
a core element of the European Green Deal.
This outlines a
framework for the gradual, irreversible reduction
of greenhouse gas emissions and legally
establishes
the goal of a climate-neutral Europe by
2050.
The introduction of the United Nations Guiding
Principles and the Organisation for Economic
Cooperation and Development (OECD) Guidelines
for Multinational Enterprises mark a
clear shift
towards a more regulated environment with
impact management required on
social risks. Legislation
aimed at preventing human rights violations
along the supply chain is being introduced
in several
countries, including a proposal at EU level for
mandatory human rights due diligence.
Other key developments in the regulatory
landscape include the EU Taxonomy
Regulation that
requires compliance to minimum social
and governance safeguards and the
EBA consultation on ESG
risks, which aims to incorporate ESG risks
into the governance, risk management
and supervision of
credit institutions and investment firms.
The effects of the recent pandemic
also bring a renewed focus
on the importance of health and safety measures
on the ground for the projects we finance
as well as
for the workforce of our clients.
ING joined the Net-Zero Banking Alliance
in August 2021 in support of achieving a world
with net-zero
green-house gas emissions by 2050. The
Alliance was launched by 43 Founding Members
on 21 April
2021 and has since grown to represent over
a third of global banking assets. The initiative
is part of the
UN Race to Zero and is the banking element
of the Glasgow Financial Alliance for Net-Zero.
In addition,
ING published its first integrated Climate
Report in September 2021, which combined
our progress
report on Terra and climate risk report into
one comprehensive report. Our integrated
approach to
climate action is about steering our portfolio
to achieve net zero by 2050, providing
green financing
and advice to clients, managing climate
risk and reaching net zero in our own
operations by 2050
rather than 2070.
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Meanwhile, the Dutch Banking Sector Agreement
on Human Rights (DBA) was successfully
completed
in 2019. ING updated its human rights policy
to reflect its commitment to the United
Nations Guiding
Principles, and improved transparency through
regular human rights reporting. We
continue to work
within the framework of this agreement.
We are currently in the process of testing
and implementing
a tool that will help assess portfolio and
client exposure to salient human rights
issues, enabling
identification of issues and client engagement.
The ESR Framework
ING’s ESR policy framework helps us make transparent
choices about how, where and with whom
we
do business. In 2021, we updated the ESR Framework
as part of the three-year mandatory
comprehensive review cycle. The new release
takes account of the recent ESR requirements
of the EBA
Loan Origination and Monitoring guidelines,
improved controls and comments received
from internal
and external stakeholders. The update further
aims to improve understanding of
existing process and
evaluation requirements, with special attention
to supply chain due diligence. Where
appropriate,
internationally acknowledged certification
standards and guiding principles have
been added to or
adjusted per the individual sector policies.
In 2021, we continued the implementation
of the new ESR self-declaration approach
for business
banking. The concept was incorporated in the
updated ESR Framework. There is an alternative
ESR
client assessment implementation for business
banking clients where lending and pre-settlement
limits exceed €1 million and where the
client is active in any of the pre-identified sectors
(e.g.
employment agencies). Such clients will be
required to confirm their compliance
with specific
statements related to safeguarding labour
rights and/or environmental regulations
that are specific for
that sector. The initiative has already been
rolled out in half of the countries where
we are active with
business banking clients globally while other
affected ING locations are expected to implement
this in
the course of 2022.
Following any key ESR policy updates on restrictions,
we engage with affected existing clients
and
provide them with the opportunity to reduce
their exposure to the new restrictions;
in case a reduction
is not feasible, we implement an exit strategy.
We will continue to update and refine our ESR
policy to ensure it is reflective of ING’s risk appetite
and
sustainability direction.
ESR in practice in 2021
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 clearance of primary forest), which we
do not
finance.
The way the ESR Framework is applied in
practice differs per product type. The largest
potential
environmental and social impacts come
from large corporates within our Wholesale
Banking (WB)
segment. WB is therefore the primary focus
of our assessments and where we
promote active ESR
dialogue and knowledge sharing. We have been
working with wholesale clients
for more than 15 years
to 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
business banking clients. The ESR framework
minimum requirements are also included
in ING’s
procurement policy and apply to the screening
of suppliers of ING’s global procurement
activities.
The ESR policy framework is incorporated
in ING’s KYC policy framework, meaning
the ESR client
assessment is part of regular client on-boarding
and review. The ESR policy framework
also triggers a
dedicated ESR transaction assessment to
corporate clients, which will indicate
if such transaction is
categorised as ‘ESR high risk’, and thus require
a separate in-depth advice from the ESR
team.
While we have a strong ESR policy framework
and made progress in enhancing the automation
of the
checks and controls in the ESR assessment
processes, we acknowledge that we need
to further
improve our processes to ensure accuracy
and completeness of the data.
Of all Wholesale Banking engagements
in scope of the ESR policy framework
in 2021, 82 percent were
considered ESR low-risk, 7 percent ESR medium-risk
and 11 percent ESR high-risk. ESR high-risk cases
require specialised advice from the global
ESR team. The team now consists
of 10 dedicated ESR
advisors, 9 of whom are in Amsterdam
and one in Geneva. The ESR advice assesses
the specific
product offered and environmental and social
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 Global Credit Committee level. Of the
379 ESR
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advices given in 2021, which are related to
new requests, 60 percent were positive,
24 percent positive
subject to conditions and 16 percent negative.
Conditions can play an important role in helping
clients improve their environmental and social
performance and ensuring their continued
compliance with our ESR policy. The following
chart shows
the concentration of ESR conditions and
engagement across policy sectors.
*Other includes advices reports covering the policy area animal
welfare, chemicals and manufacturing.
The ESR team mainly focuses on policy development
and transaction advisory. 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.
Further evolving ESG within
the bank
Our ESR approach helps us and our clients
gradually enhance the implementation
of key standards like
the UN Guiding Principles on Business and
Human Rights and the OECD Guidelines
for Multinational
Enterprises. But beyond stimulating better
environmental and social performance in
our own portfolio,
ING actively collaborates with other institutions,
peers and regulators to address the environmental,
social and human rights challenges we face:
◾
ING and the Equator Principles (EPs):
The EPs are an environmental
and social risk
management framework adopted by
126 financial institutions worldwide. ING
is active in
several EP working groups covering social risks,
climate change and scope. ING also
co-leads
the capacity building and training workgroup,
which is focussing on updating the EP E-learning
tool with the changes included in EP4. The
update of the EP e-learning tool has
been
successfully completed in 2021.
◾
The Covid-19 pandemic
continued to impact our clients and their operations
in 2021. Although
international travel is slowly picking up again,
visiting clients and their operations
is still done
remotely. On a number of projects the engaged
environmental and social consultants were
able to conduct virtual site visits and with
the use of drones and video footage successfully
visit
our clients’ construction areas. We have seen
a number of clients that were confronted with
high rates of Covid-19 infections in their
operations. In some cases operations
were temporarily
halted, but for most the measures, such
as improvement on health and safety protocols,
were
sufficient to manage further spreading of the
virus.
◾
Shift Business Learning Programme:
is a practitioners group organised and
supported by Shift,
the leading centre of expertise on the UN
Guiding Principles on Business and
Human Rights. The
programme focuses
on the corporate responsibility to respect
human rights as set out in the
UN Guiding Principles. Under the leadership
of Shift a group of companies active in
various
business sectors including financial institutions
share challenges and practices through
cross-
industry workshops and benefit from tailored
strategic support. ING participates
in the
programme. We are also a member of the
Financial Institution Practitioners’ Circle,
a group for
selected practitioners in the financial sector to
discuss and share approaches to meeting
their
responsibility to respect human rights,
led by Shift experts.
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◾
Responsible Business Conduct Agreement:
following the Dutch Banking Sector
Agreement a
new commitment on responsible business
was formed among Dutch banks. Global
Sustainability is leading the initiative for
ING and the ESR team is aligned for
any policy
implications or client interactions.
◾
Thun Group:
was initially established in 2011 to support
the integration of the UN Guiding
Principles on Business and Human Rights into
banking activities. The Group is now in the
process of establishing itself as a formal group
promoting human rights and sharing best
practices among its participant members.
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 form a consensus and develop clear
guidelines that
can serve as a standard for our industry.
Climate risk management
Climate change is increasingly exposing society
to a range of acute and chronic physical
risks. At the
same time, the transition to a net zero
economy can also create exposure to
transition risks, such as
stranded assets.
Managing climate risks covers both physical
risks and transition risks:
●
Physical risks: These risks can be climate-related
event-driven (acute) such as increased
severity of extreme weather events (e.g. cyclones,
droughts, floods and fires) or longer term
(i.e. chronic) when they arises from progressive
shifts, such as increasing temperatures,
sea
level rises, water stress, or biodiversity loss.
●
Transition risks: these can be climate-related
or environmental risks from policy, legal,
technology and market changes occurring
in the shift to a lower-carbon economy. This
could
result in stranded assets and/or markets by
the loss of value of assets that are no
longer part of
a more sustainable world
The potential impacts that physical and transition
risks could have on households, businesses
and the
macro-economy ultimately require us
to view climate risk as a risk that has
an impact on various
financial risks.
ING endorses the recommendations of the
Financial Stability Board’s (FSB) Task Force
on Climate-
Related Financial Disclosures. (TCFD). To further
strengthen our understanding and adoption
of the
TCFD recommendations, ING is part of the UNEP
FI TCFD project. We continue to develop our
approach
to climate related and environmental disclosures
as we build our approach to quantifying
such risks.
Governance
ING’s Climate Change Committee (CCC) is established
by the Management Board Banking
and
mandated to oversee and set priorities for
the implementation of the TCFD recommendations
and
other strategic climate-related topics that
impact the group. The CCC is chaired
by the ING Group CRO
and co-chaired by board member responsible
for Wholesale Banking. The CCC meets
on a bi-monthly
basis and is supported by the Climate Expert
Group with experts from across the business
who lead
and advise on key climate initiatives.
For details please refer to our approach to climate
governance
(Sustainability governance) published on
our corporate website ing.com . In
2021 the mandate of the
CCC was expanded to include oversight
of our approach to biodiversity. In addition ,
please refer to the
2021 Climate Report (Managing climate
and environmental risks) available on
ing.com.
With the strategic review of the risk organisation
structure, that will start as of March 2022,
an ESG
department will be established to ensure that
ESG regulation is assessed and
implemented in
accordance with the expectations of supervisors
and society. The department is responsible
for the
development of the overarching ESG risk framework,
the setting of Risk Appetite Statements
and
reporting thereon as well as the coordination
of internal and regulatory ESG risk stress
testing and
scenario analysis.
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As part of our integrated strategy and as per
regulatory expectations (ECB Guide
on climate-related
and environmental risks), ING has established
its climate risk road map as a formalised
programme
under ING’s global oversight of regulatory
programmes. The programme aims
at embedding climate-
related and environmental risks across the
organisation, from identification to business
strategy and
governance to risk appetite and from
data management to internal reporting
and external disclosures.
Together with ING’s ESR framework and the
Terra approach that was introduced to
align our lending
portfolio of the most carbon emission intensive
sectors with the decarbonization objectives,
the
climate risk programme contributes to increase
the control over exposure to climate
change.
The governance of the programme has recently
been strengthened. Under the ING Group
CRO’s
sponsorship, the Steering Committee has been
extended with broader representation
of Finance, both
the first and second line of defence of the
Risk domain and an observer role for the third
line of
defence.
The Steering Group is responsible for the following
tasks:
◾
Set strategic direction and prioritise the programme
deliverables
◾
Define KPIs for climate risk integration
◾
Oversight on execution
◾
Manage impediments raised by the workstreams
Workstreams are responsible for the implementation
of the specific requirements with regard to
strategy and governance, the risk management
framework across all risk categories,
scenario and
stress testing and reporting and disclosures. Workstreams
for the Wholesale Banking and Retail
Banking are responsible for the implementation
in the business lines.
The Workstreams are supported by a Core Team
that is responsible for overall management
of the
programme, alignment on content across
the workstreams, report progress to
the Steering Committee
and communication with both internal and
external stakeholders to further promote
awareness and
knowledge of the topic
Progress 2021
Under the governance of the climate risk programme
the following progress was made in
2021:
Review of credit risk policies and procedures
Under ING’s governance for policy review,
the group-wide policies and procedures
for Financial Risk,
ESR, Operational Risk, Compliance and Retail
Risk have been assessed for guidance
on climate-related
and environmental risks. Focusing on
credit risk, the global policies for sector
strategy and risk appetite
setting, the credit risk appetite framework,
corporate credit assessment and regular review,
collateral
valuation and loan renewal, credit risk mitigation,
the ESR framework, the investment policy,
the
methodology for the climate & environmental
risk heatmap and the Retail credit risk policy
have been
updated with specific requirements for climate-related
and environmental risks. The risk rating policy
was updated to explicitly include climate-related
and environmental risks as a valid reason
to appeal
the rating.
Risk identification
In the course of 2021, we worked on further
identifying climate-related and environmental
risk within
our portfolio. We have created extensive heatmaps
to assess each Wholesale Banking sector
and the
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Retail Banking mortgages, consumer lending
and business lending portfolios, from
a global perspective,
on more than 30 climate-related and environmental
risk factors. These heatmaps have been
established with the input from ING’s front
office and credit risk management experts.
The heatmaps
have been challenged for plausibility and ratified
for consistency across the individual sectors
and
portfolios by responsible Senior Management
of the Front Office and the second line Credit
Risk
function of Wholesale Banking and Retail
Banking.
The table below is an extract from the consolidated
heatmap. The aggregated scores on transition
risk
and physical risk for each sector are assuming
a 5-year horizon, which is relatively short
in climate
terms. We refer to ING’s 2021 Integrated
Climate Report for more information
on the methodology and
risk factors used to establish the heatmaps.
Besides, we highlight the fact that these scores
represent
the financial materiality of climate risk on
ING’s portfolio, as opposed to a generic
sector perspective.
Heatmap
Sectors
Transition risk
Physical risk
EAD 2021 (€
million)
Renewables & power
Low
Low
11,203
Upstream O&G
High
low-medium
6,266
Mid & downstream O&G
medium -high
low-medium
12,098
Utilities
low
low
12,173
Metals manufacturing
low-medium
medium
5,135
Metals mining
medium
low-medium
5,153
Fertilizers
low
low-medium
387
Automotive
low-medium
low-medium
8,842
Aviation
low-medium
low-medium
3,905
Shipping
low-medium
low-medium
10,420
Containers & logistics
low-medium
low-medium
9,106
Land transport
low-medium
low-medium
3,937
Commercial real estate
1
medium
low
57,766
Residential real estate
medium
medium
329,764
1
Commercial real estate includes Wholesale Banking and business banking (Retail Banking) exposures.
All EAD exposures are from our Wholesale
Bank division, except for Commercial real
estate which also
include ING’s Business Banking exposure and
the residential real estate which represents
ING’s Retail
Bank’s mortgages.
The heatmaps’ climate risk assessments
are based on internal expert judgement
and don’t yet include
individual counterparty assessment. The heatmapping
exercise is however a useful tool to scan
our
portfolio on climate risk and to identify the
pockets of exposure which need to
be further investigated
in priority. The table represents the portfolios
of our balance sheet for which we consider
to have the
most mature level of expertise to assess
climate risk impact. Going forward, we
expect to disclose the
assessment on all our portfolios. We use
our heatmaps to inform the Wholesale
Bank sector strategy
and risk appetite papers and as main
climate risk identification tool for the
pilot we are launching to
embed climate risk into the Wholesale Bank
transaction approval process
Retail Banking has finalized the preparation
of the risk assessment of physical
risk exposure of the
mortgage portfolio in cooperation with an
external party.
Compared with the expert led heatmaps,
the physical risk assessment of the Retail mortgages
portfolio provides information on a granular
level
which allows for a more quantified impact
analysis.
Risk appetite
The heatmaps have been used to introduce
climate-related and environmental risk in our
2022 credit
RAS cycle. Starting with a monitoring period,
the 2022 credit RAS for Wholesale
Banking introduces a
mechanism that limits growth of subsectors
with a higher exposure to climate-related
and
environmental risks while allowing subsectors
with a low exposure to these risks to grow
within the
overall limit of the sector. A similar approach is
planned for Retail Banking, where the
outcome of the
physical risk assessment that is will be conducted
in the first half of 2022 is expected to
inform the
Retail Banking strategy and risk appetite
Risk measurement
We have conducted a climate change scenario
analysis pilot project with Baringa Partners,
a
consulting group with specific climate change
capabilities. The project consisted of running
the Climate
Change Scenario Model, developed
by Baringa and acquired by BlackRock in
June 2021, on a sample of
40 counterparties in the Energy, Transport
& Logistics, and Metals & Mining sectors.
The pilot provided
insight on the impact of climate change pathways
on company metrics. Under a 2 degrees
orderly
climate change scenario, the pilot showed
limited impact on company metrics until
2035 and limited
defaults. Under a disorderly 2 degrees scenario
in which the response comes at a later
stage and with
more sudden actions , the steeper increase
of carbon pricing results in a higher
number of company
defaults after 2040. In the 4 degrees scenario
(“hothouse”) in which no measures to mitigate
the
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impact from climate change are taken, there
is no transition risk but a higher physical
risk than in the 2
degrees orderly / disorderly scenarios. The
main high level insight from this exercise is
that transition
risks are expected to materialize much faster
than physical risks given the expected
actions to
decarbonize the economy. More concrete
conclusions would be expected in case such
exercise would
be run on a representative part of our exposure
to the various sectors of the economy. The
pilot project
we did has provided an accelerated experience
of what climate change scenario analysis
is on a
sample of companies, under specific scenarios.
At the same time the heatmap data for
Wholesale
Banking sectors will also be integrated in
the ING internal credit risk dashboard
to allow senior
management to monitor climate risk exposure
against the RAS limits. ING is also actively
preparing for
the ECB climate risk stress to occur in 2022.
For details please refer to our stand-alone
‘Climate Report
2021’ published on our corporate website
ing.com.
Next to the structured approach to measurement
of exposure to climate risks and as part of
collecting
and analysing empirical data of climate
and environmental risk impacts, a separate
assessment was
made of the credit losses resulting from the
river floodings in Germany, Belgium
and The Netherlands
that took place in July 2021. The credit
losses were assessed not to be material for
ING.
Challenges
Access to actual and consistent data is
the key challenge for risk measurement
as definitions and
methodologies for the quantification of
climate-related and environmental risks
are developing.
Availability of company data is scattered
across industries and jurisdictions and limited
as not all
companies are subject to disclosure requirements
w.r.t. climate-related and environmental risk
factors.
In absence of comprehensive company data,
the use of proxies is required for
a consistent assessment
of exposures. Because of these limitations
and given the prospective and (very)
long term nature of
climate risk measurement, the integration
of quantified inputs into risk modelling
has not taken place
at this stage.
Next steps
In 2022, we aim to further progress with our
efforts regarding climate-related risks
and opportunities
by refining our methodologies. ING’s leadership
objectives in building a sustainable future
has been
translated into targets to manage our portfolio’s
material ESG risks and quantify the financial
impact
that are linked to the United Nations’ Sustainable
Development Goals. A specific KPI has been
defined
for the Management Board Banking to integrate
ESG into ING’s governance. For the implementation
of
“E”, next to the above mentioned next steps
for the integration of climate-related and environmental
risk considerations in the credit risk domain,
this includes working towards standard setting
and
expanding the scope to the market and liquidity
risk and the non-financial risk / compliance
framework. From 2022 onwards, climate-related
and environmental risks will be integrated
in the
critical policies and procedures for ING’s financial
markets, treasury and liquidity risk management
function and the Operational & Compliance
risk framework. The outcome of internal stress
testing will
inform the risk appetite and limit setting process.
Where applicable, the governance framework
will be
updated with roles and responsibilities for
climate-related and environmental risks assigned.
With the
strengthened climate risk governance and structured
programme management approach, we
aim to
accelerate the embedding of climate risk within
the ING organisation, moving towards quantification
of
these risks in our risk management procedures.
This includes the implementation of a global
climate
risk data management plan, the integration
of climate-related and environmental
risk considerations
in risk policies and procedures at country
level, the further refinement of our climate-related
and
environmental risk heatmaps with longer
time horizons
and geographical dimension. The outcome
of
the ECB climate stress test that will be
conducted in the first half of 2022 will inform
the approach for
standardised internal climate risk stress testing
that is planned to start as from 2023.
Based on an
inventory of training needs of the critical
functions in front office, risk management
and leadership, ING
will launch training plans to educate our staff
on climate risk.
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Non-financial risk
Introduction
Non-financial risk (NFR) 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.
Governance
The global head of NFR is responsible for
developing the framework of NFR policies
and standards
within ING, and for monitoring
the quality of non-financial risk management
in the ING entities.
Non-Financial risk measurement
ING uses an internal model in line with the
Advanced Measurement Approach (AMA) to
determine the
regulatory and economic capital amounts
that are necessary to cover potential
losses resulting from
non-financial risks. This model predicts non-financial
risk losses by combining a forward-looking
and a
backward-looking view on non-financial
risk events. ING reports the outcome
of its AMA model
quarterly.
Risk categories
ING categorises non-financial risks in the following
areas:
◾
Information (technology)
risk
is the risk of financial loss, regulatory sanctions
or reputational
damage due to breaches of confidentiality,
integrity or availability of information
or a lack of
information quality within business processes
and/or the supporting IT systems;
◾
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 risk
is the risks of financial loss, regulatory sanctions
or reputational damage due to
ineffective organisational structures and
governance procedures (including unclear
roles and
responsibilities and inadequate reporting
structure);
◾
Processing risk
is the risk of financial loss, regulatory
sanctions or reputational damage due
to
failed (transaction) processing (input, execution,
output) or failing process management;
◾
Unauthorised activity risk
is the risk of financial loss, regulatory sanctions
or reputational
damage due to employees performing outside
the normal course of their business,
intentionally giving unauthorised approvals
or overstepping their authority;
◾
Personal and physical security risk
is the risk of financial loss, regulatory
sanctions or
reputational 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;
◾
Employment practice risk
is the risk of financial loss, regulatory sanctions
or reputational
damage 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; and
◾
Fraud
is the deliberate abuse of procedures, systems,
assets, data, products and/or services of
ING by those who intend to deceitfully or
unlawfully benefit themselves and/or
others. This
definition of fraud is specified in the following
two categories of fraud:
Internal fraud
: acts of fraud which involves at least
one internal party performed by or
in
collusion with an ING employee or agent with
the consequence of financial loss,
regulatory
fines, litigation loss, business disruption and/or
reputational damage for ING.
External fraud
: acts of fraud or scams by individuals
and/or parties excluding ING staff
(including contractors), with the consequence
of financial loss, regulatory fines, litigation
loss,
business disruption and/or reputational damage
for ING.
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Main developments in 2021
Covid-19
From the start of the global outbreak of the
Covid-19 virus in January 2020, ING’s
priority has been to
protect its employees and their families
and to continue servicing its customers
as before, putting
extra effort into supporting them in difficult
times. To ensure this ING employees
have put immediate
focus on ensuring the bank’s operational resilience
and continuity. ING has mobilised a global
crisis
management organisation – engaging with
all ING entities worldwide – to monitor
and manage Covid-
19-related operational, health and safety
challenges. Throughout 2021, ING continued
to monitor
developments in employee well-being and
local Business Continuity Management
(BCM) threat levels
and aimed to identify, monitor and manage
Covid-19 related risks through specific risk
assessments.
During 2021 ING developed an approach for
the new way of working once Covid-19 measures
are
lifted. This approach (Hybrid Mode) is based
on working partly at home, and partly in the
office
according to local health authority guidance.
Cybercrime and fraud
Cybercrime remains a continuous threat
to companies in general and to financial institutions
in
particular. Both the frequency and the intensity
of attacks are increasing on a global scale.
The
sophistication and implications of ransomware
attacks are a growing concern in the threat
landscape.
The continuous enhancement of the control
environment to protect from, and detect
and respond to,
e-banking fraud, distributed denial-of-service
(DDoS), targeted attacks and more specific ransomware
attacks is of the highest priority. Based
on regular scenario analysis done in ING’s first
line of defence,
additional controls 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.
In addition, ING continues to strengthen
its global cybercrime and fraud resilience
through
collaboration with financial industry peers,
law enforcement authorities, government
(e.g. National
Cyber Security Centre) and Internet Service
Providers (ISPs).
The further digitalisation of banking services,
increasing electronic exchange of information
via
different consumer channels, use of and
dependency on third-party vendors for
services, and the
implementation of PSD2 are likely to present
ongoing cybercrime resilience, fraud
management and
IT-security challenges; both in the short-
and medium-term as criminal actors
target financial and
sensitive (payment) data, such as customer
user credentials outside the traditional
banking
environment. Sensitive (payment) or personal
data can be obtained by criminals via social
forums such
as WhatsApp and by screen scraping user
credentials when a fallback procedure within
PSD2 is
allowed. In 2021, these challenges have further
increased with more sophisticated phishing
attempts,
improved social engineering fraud attempts,
an increased risk of external fraud in the lending
portfolio
and because people are working from home.
Dealing with current and emerging fraud threats,
especially given the ever increasing use
of digital and
online banking, effectively requires continuous
improvement of fraud management capabilities
such
as real-time transaction monitoring and
response capabilities. In addition, better
alignment and
standardisation is needed for cross-border
fraud management across ING and
related platforms. With
legislation such as EBA PSD2 and the continuing
emphasis on duty of care, financial institutions
are
potentially becoming more and more responsible
for losses incurred by clients and are taking
on more
of the burden of reclaiming those losses.
Data risk management
Data – whether customer, financial, risk or
other business – is core to ING’s purpose.
Data leads to
insights and insights empower people to stay
a step ahead in life and in business. The ING
Data
Strategy is creating a single vision and governance
for data, empowering business users with
a
harmonised foundation. This encompasses further
embedding data functions and improving (bank-
wide) data operations in ING’s Way of Working,
and simplifying, standardising and modernising
its
technology and data platforms. Recognising
that data risk is one of the top risks of the
bank, ING is
creating a holistic view on how ING manages
risk around data, including personal
data protection, data
security, data quality and data ethics.
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Identity and access management (IAM)
IAM remains one of the focus areas of ING
and an important element in our
control framework to
prevent and mitigate the risk of, unauthorised
access to IT systems and the data processed
and stored
therein. This is done by enforcing IAM global
processes and controls which are
periodically reviewed
and tested. These processes and controls
are supported by technologies, tooling
and practices which
are managed by a dedicated IAM team,
also ensuring improvements are identified
to address
developments both inside and outside ING.
In 2021, ING continued to improve,
with attention to
tooling, standardisation and harmonisation
of processes, workflows and automation
of IAM controls.
Personal data protection
As per 25 May 2018, the European General
Data Protection Regulation (GDPR) became
effective. ING is
bound by the GDPR that affords greater protection
to individuals and requires more control
on data
and transparency regarding the use of
data by companies. In 2021, ING continued
to further enhance
the data protection of our clients and employees.
Sourcing 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
2019. The controls defined in the support
control framework
(SCF) sourcing have been implemented and
tested. The scope of sourcing encompasses
outsourcing to
external providers as well as intra-group sourcing.
During 2019, 2020 and 2021 the relevant
service
arrangements have been assessed based on the
new Sourcing Policy definition and when
applicable
updated to comply with the EBA guidelines.
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Compliance risk
Introduction
Compliance risk is defined as a threat posed
to ING’s standing resulting from failure to
act in line with
applicable laws and regulations, internal rules
(including ING’s Orange Code and
global Code of
Conduct) and/or societal expectations.
A failure to adequately mitigate compliance risk
may lead to
damage to ING’s reputation and/or legal/regulatory
sanctions, and/or financial loss.
The mission of Compliance is to support
ING in conducting its business activities
in line with applicable
laws and regulations, taking into account ING’s
internal code of conduct and societal expectations.
Compliance wants to drive compliance risk
management by desire and design
throughout the
organisation, unleashing the power of our
data, risk expertise, and people to keep the bank
safe and
sound, and help drive new and sustainable
ways of doing business.
Within ING, compliance risks are defined
as those risks that are within the scope
of the ING Compliance
Risk Catalogue. The following three risk
categories apply:
◾
Financial crime risk refers to the risks of the bank’s
products and services being abused for illicit
purpose generating or disguising financial
and/or economic crimes (FEC).
◾
Conduct risk refers to the compliance risks
arising from potential or perceived misconduct
by
ING or its employees towards its customers,
market integrity, business partners and
other
stakeholders.
◾
Organisational risk refers to the compliance
risks arising from actual, potential
or perceived
flaws in the way that ING is organised and
structured including its regulatory
and reporting
framework.
Governance
The Compliance organisation (comprised
of three roles: Group Compliance, geographical
compliance
and country compliance) is part of ING’s second
line of defence. Group Compliance sets the
methodologies and minimum standards for
the bank as a whole. Geographical
compliance
(Challengers & Growth Markets / Wholesale
Banking / Market Leaders) together with
the functional
lines in the countries are responsible for
the execution of these standards and
control frameworks,
within the boundaries set. Compliance is tasked
with instructing, advising, challenging
and having
oversight of the first line of defence in their
management of compliance risks as well
as raising
awareness (via training and communication),
influencing and stimulating a sound compliance
risk
culture. The scope of the compliance risks is
outlined in the ING Compliance Charter.
Compliance is headed by the chief compliance
officer (CCO) who reports directly to the
CRO. The CCO
has direct access to the Risk Committee
of the Supervisory Board. The CCO
and the chairman of the
Risk Committee had regular bilateral consultations
in 2021.
Strengthening the compliance function
As a global bank in a fast-changing world
we want to do the right thing to be
safe, secure and
compliant for our customers and for society.
To live up to that the OneCompliance
strategy was
launched in October 2019.
The OneCompliance strategy is a multi-year,
global compliance strategy and transformation
programme that is based on a framework
that aims to help ING manage risks
consistently across the
organisation. In 2021 the work continued
on the following programme goals:
a global identity and risk
view allowing people to assess risks in a uniform
way; a single, risk-based monitoring
methodology to
accelerate improvements in addressing risks;
simplified work processes through a
uniform framework,
to allow people to focus on what matters;
the necessary skills and resources
to deliver at the desired
quality; intuitive, actionable and insightful
management information and global
dashboard to take
smart decisions and steer within risk appetite
and our global direction (steering) to support
everyone in
Compliance. As we operate in a dynamic
and challenging environment we are
continuously learning
and improving while getting to a more sustainable
and mature level within the compliance function.
Financial crime
Financial crime risk results from illicit activity
in the form of money laundering,
terrorist financing,
bribery and corruption, sanctions evasion,
fraud and customer tax offences. It arises
in the course of
ING’s day-to-day banking operations if
our customers, employees or third parties
undertake or
facilitate financial crime, or if our products
and services are misused for illicit purposes
to generate or
disguise financial crime.
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We have zero tolerance for deliberately or
knowingly facilitating financial crime -
keeping ING safe,
secure and compliant remains a top priority
in order to protect our business and society
at large from
financial crime and its corrosive effects upon
individuals and communities.
Financial crime risk management
The Non-Financial Risk Committee, chaired
by ING’s chief risk officer, is the principal
risk management
forum for financial crime risk. This committee
reviews and escalates, where appropriate,
key financial
crime topics and risks across ING to the Executive
Board and Management Board Banking.
Responsibility for the oversight of ING’s
compliance with our legal and regulatory
obligations in relation
to financial crime risk resides with the global
head Financial Crime Compliance who reports
to ING’s
chief compliance officer, with oversight by
the chief risk officer. The Global KYC Committee,
chaired by
the chief operating officer, is mandated by
the Management Board Banking to steer,
prioritise and
approve KYC-related topics undertaken across
ING, and to oversee compliance with international
standards and laws and internal policies
related to KYC.
We believe all of our people have a key role
to play in the fight against financial
crime. Having a robust
and sound risk culture embedded in our
day-to-day way of working is a foundational
element of our
financial crime risk control environment.
We define the accountabilities and responsibilities
of our staff
in accordance with the three lines of
defence model, considering our business,
geographical and
functional structure.
As an organisation, we’re committed to
meeting our legal and regulatory requirements
and the
standards we also expect from ourselves.
ING remains subject to regulatory investigations
and scrutiny
in certain jurisdictions, and we’re committed to
executing and implementing the identified
enhancements required to our financial crime
risk framework in a sustainable way for
the longer-term.
Key risk management processes
ING strives to play its part in contributing to
the safeguarding of the financial
system against illicit
financial activity, in the context of heightened
and changing regulatory expectations
and as financial
crime risks continue to evolve. To fulfil our responsibility
as a global financial institution in combatting
financial crime, we believe it is essential to
comply with anti-money laundering and counter
terrorism
financing (AML/CFT) laws and regulations,
establish a reasonable and risk-based
control framework to
mitigate financial crime risk, and to seek to provide
useful information to relevant government
agencies. We also believe it is important to respond
swiftly and proactively to new financial crime
threats and techniques (which can be increasingly
sophisticated as financial criminals harness
and
misuse new technological capabilities) as well
as to relevant media reporting,
such as on the Pandora
Papers and the Congo Hold-Up.
To mitigate financial crime risks, we apply
a framework of preventative and detective
systems and
controls, underpinned by policy, procedures
and related control standards across
our global business in
all locations where we operate. In 2021, we
remained focused on continuing to strengthen
this
financial crime risk management framework
in order to support sustainable remediation
of known
issues. At the same time, we acknowledge
that the continuous maturing of the
financial crime risk
management framework, as well as other
developments such as regulatory and
legislative changes,
will keep asking for our attention and commitment
in future years. For that purpose we’ve initiated
the
Financial Economic Crime Controls Maturity
Programme (FCMP). See also ‘Know your
customer (KYC)’.
In 2021, we refreshed and further enhanced
the annual Systematic Integrity Risk
Analysis (SIRA) across
our global footprint, which assesses inherent
and residual integrity risks related to financial
crime, and
the effectiveness of the associated processes
and controls ING has in place. This provides
insights into
the financial crime integrity risks that ING
may be exposed to, so we can appropriately
manage these
risks in accordance with our risk appetite. Our
risk-based surveillance (screening and monitoring)
controls are also designed to identify activity
that may require additional investigation
or other risk
management actions, and where appropriate,
reporting to the relevant authorities.
We monitor our compliance in relation to financial
crime risk and our tolerance levels on a regular
basis
against a set of quantitative and qualitative
financial crime Risk Appetite metrics
that were updated in
2021 and approved by the Non-Financial
Risk Committee.
Bribery and Corruption
Corruption curbs economic growth and impedes
the development of societies. It undermines
business
confidence and corporate integrity, hinders
fair business competition and harms international
trade.
ING takes these risks seriously: bribery
and corruption risks are part of our non-financial
risk
framework, and are included in the client and
third-party due diligence and monitoring
measures in
our financial crime risk management framework.
We will continue to further structurally strengthen
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our response to bribery and corruption risks
in key areas as part of our multi-year
enhancement
programme and FCMP, and in support of our
zero tolerance approach for bribery
and corruption.
Customer Tax Compliance
ING remains committed to its reporting
obligations under the Foreign Account
Tax Compliance Act
(FATCA) and Common Reporting Standards
(CRS). Throughout 2021, we have
worked to improve the
quality of reports provided to tax authorities
and reacted to the implementation of mandatory
disclosure rules for EU jurisdictions (implemented
via the amendment to Directive 2011/16
(DAC6)). We
also continue to focus on customer tax integrity,
as we do not want to be involved in or
facilitating tax-
related financial crime through servicing
our customers.
Key developments in 2021
Covid-19 taskforce
Opportunistic criminals have been quick to
exploit the disruption caused by the Covid-19
pandemic.
During 2021, the activities of the ING financial
crime Covid-19 taskforce continued to focus
on
protecting customers from fraud and
cyber-related crimes, as well as identifying
evolving criminal
money laundering methods. The taskforce worked
with data analysts and business-aligned teams
globally to share guidance with regional teams
on the thematic financial crime risks relating
to Covid-
19, including potential risk scenarios and datapoints
to assist regional and local teams identify
unusual
transactions.
Evolving external landscape
Financial institutions continue to face considerable
regulatory scrutiny in relation to detecting
and
preventing financial crime, and increasing
costs of compliance. In 2021, this saw some
participants in
the Dutch banking sector streamlining their
workforces or increasing their account fees
for higher risk
customers. In addition, the complexity of the
regulatory landscape continues to give rise
to potential
tension between data privacy (GDPR), anti-money
laundering/counter terrorism financing and
anti-
corruption laws and regulations. This includes
requirements for sharing information within
ING in
relation to financial crime in order to manage
our risk exposure, while also complying with
relevant
data legislation (which can differ significantly
depending on jurisdiction). Society’s expectations
that
financial institutions are accountable for
safeguarding the financial system also
create an increasingly
demanding environment.
We take this gatekeeper responsibility seriously.
We believe that by proactively participating
in public-
private partnerships and collaborating with
other banks, as well as investing in
new and innovative
technological capabilities, we can be more
effective in the collective fight against
financial crime. We
also recognise the essential role played
by certain other financial services providers
in safeguarding the
financial system against illicit funds.
Payment Service Providers
The position of payment service providers
(PSPs) in the financial service industry
has become
prominent and permanent over the years.
PSPs face continuous challenges to demonstrate
compliance with industry standards and recommendations,
such as the guidance provided by the
Wolfsberg Group and Financial Action Task
Force (FATF) on payment transparency.
Having limited
transparency on transactions initiated through
the different payment platforms increases
the
challenge of monitoring whether PSPs and
banks are potentially misused to
facilitate tax evasion,
money laundering and terrorist financing.
ING will continue to contribute to dialogues
with PSPs, regulators and industry bodies
on these
challenges; ensuring we obtain the required
transparency on payment information.
This supports
compliance with the applicable laws and regulations
and internal policies and instructions as well
as
monitoring to ensure that ING stays within its
financial crime risk appetite.
EU AML/CFT legislative package
In mid-2021 the European Commission adopted
a package of legislative proposals aimed
at
strengthening anti-money laundering (AML)
and counter terrorism financing (CFT) rules. This
included
amendments to existing legislation to tackle
emerging challenges linked to technological
innovations,
such as virtual assets, as well as the increasingly
global nature of terrorist organisations. It
also
included centralisation of EU AML/CFT supervision
(the European Anti Money Laundering
Authority)
and establishing a single EU AML/CFT rulebook,
which provides financial institutions with
harmonised
and directly applicable AML/CFT rules.
ING welcomes this harmonisation, which removes
a degree of regulatory complexity. We
have
considered amendments in the context
of drafting the updated ING Financial
Crime Policy framework.
We have also participated in workstreams
and analyses prepared by global banking associations
such
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as the Dutch Banking Association and the
European Banking Federations to assist
us in assessing the
potential impact of the AML legislative package
on the bank.
Virtual Assets
The rise in price and use of virtual assets,
accompanied by the growth of virtual
assets service providers
was a key theme throughout 2020 and continued
in 2021 to attract regulatory attention for
potential
tax evasion, money laundering and terrorist
financing concerns. Although the industry’s
assessment of
financial crime risks in these areas is beginning
to mature, the evolving regulatory
environment and
understanding of how the virtual assets ecosystem
may be potentially abused for financial
crime
purposes continues to present a challenge
for financial institutions.
We believe it is important to contribute to ongoing
dialogue with regulators on this topic. In
2021, we
created guidance that has been shared
across the bank to develop a deeper knowledge
and
understanding of virtual assets and the
associated financial crime risk landscape,
an important step
towards our goal of ensuring that ING remains
a safe and compliant bank.
Environmental crime
Environmental crime risks also came to the
fore in 2021; including a wide range of
activities such as
the illegal wildlife trade, the illegal extraction
and trade of forestry and natural resources
as well as
illegal land clearance and waste trafficking,
all of which have a socio-economic impact
on the
population and earth. There is a growing
convergence between environment crime
and other serious
crimes including corruption and trade-based
fraud, among others.
In 2021, we examined the risks arising from
the illegal wildlife trade and how to
detect suspicious
financial flows linked to it. We joined the United
for Wildlife Financial Taskforce, which brings
together
private, public and third-sector partners to
identify, disrupt and prevent illegal wildlife
trade.
Know your customer (KYC)
Know your customer and financial crime
compliance play a key role in ensuring we only
engage and
do business with people and companies that
meet regulatory requirements and are
within our risk
appetite. Knowing who we do business with
is vital to keeping ING safe, secure and
compliant. As part
of our ongoing anti-money laundering efforts,
we continuously assess relationships
with customers
and monitor and screen transactions. Potentially
unusual or suspicious transactions are
reviewed and,
where applicable, reported to the relevant
authorities.
We’re continuously working to strengthen
the implementation of KYC and build
sustainable KYC
practices. This includes enhancing customer
due diligence files (documentation,
data and identity
verification) and making structural improvements
in five areas: policy and risk appetite
statements,
digital tooling, governance, monitoring and screening,
and KYC knowledge and behaviour. All of these
enhancements are being integrated into our
business-as-usual practices.
To reinforce this foundation, the Financial
Economic Crime Controls Maturity Programme,
set up in
2020, broadens the scope of certain aspects
of financial crime such as sanctions, customer
tax, new
and existing FEC threats and internal quality
controls. Its holistic approach aims to take
into account
new developments in the complex and
dynamic environment that we operate
in and is jointly
managed by the Financial Crime Compliance
(FCC) and KYC departments.
Our regulators keep a close eye on the measures
we have in place against money laundering
and
terrorism financing and to manage compliance
risks, as well as improvements
we’ve made to address
shortcomings that had been identified in some
countries. In February 2021, the French regulator,
the
Autorit
é
de contr
ô
le prudentiel et de r
é
solution (ACPR), confirmed ING had put
in place the necessary
corrective measures following its reprimand in
2018 and a sanction of €3 million.
Public-private partnerships
To continue to be more effective in our efforts
to counter financial economic crime, we
work closely
with our peers, regulators and law enforcement.
We have elected to centrally coordinate our proactive
participation in various public-private
partnerships across our footprint. This ensures
a holistic, streamlined and strategically orientated
approach towards ING’s participation in external
partnerships and improves our
ability to meet
regulatory obligations, satisfy moral and
integrity expectations and improve the
operational efficiency
of managing financial and economic
crime-related risks.
To this end, in 2021 we participated in several
projects leveraging intelligence from
public-private
partnerships in the areas of trade-based money
laundering and synthetic drug production
in the
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Netherlands. We also continue to support supranational
initiatives, such as Europol’s project on the
financial crime risks associated with virtual
assets.
Throughout 2021, ING continued to work in
a consortium of Dutch banks on Transaction
Monitoring
Netherlands (TMNL). The initiative, which monitors
transactions within a combined database,
is
operational and intersecting with thematic
areas of focus for law enforcement,
enabling us to better
understand potential criminal money flows,
and improve our detection controls in response
to these
insights. In the Netherlands, ING also works
with the government’s Financial Intelligence
Unit and three
other banks in the Fintell Alliance. In a pilot,
the alliance investigated and analysed
alerts generated by
TMNL. It detected complex financial crime networks
that none of the banks could have found alone,
illustrating the benefits of multilateral information
exchange.
In Germany, ING joined the public-private partnership
Anti-Financial Crime Alliance (AFCA) to foster
mutual exchange of information within the
financial system. The alliance consists
of 30 members,
amongst them public authorities, the largest
financial institutions as well as representatives
from the
real estate sector. We also continue to
contribute in various fora to the further development
of
industry-wide standards.
KYC policy framework
The KYC policy and related control standards
(the KYC policy framework) set the minimum
requirements and control objectives for all
ING entities to guard against the involvement
in financial
crime activity. The KYC policy framework reflects
relevant national and international
laws, regulations,
guidance documents and guidelines from national,
European and international authorities,
(supra)national risk assessments and industry
standards related to:
◾
financial crime, covering money laundering,
terrorist financing, bribery and corruption,
export
trade controls, proliferation financing, sanctions
(economic, financial and trade), countries
designated by ING as ultra-high-risk countries
(UHRC).
◾
customer tax compliance, covering customer
tax integrity (CTI), FATCA, CRS, mandatory
disclosure requirements (MDR).
◾
environmental and social risk (ESR) client
assessment, specifically the initial customer
screening
for environmental and social risk.
The KYC policy framework is mandatory
and applies to all ING entities (i.e. all
branches and majority-
owned subsidiaries of ING Groep N.V., including
ING Bank N.V., or where ING exercises
control), their
corporate functions and their branches,
including outsourcing partners to whom
ING entities have
sourced KYC-related responsibilities. The
KYC policy framework also 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. ING entities have
local
procedures in place, 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
have to be applied.
As a result of frequent evaluation of the business
from economic, strategic and risk-based
perspectives, ING, with limited exception,
does not engage in business involving certain
countries
including Cuba, Iran, North Korea, Sudan,
Syria and the Crimea region. ING has a policy not
to enter
into new relationships with clients from these
countries and processes are in place to
discontinue
existing relationships involving these countries.
Global approach
ING updated its KYC policy in line with external
regulatory developments in anti-money
laundering and
financial sanctions. In 2021, we finalised the
implementation of our continuous adverse
media
screening tool in all of ING’s Wholesale and
Retail Banking businesses. This allows
us to continuously
screen customers against news intelligence
related to financial and economic
crime, creating an
additional control to monitor our customers
on relevant news updates on a daily basis,
instead of
during the periodic CDD reviews only. As
a result, the business is better able to identify
customers
involved in potential criminal activity. We
also enhanced our screening control environment,
reducing
false positives to prevent potential transaction
delays for our customers.
Substituting local tools with centralised global
tools enables us to further improve the
way we onboard,
monitor and screen customers using
a standardised approach across the world.
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Knowledge and behaviour
We believe all our people play a role in
keeping ING safe, secure and compliant
and that a sound risk
culture requires us to act with integrity
above all. We want to empower our employees
with the skills
and knowledge they need to fight financial
crime, and encourage them to speak up if they
have
concerns relating to financial crime risk
management.
In 2021, the Global KYC Academy further matured
and rolled out new learnings to KYC
employees, in
addition to the regular curriculum. These
included trainings on customer tax offences,
environmental
and social risks, sanctions and KYC tools. It
also continued to partner with ACAMS
(Association of
Certified Anti-Money Laundering Specialists)
to develop and deliver tailored, certified
training for our
employees. The ACAMS training portfolio
focuses on learning paths that provide
professional
foundational skills or advance expertise in
a range of topics including customer due
diligence,
screening, transaction monitoring and sanctions.
Over 8,000 ACAMS trainings were enrolled
in 2021.
Virtual Instructor Led Training (VILT) was
also rolled out to enable innovative and flexible
learning,
especially with many employees working
from home due to the coronavirus
pandemic. In addition we
introduced a mobile app quiz to engage employees
and stimulate learning on KYC topics.
To increase understanding and share best practices
on financial crime risk management, awareness
sessions were held for all employees
and bi-annual bootcamps are organised
for money laundering
reporting officers. Our training framework
is currently being enhanced to provide more targeted
and
specialist training on risks related to bribery
and corruption. We are also working on further
developing
dedicated centres of expertise to use our
centralised expertise more effectively and
harmonise
standards
across ING.
In 2021, behavioural risk assessments
were carried out at ING in Italy and in
Wholesale Banking in the
UK and Germany. These focused on identifying
behavioural patterns and driving appropriate
escalation
behaviour. Feedback sessions and dialogue starters
to initiate open conversations around these
assessments were also held in Italy, while behavioural
interventions were held in Poland and
Romania,
aimed at improving the desired behaviours
around leadership and decision-making. In
addition, two
KYC world cafes were held for all KYC employees
to create a shared understanding, collective
purpose
and uniformed approach to solving problems
when dealing with common behavioural
risks.
Conduct Compliance & Culture
Conduct risk is defined by anything that can
result either in client detriment or
impacts market
integrity. Conduct compliance includes
client protection and transparency (Treating
Customers Fairly),
market conduct (including market manipulation)
and conflicts of interest.
A sound risk culture is paramount at ING
as it determines the way in which employees
identify,
understand, discuss, and act on the risks
we are confronted with and the risks
we take. The proper
embedding of our global Code of Conduct,
Orange Code and the Whistleblower policy
into our
processes is key to managing our culture and
ethics risk.
Treating Customers Fairly
Building on work done in 2020 to strengthen
our compliance with the Markets in Financial
Services
Directive (MiFID) and to create a more
effective Client Protection and Product
Approval (CPAC)
framework, in 2021 we created several training
sessions on investment services, issued
guidelines and
closely monitored the remediation of improvements
to the MiFID implementation to ensure
a common
understanding of our approach to MiFID group-wide.
CPAC governance was further strengthened
to
ensure strong challenge and a consistent application
globally of risk appetite when offering investment
services to our customers. Preparations for
the implementation of the Mifid Quickfix
have progressed in
line with implementation in 2022.
Alongside direct consumer protection requirements
as laid down in the specific regulations (e.g.
Mifid
II) ING is bound by local consumer protection
laws and has adopted its own minimum
standards, such
as the Customer Golden Rules. These minimum
standards are regularly reviewed to
stay in sync with
legal developments and expectations from
society. One of the elements we take into
account in the
review, is the outcome of the various discussions
we have with consumer associations.
Sometimes
such review and discussions also lead to
an offer to compensate certain customers,
as we have done
for certain customers with mortgages
in Swiss franc in Poland and for certain
Dutch retail customers in
connection with certain revolving consumer
loans with variable interest. See for more
detail Note 43
‘Legal proceedings’ to the consolidated
financial statements.
Transaction reporting activities were improved
considerably with the creation of a group-wide
governance framework and controls, as
well as participating in the market wide
upload of backlog in
close cooperation with the relevant supervisory
authorities and the reporting agencies.
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To support our objectives,
we expanded our focus to other key areas:
In relation to insurance products,
we rolled out a global policy and controls in
order to align with the EU Insurance Distribution
Directive
(IDD). To safeguard client interests during
the IBOR transition, best practices focused
on client conduct
and shared by the relevant supervisory authorities
have been implemented.
Finally, in response to the increasing importance
of sustainable products for our clients and
the need
for ESG considerations to form an integral
part of our products and services to clients,
alongside the
development and roll out of policy on SFDR.
ESG is being embedded within the ING organisation
across
all three lines of defence.
Market Conduct
Market conduct risk stems from undertaking
activities that impact market integrity.
The smooth
functioning and public confidence in markets
are crucial for economic growth and wealth.
As part of
our work in 2021 to strengthen our market
conduct framework, an update of our market
abuse policy
was completed, together with a revised set
of key controls owned by the first line
and rolled out to all
ING entities, alongside an updated mandatory
e-learning on market abuse. To support
ING entities in
the maintenance of information barriers
and the communication of confidential
and inside
information, new global procedures are in
the process of being rolled out to
ING entities.
Conflicts of Interest
ING is committed to identify conflicts of
interest and act on them. The Conflicts
of Interest policy sets
the obligations to identify, assess and manage
conflicts of interest, when personal or organisational
interests are in conflict over the interest
of our client(s), employees or other stakeholders
(e.g. when
related to personal account dealing). In 2021
the Conflicts of Interest policy was revised
to further align
with the standards as defined by enterprise
risk management. The policy incorporates
key
requirements for both personal and organisational
conflicts of interest in line with the European
Bank
Association Guidelines on Internal Governance.
Next to the updated policy, mandatory instructions
on
conflict of interest registers were developed
including templates, which provide
more guidance on
identifying, assessing and keeping audit trail
of our conflict of interest risks.
Culture & Ethics
In 2021, ING
executed the risk culture programme
that was developed based on the
2020 self-
assessment. Some key results are the formalisation
of ING’s risk culture principles, the development
of
a risk culture dashboard, and the development
and roll-out of an approach to increase
awareness and
dialogue on Non-Financial Risk. The dashboard
is developed to monitor and facilitate meaningful
conversations on our risk culture and it leverages
different instruments for insight generation.
Instruments include amongst others a
survey to capture employee perceptions,
quantitative indicators
from existing data sources and systems
and a structured approach to capturing
the professional
judgements of Compliance officers. The risk
culture programme is actively discussed
by the MBB and
the SB on a quarterly basis.
In February 2021, ING launched a programme
to further enhance the global Whistleblower
process.
The programme aims to further strengthen
risk management through more
automated data
collection and reporting and to continuously
enhance psychological safety and trust
by strengthening
the whistleblowing confidentiality and employee
protection. The quarterly whistleblowing
report is
shared with the MBB and the SB.
To preserve risk awareness and risk judgement
in the area of risk culture, ING continued
its efforts
towards embedding the Orange Code decision
making model that supports ethical and well-balanced
decision-making throughout ING further by
inserting referral to using the model in several
local PARP
frameworks.
Innovation, analytics and digitalisation
We continue to seek to harness new and innovative
technological capabilities to keep our clients
safer
and to enhance their digital journey with
ING. In 2021, we consolidated disruptive
client-focussed
innovation activities across the Group under
a single dedicated business area, ING Neo.
We also
continue to prioritise more incremental
innovation, under the oversight of our
KYC Innovation
Committee and RegTech Innovation Board.
In 2021, we rolled out the CoorpID platform
which digitalises the know your customer
process for our
corporate clients improving the KYC journey
of our customers, in four countries and will
aim to
continue to expanding in throughout 2022.
Furthermore,
we rolled out the Blacksmith solution
to
improve the KYC journey for financial institutions
in six countries. We also continued to
develop and
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leverage an AI-supported platform to help
us to respond swiftly and effectively to the
changing
regulatory landscape and underlying policies
in relation to financial crime.
Tax risk
Tax policies, procedures and a tax control framework
have been implemented to support management
in mitigating potential tax risks in a prudent
manner. Internal monitoring, control
and reporting of tax-
related risks take place on a continuous
basis with regular reporting to various
stakeholders. For
404/SOX purposes (section 404 of the Sarbanes-Oxley
Act), an ‘effectiveness of internal
control
statement’ with respect to tax controls has
been provided. Tax risk management
is subject to
Corporate Audit testing and evaluation. In the
Netherlands and also in other countries, ING’s
position is
to be cooperatively tax compliant, this implies
to have transparency about and disclosure
of relevant
tax risks towards tax authorities. Tax risks not
only refer to ING’s own tax position, but
also to the risks
in relation to our customers. In this respect,
we have integrated a tax integrity assessment
in our
overall customer risk assessment process.
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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, non-compliant 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 or whose inputs are
partially or wholly qualitative or based
on expert
judgement.
Governance (*)
The head of Model Risk Management (MoRM) reports
to the ING chief risk officer. The Model Risk
Management Committee (MoRMC) is the
dedicated authority within ING for model risk
management. It
is a committee designated by the Management
Board of ING bank. It is chaired by the ING
chief risk
officer and co-chaired by the head of MoRM.
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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The composition and main activities within
the three model lines of defence (MLoD):
◾
The 1
st
MLoD is composed of the model owners,
model users, data management and model
development, and is accountable for, among
others, the development, implementation
and
use of the models as well as monitoring models’
performance;
◾
The 2
nd
MLoD is composed of model validation
and model risk oversight, which owns
the model
risk management framework, proposes the model
risk appetite,
provides challenge to model
risk identification and assessment and provides
an independent validation of models
used
within ING;
◾
The 3
rd
MLoD is the internal audit, reviewing
the quality of model risk management
execution in
all lines of defence and provide assurance
over the 1st and 2nd line model risk management
activities.
Model risk appetite (Model RAS) (*)
The model risk appetite is designed to determine
the level of model risk ING is willing to
accept in
pursuit of its strategic objectives. The initial iteration
of Model RAS was introduced in 2020 and
was
monitored throughout 2021. At the end of
2021, the data captured by the initial Model
RAS was
evaluated, resulting in the implementation
of thresholds and early warning limits
for selected metrics.
Model risk management (*)
Model risk management is executed via processes
such as: model identification, model
classification,
model risk identification and assessment,
and model validation. During 2021,
these processes were
further enhanced by incorporating model
identification in the product approval
and review process and
by inclusion of model ethics principles as an
element for assessing model risk. Dedicated
model
validation frameworks are in place for the
key model types such as Credit, Market, Liquidity,
Operational Risk, IRRBB and advanced
analytics. These frameworks are continuously
being enhanced
to keep up to date with latest development.
On an aggregated level model risk is monitored
via analysis of data from the global model inventory.
The insights, from aggregated data analysis,
are reported to the MoRMC and to the MBB
for senior
management to take well-informed decisions
on acceptance or further mitigation
of model risk.
Model lifecycle (*)
The next figure provides a schematic overview
of the model lifecycle, where orange represents
the
activities of the 1
st
MLoD, grey represents the 2
nd
MLoD and light grey is the 3
rd
MLoD. The objectives of
the different processes are outlined below
(reference).
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 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)
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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
is the process of defining and collecting
data that meets the defined data quality
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
is the independent confirmation that the
model is valid for its intended use.
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
stage is to approve models for use. The
model owner submits the
model for formal decision to the internal approver
before a model can be deployed and
used. The
recommendations and validation report prepared
by the model validator are key inputs for
the
approval.
During the
implementation
stage, the model is realised, tested
and made available in a production
environment.
In the
model use
stage the model is applied by the users
for the specific purpose it was designed for.
The model can only be used after formal
approval for use of the model.
The objective of model
performance monitoring
is to regularly check if the model is performing
as
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 its ongoing
validity must be safeguarded. This is
done by periodic independent (re)validation that
assesses whether the model is still valid
for its
intended use and if it is used as intended.
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
disables the
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, (3) the model
became obsolete 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,
net fee and commission income as well
as expenses. It is the risk inherent to
strategy decisions, internal efficiency and
the business environment.
Business risk economic capital is
calculated via the variance-covariance methodology
for these risks, covering the risk that
volume/margins, net fee and commission income
and operating expenses will deviate from the
expected expenses over the horizon of the
relevant activities.
Governance and risk management
ING applies an explicit risk appetite statement
regarding business risk, focusing on earnings
stability
and diversification of the business mix.
Diversification 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,
volume-margin risk, and net fee and
commission income 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 quarterly 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.
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Supervisory Board report
In 2021, the Supervisory Board and its committees continued to focus
on overseeing and constructively challenging management in their
ambition to keep transforming into a data-driven digital bank in line
with ING’s strategy. How ING could help customers, employees and
communities safely through and after the Covid-19 pandemic remained
an important focus. ING’s risk culture and the priority to further
strengthen its global anti-money laundering (AML) and know your
customer (KYC) activities also were key attention areas.
The Supervisory Board is responsible for supervising
(i.e. assessing, overseeing,
monitoring,
constructively challenging,
scrutinising and discussing) the policy (
beleid
) of the Management Board
Banking, and the general course of affairs
of ING and the business connected with
it. Furthermore, the
Supervisory Board provides the Management
Board with advice. The Supervisory Board
and
committees of the Supervisory Board are identical
and fulfil the same role at the level of
ING Groep N.V.
and ING Bank N.V.
In 2021, the Supervisory Board spent time
on strategy as well as the initiatives
and developments that
relate to ING’s strategic ambitions,
with a focus on digitalisation to support
a differentiating experience
for customers and stakeholders. This was
done in dialogues with the
Management Board Banking in
light of ING’s four focus areas. ING will continue
to focus on being safe, secure and compliant
and on its
role as gatekeeper in the fight against
financial crime. ING will enable and increase
healthy economic
growth by diversifying its income, in existing
and new products and services. Clear
choices will continue
to be made about where and how ING serves
its customers. ING aims to become
a data-driven digital
bank to bring benefits for its customers, employees,
cost-to-serve and controls. In sustainability,
ING
will keep working to build a sustainable future
for ING and its customers, society
and the environment.
The impact of the Covid-19 pandemic
has been immense, affecting millions
of people around the
globe. It has also impacted families, customers,
governments, economies, supply chains
and jobs,
turning people’s lives and their livelihoods
upside down. As was the case last year,
this was an
important topic for the Supervisory Board
and its committees, with the Management Board
Banking
providing the Supervisory Board with regular
updates and an outlook. The dialogue focused
on how ING
continues to help customers, employees
and communities safely through and beyond
the Covid-19
pandemic period, while taking into account
ING’s business continuity, performance
and gatekeeper
role that ensure a safe and compliant bank.
The Supervisory Board met 14 times in
2021 for its regular meetings.
On average, 97% of the
Supervisory Board members participated in
the meetings.
See the attendance matrix for the
Supervisory Board meetings and committee
meetings for more details. The continued
high attendance
in 2021 demonstrates that Supervisory Board
members are engaged with ING and are
able to devote
sufficient time and attention to overseeing
ING’s affairs. The Supervisory Board discusses
and
reconfirms all of its members’ outside positions
on an annual basis. It approves any intended
outside
positions when they occur, among others
to safeguard this level of engagement.
SB Attendance 2021
1
SB
RiCo
2
AC
NCGcom
3
RemCo
Hans Wijers (chair)
14/14
10/10
6/6
14/14
9/9
Mike Rees (vice-chair)
13/14
10/10
6/6
Jan Peter Balkenende
5
5/5
4/4
Juan Colomb
á
s
14/14
10/10
6/6
Mariana Gheorghe
11/14
8/10
13/14
8/9
Margarete Haase
14/14
10/10
6/6
Lodewijk Hijmans van den Bergh
9/9
6/6
Herman Hulst
14/14
10/10
6/6
Harold Naus
4
14/14
10/10
3/3
9/9
Herna Verhagen
4
14/14
3/3
14/14
9/9
Total attendance
6
97%
98%
100%
98%
97%
1. This SB attendance overview shows the regular SB (committee) meetings that took place
during the year. In addition to the
regular meetings, there were 11 internal SB meetings in 2021 in view of nomination and remuneration
matters, with a total
attendance of 99%. These are not shown separately in the overview for year-on-year,
like-for-like comparison purposes.
2. Additional RiCo meetings took place in 2021, three of which were in combination
with the RemCo on remuneration matters
that also required a risk view.
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3. Additional NCGcom meetings took place in 2021, three of which were in combination with
the RemCo, in view of medium to
longer term board succession planning.
4. Harold Naus participated three times in a NCGcom meeting in combination with the RemCo.
Herna Verhagen participated
three times in a RiCo meeting in combination with the RemCo.
5. Jan-Peter Balkenende retired from the SB as per the end of the AGM on 26
April 2021. At this AGM, Lodewijk Hijmans van den
Bergh was appointed to the SB. Their attendance is shown relative to their tenure.
6. The numbers exclude SB observers, if any. If SB members cannot join a meeting, they will – at
all times – continue to receive
the meeting materials to allow them to provide feedback prior to the meetings.
Abbreviations used: SB = Supervisory Board; RiCo = Risk Committee; AC = Audit Committee;
NCGcom = Nomination and
Corporate Governance Committee, RemCo = Remuneration Committee
Supervisory Board meetings
In addition to the topics mentioned in the introduction,
the Supervisory Board discussed
a wide range
of other topics during the year. These related
to, among others:
-
the impact of Covid-19 and the negative interest
rate environment on ING’s performance
and its
stakeholders (e.g. how to empower customers
to remain in charge of their banking
and their
finances, how to equip employees for a
hybrid way of working in which flexibility
is central, and
how to help communities to build back
better);
-
the increasing attention to environmental, social
& governance (ESG) related matters in relation
to
strategy, including sustainability,
climate risk and energy transition;
-
the follow-up to the European Central
Bank’s Supervisory Review and Evaluation Process
(SREP) and
related matters such as the internal capital
adequacy assessment process (ICAAP), the
internal
liquidity adequacy assessment process (ILAAP)
and stress testing;
-
ING’s financial, non-financial and compliance
risks;
-
ING’s gatekeeper role and ensuring the security
and compliance of the bank through enhancing
and maturing ING’s KYC priorities,
supported by structural solutions (see
‘Risk Management’ for
further details on ING’s AML/KYC measures);
-
the continued focus on further strengthening
ING’s risk culture;
-
several topical regulatory themes with a
global ING scope such as data (including the
strategy,
management, quality, ingestion and ethics
of data), IT and cybersecurity,
sourcing and the
suitability policy framework;
-
the financing of the company in accordance
with ING’s capital and liquidity adequacy
(in line with
the annually updated Risk Appetite Framework
including principles and statements), ING’s
capital
plan and ING’s dividend and distribution policy;
-
the audit plans of the internal and external
auditor;
-
ongoing supervisory developments;
-
various nomination and succession planning
related matters for the Management
Board Banking,
including the impact on the division of responsibilities
at management board level (succession
chief
risk officer (CRO), succession head of Wholesale
Banking, appointment head of Retail Banking
and
separation of the board roles for technology
and operations with an appointment of
a chief
technology officer and succession of the
chief operations officer (COO)/chief transformation
officer);
-
diversity (at the top);
-
various remuneration related matters,
such as the annual review of the Reward
and Appointment
Framework and the ING Remuneration
and Regulations Framework; and
-
the functioning of the Supervisory Board
and Management Board Banking, supported by
the
annual collective self-evaluations.
In its deliberations on the various topics the
Supervisory Board takes into account the
customers’ and
other stakeholders’ interests in view of ING’s
function in society.
The Management Board Banking was present
at each regular Supervisory Board meeting.
For some
parts of these meetings, depending on the
nature of the topics discussed, only the
chief executive
officer (CEO) was present. The Supervisory
Board also had sessions with only its individual
members,
prior to its regular meetings when this was justified
by the nature of the topics on the agenda.
The
purpose of these so-called pre-meetings and
Supervisory Board-only meetings is to
allow the
Supervisory Board to reflect independently on
and consider important matters
in the absence of the
Management Board Banking.
Outside of the collective meetings there was
frequent interaction between the chairs
of the relevant
Supervisory Board committees and the
members of the Management Board
Banking to ensure that –
at all times – everyone was up to date on
the most recent developments. Furthermore,
as a pilot, the
chairs of the Risk Committee and the Audit
Committee initiated informal interaction
with the chairs of
local risk and audit committees of ING’s five
largest subsidiaries to enrich the Supervisory
Board
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dialogue. Also, Supervisory Board members
who do not chair committees were assigned
specific focus
areas that make best use of their skills, knowledge
and experience to further enhance well-informed
Supervisory Board decision-making and
challenge. The 2021 focus areas were risk culture,
sustainability, models and stress testing
and operational resilience.
Continuous dialogue with stakeholders
ING maintains
continuous interaction with stakeholders,
and strikes
a balance between the interests of
all stakeholders,
including customers, shareholders, employees,
society and other stakeholders, such
as, but not limited to external supervisors
and regulators.
The Supervisory Board had periodic
conversations with various internal and external
stakeholders.
It exercised its oversight role to ensure
that, actions resulting from this, were embedded
in the organisation and followed up,
including actions
related to risk culture and behaviour. Some
2021 examples in this respect relate to stakeholder
interaction with regard to ESG and sustainability
as well as with regard to the application
of ING’s
remuneration approach. The dialogue between
ING and external supervisors and regulators
was a
standard agenda item for the Supervisory
Board throughout the year. This included several
discussions
on the results of and follow-up to the annual
SREP,
through which the ECB aims to promote
a resilient
banking system as a prerequisite for a sustainable
and sound financing of the economy. The
SREP
involves,
among others, a comprehensive assessment
of banks’ strategies, processes and risks,
and
takes a forward-looking view to determine how
much capital each bank needs to cover
its risks.
Strengthening ING’s global AML/KYC capabilities
Keeping ING safe, secure and compliant remains
a top priority. Since 2017, ING has been working
to
strengthen customer due diligence, transaction
monitoring
and screening in a sustainable way for
the
longer term and to better contribute to the
fight against financial economic
crime through the global
KYC enhancement programme. Various
initiatives have been implemented to further
enhance
AML/KYC activity throughout the bank. Among
other things, this has led to standardised
KYC policies,
global KYC governance and harmonisation
of processes, tooling and training. Further
developments are
captured in the Financial Economic Crime
(FEC) Controls
Maturity Programme, which defines
and
further enhances ING’s operational long-term
FEC control framework to manage and mitigate
financial
and economic crime risks in a sustainable, risk-based
way. Progress is monitored by and discussed
between the Supervisory Board, management
and the relevant supervisors.
In 2021, the Supervisory Board was updated
at least quarterly on developments
regarding KYC and
relevant specifics
were discussed in more detail. This
was facilitated through thematic sessions on
various topics such as the KYC roadmap,
the FEC Controls
Maturity Programme, transaction monitoring
and KYC aspects related to payment service
providers.
These sessions also contributed to the
Supervisory Board’s continuous learning.
The Supervisory Board and Management
Board Banking also discussed ING’s global
AML/KYC
governance and processes. Additional improvements
were identified that are now being implemented.
The boards reconfirmed their commitment to
ensure that ING (1) continues to fulfil its gatekeeper
role
and play its part in contributing to the fight
against financial crime,
(2) complies with applicable
regulatory requirements and (3) continues
to take the necessary actions to strengthen
compliance risk
management and culture throughout the
organisation.
Permanent education including exchange with the business
It is important for the members of the Supervisory
Board, as part of their continuous learning,
to
participate in the permanent education and
exchange with ING’s business on
a regular basis. The latter
is aimed at keeping the Supervisory Board up
to date on ING-relevant knowledge,
skills and expertise
and expanding these where necessary. It is
meant to increase the Supervisory
Board’s understanding
of and engagement with ING’s business operations
and stakeholders.
Due to prevailing Covid-19 related measures,
on-site visits to local ING businesses could
not take place
in 2021. These were replaced by a combination
of virtual gatherings and an off-site in the Netherlands:
-
on 14 and 15 January 2021, the annual
Supervisory Board Knowledge Days took place.
These were
combined with regular Supervisory Board meetings
and focused,
among others,
on sustainability
(i.e. energy transition and climate change)
and IT and cybersecurity;
-
In September 2021, an off-site was held in the
Netherlands as an alternative to the annual
business
visit. This was the first opportunity since
the Covid-19 outbreak for the Supervisory
Board and the
Management Board Banking to meet in person.
The off-site, among others,
focused on providing
the Supervisory Board with a better understanding
of ING in Belgium, allowing it to (i) gain insight
into the local economic, financial and political
landscape, including particularities;
(ii) learn about
the current status of ING’s local business
strategy and operations, including ING’s
Retail, Business
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and Wholesale Banking activities; and
(iii) get a more in-depth view on specific
initiatives that are
either currently underway or anticipated,
including on AML/KYC and other regulatory
priorities.
Throughout the year, a number of other educational
sessions on specific topics were organised
for and
requested by the Supervisory Board. For
2021, a balance was sought between sessions
focused on
compliance, FEC, sustainable risk culture and
management, and those on other relevant
strategic
topics. The latter included in-depth sessions
on (i) ING’s Wholesale Banking business
and Retail Banking
business,
including Business banking, (ii) technology
and IT platforms, (iii) data management, (iv)
sourcing, (v) credit decision models, and
(vi) managing and developing talent.
Additionally, thematic
sessions were organised to focus specifically
on certain themes that needed further
attention and/or
were looking forward at emerging risks and
developments. In 2021, these related to data strategy,
quality and protection (including Schrems
II ruling), capital and liquidity management,
SOX Act
framework and controls, management
adjustments and developments in the area
of non-financial
risk. Furthermore, at the request of the
Supervisory Board, several deep dive sessions
were organised
on selected key topics, such as IT and
cybersecurity, modelling and operational resilience.
These
sessions had a substantial risk management
relevance and contributed to a more in-depth
understanding of the matters discussed.
The various educational sessions provided opportunities
for Supervisory Board members to interact
with senior management and subject-matter
experts.
They also interacted in speed-meet sessions.
These meetings were also held virtually.
Such interaction contributes to a better
mutual understanding
and alignment on what matters most to ING,
its employees and the Supervisory
Board. As in previous
years, the Supervisory Board will continue
this practice.
Strategy based on long-term value creation
Throughout 2021, the Supervisory Board monitored
and discussed the progress of the strategy
and its
transformation and, as part of this, had
an active and continuous dialogue with
the
Management
Board Banking. In recent years, ING has seen
multiple trends emerging; many parts
of the business
moved online due to Covid-19, customers
are becoming more digital and self-directed,
negative
interest rates are leading to economic uncertainty,
regulation is more complex and demanding,
new
players are changing the competitive landscape
and ESG has moved to the core of society.
In the
meantime,
ING is continuing to empower people to
stay a step ahead in life and business. This has
led
to the following four focus areas to ensure
ING seizes
the opportunities flowing from today’s reality
and big trends to create long-term value.
ING will continue to be safe, secure and
compliant and focus on its role as gatekeeper
in the fight
against financial crime. ING will enable and increase
healthy economic growth by diversifying its
income, in existing and new products and services.
Clear choices will continue to be made about
where
and how ING serves its customers. ING aims
to become a data-driven digital bank to
bring benefits for
its customers, employees,
cost-to-serve and controls. In sustainability,
ING will keep working to build a
sustainable future for ING and its customers,
society and the environment.
These focus areas have been discussed
and agreed upon during periodic meetings between
the
Supervisory Board and the Management
Board Banking.
The Supervisory Board acknowledges the
duty
of care it has towards all stakeholders of
ING and makes sure to take this into
account while delivery
on the focus areas is being executed.
Financial and risk reporting
The Management Board Banking prepared
the financial statements and discussed
these with the
Supervisory Board. The quarterly results,
including the relevant press releases,
were discussed and
approved in February, May, August and November
2021. The full-year 2020 financial results
were
discussed and approved in March 2021.
The financial statements will be submitted for
adoption at the 2022 Annual General
Meeting as part of
the 2021 Annual Report. KPMG, in its role
as ING’s external auditor, audited ING’s 2021
financial
statements. As part of the standard procedures,
KPMG declared itself independent from ING,
in
compliance with applicable rules and regulations.
Read more in ‘Audit Committee meetings’
below
.
The Supervisory Board was also informed
in detail throughout the year of potential
financial, non-
financial and compliance risks for ING, including
the continued implications of Covid-19, subsequent
political and economic developments in
various countries and regions, updates
on (upcoming)
regulatory changes, and discussed how these
risks could best be mitigated. As part
of this, ING
performed specific stress tests and the results
were discussed with the Supervisory Board.
In this
context, ING released its first integrated climate
report in September 2021. It details
ING’s progress and
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targets on climate alignment in the nine
sectors in ING’s loan book most responsible
for climate
change. Read more in ‘Risk Committee meetings’
below.
Internal Supervisory Board meetings
During the 2021 internal meetings of the
Supervisory Board (with the CEO attending,
except when
matters concerning him were discussed),
among others,
the following recurring topics were addressed:
-
the annual targets and periodic performance
assessments of the Management Board Banking;
-
the composition of the Management Board
Banking (this year including nominations for
the
succession of the CRO and the head of
Wholesale Banking,
the appointment of the head of Retail
Banking, the separation of the board roles for
operations
and technology with the appointment
of
a chief technology officer and the succession
of the COO/chief transformation officer);
-
the composition of the Supervisory Board
including its committee composition
(this year including
the nomination for one new member, Mr Lodewijk
Hijmans van den Bergh);
-
ING’s broader talent and succession planning
in view of bench strength, including the
outcome of
ING’s annual talent review;
-
remuneration related matters,
including,
but not limited to (1) the remuneration
report,
(2) the
appointment/compensation/severance proposals
of high earners and senior management
in
control functions and (3) the Variable
Remuneration Accrual Model (VRAM) Process;
-
the annual collective self-evaluation of the
Management Board Banking and the Supervisory
Board;
and
-
the progress on the global implementation
of ING’s suitability policy framework
and the global job
architecture.
Supervisory Board annual collective self-evaluation
As in previous years, the Supervisory
Board conducted its annual collective self-evaluation
over the
reporting year. This was facilitated by
an independent external party and with
input from several
executives and senior managers who regularly
interact with the Supervisory Board
and attend
Supervisory Board meetings. The self-evaluation
addressed the ‘what’ (roles and responsibilities)
and
the ‘how’ (culture and behaviour). In
addition, the 2021 self-evaluation also focused
on ESG, an
important theme during the year, to identify
priorities and further contribute to a future-proof
ING and
a positive contribution to society.
Approach
During the November 2021 Supervisory Board
meeting, the Supervisory Board discussed
and approved
the annual collective self-evaluation process
and design for the year 2021. In December
2021, input
was gathered from the Supervisory Board
members and frequent attendees.
This, together with the
outcome of the 2021 mid-year review and
of the bilateral interactions between the
chairman and each
individual Supervisory Board member in January
2022, formed the basis for the collective
Supervisory
Board self-evaluation dialogue in February
2022. During this dialogue the Supervisory
Board
determined its collective positive points to
maintain and its 2022 priorities for further
improvement.
This is part of the Supervisory Board’s practice
to regularly deliberate on its collective
performance:
towards year-end (to determine the next
year’s approach and potential specific themes
to address),
halfway through the year (to reflect on status
and progress) and at the start of the
year (to discuss the
outcome of the previous year and agree
on positive points to keep and points
for further
improvement).
Results
The Supervisory Board’s collective dialogue
in February 2022 centred around the
following questions:
(1) Positive points: are the positive points
previously identified still valid? Where
has the Supervisory
Board further improved, taking into account
the ongoing impact of Covid-19 and increased
focus on
ESG? and (2) Priorities for further improvement:
Did the Supervisory Board sufficiently progress
in 2021
on the improvement areas previously defined?
What are the priority areas to further
improve in 2022?
The Supervisory Board’s agreed priorities for
2021 included:
1.
Further guide and support the Management
Board Banking in building an effective new
team,
while safeguarding the continued segregation
of duties between the various boards.
2.
Continue paying dedicated attention to embedding
an organisation-wide change in (risk)
culture mindset and behaviours, supported
by a well-diversified employee base
capable of
delivering on ING’s purpose and strategy.
3.
Further re-balance focus in meetings on
strategy and sustainability, business
and financial
performance, risk management and regulatory
requirements, taking into account the
continuously evolving demands and expectations
of various stakeholders in relation to these
key topics.
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4.
Continue investing in the Supervisory Board’s
own lifelong learning, especially in the areas
of
technology, IT and cybersecurity in light
of ING’s ambition.
During 2021, the Supervisory Board addressed
all of the above and, where applicable, embedded
enhancements in its standard working practice.
Items 1-3 form part of the regular meetings
of the
Supervisory Board and its committees, with
a view to the Supervisory Board’s role
and responsibilities
supported by its comprehensive annual
cycle of work. Item four is, among others,
part of the
Supervisory Board’s education programme.
Looking back on 2021, and compared to previous
years, the Supervisory Board concluded that
several
positive points continued to be valid and
had also further improved during
2021:
-
Regarding the ‘what’, the following Supervisory
Board strengths were recognised: (1) its
effectiveness at overseeing, supervising,
challenging and advising the Management
Board Banking,
(2) its understanding of the capacity of the organisation
to deliver the strategy, and the
effectiveness of ING's people and talent processes,
(3) its composition, and (4) the charter,
including the distribution of work between
the full Supervisory Board and its Committees,
its
meeting management and the support available.
-
Regarding the ‘how’, the following positives
were recognised: (1) the relationships
between the
Supervisory Board members and with the Management
Board Banking and (2) the understanding
of the views and requirements of key stakeholders.
Looking forward, the Supervisory Board concluded
that several priorities for further improvement
are
still relevant and the following areas require
further attention during 2022:
-
Regarding the ‘what’ it identified: (1) safeguarding
balance in open, constructive dialogue
with the
Management Board Banking on business/market
developments, including emerging risks, and
time
spent per meeting on regulatory topics and
(2) continue to be provided with fit-for-purpose
supporting materials for board meetings.
-
Regarding the ‘how’ these attention points were
identified:
(1) Covid-19 permitting, the importance
of returning to physical meetings with the
Management Board Banking and
other ING
representatives, and (2) continue investing
in access to and leveraging on knowledge,
skills and
experiences relevant to the Supervisory
Board in the context of ING.
With regard to ESG, the Supervisory Board
concluded that this is to be seen and addressed
as an
integral part of ING’s strategy and objectives
(see ‘In conversation with our chairman’
and other ESG-
related sections in this Annual Report).
As part of ING’s next steps in this area,
the Supervisory Board
will continue working with the Management
Board Banking to further enhance and
embed ESG
principles in ING’s internal processes and
business activities.
The Supervisory Board agreed to a number
of specific actions for 2022 to contribute
to its
performance, such as to:
1.
Ensure time is spent on ING’s progress on its
strategic priorities and on reviewing
the
performance of specific countries and business
lines as part of the Supervisory Board’s time
spent on ING’s medium to longer-term strategy,
where relevant complemented with
additional
outside-in views of stakeholders.
2.
Ensure to pay continued attention to diversity
and inclusion and attracting and retaining
talent
to contribute to a well-diversified employee
base.
3.
Enhance the Supervisory Board’s governance
on ESG with a dedicated Supervisory
Board
committee.
4.
Evaluate and re-assess the practice and allocation
of non-chair Supervisory Board members
to
specific focus areas so as to benefit from
the knowledge, skills and experience they’ve
gained in
other roles in those areas that are most relevant
to ING; this will also further enhance the
Supervisory Board’s collective decision making
and effectiveness in challenging management.
5.
Implement Hybrid Mode as the Supervisory
Board’s standard new way of working and
collaboration, which combines the advantages
of meeting in person and meeting virtually,
enhancing collaboration and co-creation
as well as flexibility, respecting personal
health and
well-being. As part of this, and Covid-19
permitting, resume in-person informal
gatherings (to
provide the Supervisory Board with additional
opportunity to reflect and look forward)
as well as
resume off-sites/business visits.
The Supervisory Board is of the opinion that
the above contributes to overseeing
and constructively
challenging ING in its ambition to keep transforming
into a data-driven digital bank in line with the
strategy.
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Permanent committee meetings
To manage each of the committees’ annual
cycle of work and potential committee
interdependencies,
each committee has drawn up an annual work
plan that is being kept up to date throughout
the year
for priority setting and forward-looking purposes.
These plans all feed into the Supervisory
Board’s
annual meeting cycle.
Risk Committee
The Risk Committee met 10 times in 2021,
of which three were combined with the
Remuneration
Committee to address remuneration-related
risk methodology elements, such as those relating
to the
VRAM that was introduced in 2018 (see also ‘Remuneration
Committee meetings
’
). Since 2020, almost
all Supervisory Board members have been members
of the Risk Committee.
The reason for this is the
ever increasing importance of risk and how
this is managed and supervised.
On 31 December 2021, the
committee members were: Mike Rees (chair),
Juan Colomb
á
s, Mariana Gheorghe, Margarete
Haase,
Lodewijk Hijmans van den Bergh, Herman
Hulst, Harold Naus and Hans Wijers.
The committee assists and advises the Supervisory
Board with the performance of its duties in relation
to overseeing:
(1) the setting and monitoring of ING’s
risk appetite and risk strategy for all types
of risk,
including but not limited to financial,
non-financial and compliance risk;
(2) the effectiveness of the
internal risk management and control systems;
and (3) other related risk management topics.
The Risk
Committee prepares the discussions within
and decisions of the Supervisory Board
on such matters.
ING needs to ensure that integrity continues
to come first and that critical non-financial
risk areas stay
top of mind, as an integral part of ING’s identity.
ING needs to build strong foundations
with structural
solutions that continue to earn and maintain
the trust of its stakeholders, including its
customers and
society at large. In light of Covid-19, additional
updates on financial, non-financial
and compliance risk
were provided, both separately and as an integral
part of recurring reports.
At each quarterly Risk Committee meeting
financial and model risks, non-financial
risks and
compliance risks were discussed, with
a specific focus on Covid-19. This included the status
of ING’s
accompanying metrics such as for risks in
the areas of solvency, liquidity and
funding, credit, country,
market, IT, non-financial risk and compliance.
The discussions were supported by different
analyses
conducted on the potential Covid-19 impact
on ING’s credit portfolio, capital and liquidity
position,
and
updates on credit developments in certain
countries and portfolios. The non-financial
and compliance
risk discussions were supported by (1) updates
of the bank-wide KYC enhancement
and maturity
efforts, (2) a variety of topical dashboards
such as on IT (risk), cybersecurity, sourcing,
data quality and
data privacy (including GDPR)
and (3) the status of implementation
of related regulatory programmes.
With respect to Covid-19, the committee
addressed risks related to business continuity,
business
resilience, the working from home control environment,
HR, and IT and cybercrime.
As part of the annual recurring topics, the
Risk Committee also discussed the following
topics:
-
the annual review of the Risk Appetite
Framework and accompanying principles
and risk appetite
statements;
-
the annual update to the Recovery Plan;
-
the impact of upcoming regulations, and
credit developments in certain countries and
portfolios;
-
the review of the scope of ING’s key policies;
and
-
the update of the Conflicts of Interest policy.
The entire Supervisory Board also participated
in the dry run of the Recovery Plan.
As mentioned before, throughout the year,
deep dives and thematic sessions took place
on specific
topics. Deep dives are technical discussions
on selected recurring key topics that have
substantial risk
management relevance and that contribute
to a more in-depth understanding of the
matters at hand.
In 2021, there were deep dives on operational
resilience, IT and cybersecurity,
modelling and sourcing.
Thematic sessions focus specifically on certain
themes that need further attention and/or
are looking
forward at emerging risks and developments.
Thematic sessions in 2021 encompassed:
SOX Act
Framework and controls, capital and
liquidity management with a view to capital planning,
supervisory
update with the focus on SREP and Covid-19,
data plan and data quality, non-financial risk
management (developments) and management
adjustments.
In principle, these sessions were
presented from a risk management angle
and where relevant also addressed the
impact of the Covid-
19 pandemic. All Supervisory Board members
received a standing invitation for sessions
deemed
relevant to them and participated in several
of these.
All relevant items discussed by the committee
were reported to the Supervisory Board,
with the
Supervisory Board approving those items
as required from a governance perspective.
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Audit Committee
The Audit Committee met six times in 2021.
On 31 December 2021, the committee members
were:
Margarete Haase (chair), Juan Colomb
á
s, Herman Hulst, Mike Rees and
Hans Wijers.
The committee assists and advises the Supervisory
Board with (1) the performance of its duties
in
relation to the integrity and quality of ING’s
financial reporting,
(2) the related effectiveness of ING’s
internal risk management and control systems,
and (3) the preparation of the discussions within
and
the decisions of the Supervisory Board on
such matters.
The Audit Committee addressed, among
others, the following recurring topics:
-
the quarterly results and the financial statements;
-
judgemental accounting topics;
-
key audit matters, as included in the auditors’
reports;
-
financial reporting;
-
(the approval of) the external auditor’s
audit plan/engagement letter/independence
and fees;
-
the overall internal control environment,
the internal controls over financial reporting,
the internal
and external auditor reports;
-
the review of the internal audit function;
-
matters related to the financing of the company,
including the assessment of ING’s capital
and
liquidity position;
-
the press releases related to the periodic
results and the Annual Report;
-
the internal audit plan, including its support
and progress monitoring;
-
critical and highly overdue issues, as reported
by the internal audit function;
-
the updated internal audit charter and the
update of the ING External Auditor Independence
Policy;
and
-
update of ING’s key policies,
such as the ING Global Tax Policy.
The Audit Committee performed an assessment
of the functioning of the external
auditor and the
scope and materiality of the audit plan
and the principal risks identified in the
audit plan.
Specific attention was paid to a variety of other
related topics. These included, among
others, the
following recurring topics:
-
ING’s long-term CET1 ratio ambition level;
-
ING’s (interim) dividend;
-
SOX Act framework and controls; and
-
capital and liquidity management.
In addition, in 2021, the Audit Committee addressed,
among others, expected credit losses including
management adjustments, IT security /
access management and matters in the
context of Covid-19
uncertainty.
All relevant items discussed by the committee
were reported to the Supervisory
Board, with the
Supervisory Board approving those items as required
from a governance perspective.
Directly following the Audit Committee meetings,
the members of the Audit Committee
met in a
closed meeting with the internal and external
auditors to seek confirmation that all relevant
topics
were discussed in the Audit Committee meetings.
To properly prepare for the regular Audit
Committee meetings, the chairperson of
the Audit
Committee held separate sessions with the
external auditor, the general manager
of the internal audit
department, the chief financial officer (CFO)
and the Group Controller. The chairperson
also met with
various senior managers.
Nomination and Corporate Governance Committee
The Nomination and Corporate Governance
Committee met 14 times in 2021, of which three
were
combined with the Remuneration Committee
to address topics that simultaneously
covered
nomination as well as remuneration. On
31 December 2021, the committee
members were: Hans
Wijers (chair), Mariana Gheorghe and
Herna Verhagen.
The committee assists the Supervisory
Board with the performance of its duties
in relation to selection
and nomination of, among others, the members
of the Supervisory Board and Management
Board
Banking, talent management and the
effectiveness of ING’s governance arrangements.
The committee
prepares the discussions with and decisions
of the Supervisory Board on such
matters.
With regard to nomination related matters,
it is ING’s aim to ensure that all of its boards
are – at all
times – adequately composed to perform
its duties. As is standard practice,
the Nomination and
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Corporate Governance Committee therefore
discusses (1) the performance of the individual
members
of the Management Board Banking (also serving
as input to the Remuneration Committee)
and (2)
medium- to long-term succession planning
for the Management Board Banking and
the Supervisory
Board. A continuing conversation on Management
Board Banking succession planning is facilitated
by
the chief human resources officer as part of
its regular meetings in the form of deep dives
by function
and business line.
Finding suitable board succession candidates
remains challenging, while taking into
account the
evolving role of boards in general and with
the goal of maintaining a balanced board
composition.
Numerous requirements are to be met in
view of board composition, including regulatory
requirements, suitability considerations,
diversity, banking and other industry knowledge,
outside
positions, independence, no conflicts of interest,
availability, etc. Also diversity-related
aspects are to
be taken into account as well as the minimum
and optimal size of a board and how to
arrive at an
appropriate balance in its representation
of regions, age, gender, knowledge
and expertise. The generic
profile of the Supervisory Board aims to capture
these elements; this profile can be found
on ing.com.
Read more on the boards’ composition in the ‘Composition
of the Executive Board, Management
Board
Banking and Supervisory Board’ section that
also includes a diversity and competence
matrix.
With a view to the above,
in 2021 specific attention was paid to:
-
the succession of the head of Wholesale Banking,
the appointment of a head of Retail
Banking and
the separation of the board roles for operations
and technology, resulting in the appointment
of a
chief technology officer and the succession
to the chief operations officer (COO)/chief
transformation officer.
-
the nomination and subsequent appointment
by the General Meeting 2021 of Lodewijk
Hijmans
van den Bergh as well as the reappointments
of Hans Wijers and Margarete Haase to the
Supervisory Board.
The Nomination and Corporate Governance
Committee also focuses on ING’s broader
talent and
succession planning in view of bench strength
and diversity at higher management levels,
with
selected key roles receiving dedicated attention.
This is done by taking into account ING’s
diversity
policy (70% principle for mixed teams) and
by accelerating refreshment where possible
without
jeopardising business continuity. The
diversity policy is published on ing.com and
explained in more
detail in ‘Our People’. The committee also holds
periodic conversations outside of its regular
meetings
with internal talented individuals who are
considered to have the potential to assume
more senior and
complex roles in the organisation over time.
The results of these conversations
are fed into the
individuals’ coaching and development plans.
With regard to corporate governance, the
committee discussed:
-
the 2021
Annual Report and the accompanying
booklets on ING’s application of the Dutch
Corporate Governance Code and the Dutch
Banking Code;
-
the approach and agenda for the General
Meeting 2021, including the impact
of the Covid-19
pandemic;
-
the suitability policy framework and its global
implementation,
thereby also taking into account
regulatory developments.
-
the annual updates to the corporate board
charters, the governance manual and the
decision
structure as well as any changes in board
members’ outside positions; and
-
the review of the scope of ING’s key policies,
such as ING's suitability policy framework.
All relevant items discussed by the committee
were reported to the Supervisory
Board, with the
Supervisory Board approving those items
as required from a governance perspective.
Remuneration Committee
The Remuneration Committee met nine
times in 2021. On 31 December 2021 the
committee members
were: Herna Verhagen (chair), Mariana
Gheorghe, Harold Naus and Hans Wijers.
The committee assists the Supervisory
Board, with the performance of its duties
in relation to
remuneration, the remuneration policies
and the application and compliance thereof
and shall prepare
the discussions
within and decisions of the Supervisory
Board on such matters. In doing so, the
Remuneration Committee will take into account
the adequacy of information provided to shareholders
on remuneration policies and practices.
As an annual recurring topic, the Remuneration
Committee reviewed the remuneration report
by way
of benchmarking with the purpose of further
improving the remuneration report.
In addition, the Remuneration Committee
discussed the progress and performance
on the annual
targets set for the Management Board
Banking. With regard to variable remuneration
and the
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application of ING’s accompanying VRAM (including
last year’s lessons learned), the committee
received input and advice from the Risk Committee
following strengthened risk management
governance. This served as input for a review
of the predefined thresholds above which the
pool for
variable remuneration may be unlocked for
those eligible as well as the accompanying
individual
variable remuneration proposals, including
potential cases for holdback or clawback of
deferred
compensation by way of malus. Furthermore,
the Remuneration Committee
discussed the mandate
for the variable remuneration cap for selected
global staff outside the European Economic
Area in the
Corporate Staff departments, and in the business
lines of Wholesale Banking and Retail
Banking from
100% to 200%, for a period of five performance
years, starting with performance year
2022. The
above-mentioned was approved by the
2021 Annual General Meeting of ING
Groep N.V.
This included
the views and expectations of the ECB,
specifically regarding the impact that such
policies
may have on the maintenance of a financial
institution’s sound capital base.
The Remuneration Committee also reviewed
the proposed updates to ING’s Remuneration
Regulations
Framework as part of its annual review.
Throughout the year it assessed Identified
Staff and High
Earner-related remuneration matters, based
on ING’s accompanying governance framework.
In 2021, the committee paid specific attention
to potential implications of the Covid-19
pandemic on
target setting and remuneration, by closely
monitoring developments in this area.
All relevant items discussed by the committee
were reported to the Supervisory
Board, with the
Supervisory Board approving those items
as required from a governance perspective.
Overview of Supervisory Board committee members
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Composition of the Management Board Banking and Supervisory
Board
ING’s aim is to ensure that the boards
are – at all times – adequately composed
to perform their duties.
The Supervisory Board continued with the succession
planning for a new CRO resulting in Ljiljana
Č
ortan being appointed as the CRO of ING
Bank and member of the Management
Board Banking as of
1 January 2021.
Andrew Bester was appointed as a member
of the Management Board Banking
and head of Wholesale
Banking as of 6 April 2021. In addition, Aris
Bogdaneris was appointed as head of Retail
Banking as of 1
May 2021. This appointment formalised the
role at Management Board Banking level
and was an
important step forward in building a global
Retail Banking business. Aris Bogdaneris continued
in his
role as head of Challengers & Growth Markets
alongside his role as head of Retail Banking.
To further strengthen ING’s position as a
digital leader in banking, the decision was
taken to separate
the Management Board Banking roles for technology
and for operations. Ron van Kemenade
was
appointed as a member of the Management
Board Banking and chief technology officer
as of 1 May
2021. Marnix van Stiphout was appointed
as a member of the Management
Board Banking and
COO/chief transformation officer as of 1
September 2021. He succeeded Roel Louwhoff,
who stepped
down from the Management Board Banking,
effective 1 August 2021. Roel Louwhoff
left ING on 1
November 2021.
Lodewijk Hijmans van den Bergh was
appointed as new Supervisory Board member
by and at effective
as per the end of the General Meeting
2021. He also became a member of the Risk
Committee.
Furthermore, the terms of appointment of
Hans Wijers, Jan Peter Balkenende and Margarete
Haase
expired at the end of the 2021 Annual General
Meeting (of ING Groep N.V.). At his
request, Jan Peter
Balkenende retired from the Supervisory
Board as of the end of the above-mentioned meeting
to focus
on other future activities. The Supervisory
Board proposed
to reappoint Hans Wijers and Margarete
Haase to the 2021 Annual General Meeting.
These proposals were approved.
All the proposed appointments were approved
by the ECB.
All Supervisory Board members, with the
exception of not more than one person,
shall qualify as
independent as defined in the best practice
provision 2.1.8 of the Dutch Corporate
Governance Code.
The members of the Supervisory Board
are therefore requested to assess annually
whether or not they
are independent as set out in the Dutch
Corporate Governance Code and to confirm
this in writing. On
the basis of these criteria, all members
of the Supervisory
Board are to be regarded as independent
on
31 December 2021. On the basis of the
NYSE listing standards, all members of
the Supervisory Board
are also to be regarded as independent.
For the full list of board members see ‘Corporate
Governance’.
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Diversity & competence matrix
Has sufficient/advanced knowledge, skills and experience
in the area and can make a balanced independent
judgement on the matter
*
Is in addition considered an expert in relation
to previous or current roles
Please note the following:
●
The purpose of this matrix is to provide
ING’s stakeholders with an overview
on the main aspects of diversity
and competencies
that ING considers to be the most
relevant for its stakeholders.
●
The competencies included in this matrix
represent a non-exhaustive overview of
the competencies that ING's corporate
board members already had before
joining ING and/or developed during their
position(s) at ING.
●
The content of the matrix is subject
to change in the light of ING’s continually
changing situation, markets and environment.
●
Furthermore, for the appointments
of new corporate board members, all
relevant competencies are also shared
with the ING’s supervisors DNB/ECB
based on their standard suitability
matrix to assess the collective competence
of members of the management/supervisory
body.
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Appreciation for the Management Board Banking and ING
employees
The Supervisory Board would like to thank
the members of the Management Board
Banking for their
contribution to ING’s performance over the
past year. It remained a year of uncertainty
as Covid-19
continued to have an impact on our business
and our customers and the devastating effects
of climate
change became even more apparent. We’re
grateful for their efforts in navigating
these challenges
and creating long-term value for our stakeholders.
In particular, we’re pleased to see progress
in the
areas ING focused on this year: being safe, secure
and compliant; digitalisation to improve the
customer experience; delivering healthy returns
for our shareholders; and taking action to
protect
planet and people for a more sustainable
future. Of course, none of this would be possible
without our
employees; we rely on them to deliver on
ING’s purpose and strategy. The Supervisory
Board
appreciates their ongoing commitment and
flexibility. We recognise it’s not
always been easy. Our
sincere thanks to all.
Additional information
More information can be found in
‘Corporate governance’
, which is deemed to be incorporated by
reference here.
Amsterdam, 7 March 2022
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Corporate governance
This chapter comprises ING Bank N.V.’s Corporate Governance
Statement.
Dutch Banking Code
The Dutch Banking Code is applied by ING Bank N.V. (ING Bank). The application
by ING Bank is
described in the 2021
publication ‘Application of the Dutch Banking
Code by ING Bank N.V.’, 10 March
2022, available on ing.com. This
is to be read in
conjunction with and deemed to be incorporated in the
Annual Report of ING Bank.
The Banking Code can be downloaded from
the website nvb.nl/English/.
Financial reporting process
As ING Bank is a consolidated subsidiary
of ING Groep N.V.
(ING Group), its policies and procedures
for
establishing
and
maintaining adequate internal
control over financial reporting
are the same as those
applied by ING Group for its consolidated financial statements
with respect to ING Bank and the entities
included in the latter's own
consolidated
financial statements.
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 the 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.
ING has a process in place where, under the
supervision and with the participation
of the CEO and CFO,
ING assesses the effectiveness of internal
control over financial reporting, based
on the criteria of the
Committee of Sponsoring Organisations of the
Treadway Commission (‘COSO’)
in Internal Reporting –
Integrated Framework (2013 Framework).
Board composition
The Management Board is composed to be
adequate and balanced, with a diverse selection
of persons
with knowledge, skills and 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 of and affinity with the desired
nature and culture of the business of
ING. ING also takes
account of factors such as nationality,
gender, age and education for the composition
of the
Management Board.
The Supervisory Board regularly assesses the
composition of the Management
Board.
The Gender Diversity Act, which entered into force
in the Netherlands on 1 January 2022, requires
ING
to set appropriate and ambitious targets
for gender diversity in its Management
Board and senior
management. ING’s target for gender
diversity in the Management Board is set
at 30%.
Changes in the composition
Ljiljana
Č
ortan was appointed as the CRO of ING Bank
and member of the Management Board
as of 1
January 2021. In terms of the dimensions
of diversity, Ljiljana
Č
ortan added both nationality and
gender diversity to the Management Board.
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Information on members of the Management Board Banking
Steven van Rijswijk (51) was appointed as
chief
executive officer and chairman of the Executive
Board and the Management Board Banking
with
effect from 1 July 2020. He has been a member
of
the Executive Board since 8 May 2017. Before
his
appointment as chief executive officer,
he was ING’s
chief risk officer.
As chief executive officer and chairman he is
responsible for:
●
the proper functioning of the Executive
Board and Management Board Banking;
●
formulating, communicating and delivering
ING’s strategy, including ESG;
●
ING’s decision-making, results, governance,
(risk) culture, branding, reputation and ING’s
people
agenda;
●
communication with the Supervisory Board.
Relevant positions pursuant to CRD IV
CEO and chairman of the Executive Board
of ING Groep N.V. and the Management
Board Banking of ING
Bank N.V.
Other relevant ancillary positions
Member of the management board of the
Dutch Banking Association (Nederlandse
Vereniging van
Banken), member of the board of directors
of the Institute of International Finance,
Inc.
Tanate Phutrakul (56) was appointed
as chief
financial officer and member of the Management
Board Banking with effect from 7 February
2019,
and subsequently as a member of the Executive
Board at the AGM 2019.
As chief financial officer he is responsible for:
●
formulating and communicating ING’s financial
strategy (including internal and external
financial
reporting), budgeting, cost control and the financing
of the company;
●
business performance reporting and
analysis, among which measuring adherence
to financial
targets;
●
capital and liquidity management;
●
investor relations;
●
regulatory & international affairs;
●
global economic research;
●
the communication to the Audit Committee
and Supervisory Board on the aforementioned
topics.
Relevant positions pursuant to CRD IV
CFO and member of the Executive Board
of ING Groep N.V. and the Management
Board Banking of ING
Bank N.V.
Other relevant ancillary positions
None.
Ljiljana
Č
ortan (50) was appointed as chief risk
officer and member of the Management
Board
Banking with effect from 1 January
2021 and
subsequently as member of the Executive
Board
member at the 2021 AGM.
As chief risk officer she is responsible for:
●
formulating ING’s risk framework and risk
appetite;
●
assessing, creating and maintaining risk awareness;
●
developing financial and non-financial risk governance,
policies, methodologies and guidance;
●
managing risk model landscape and developing
analytics capabilities;
●
monitoring compliance, risk management,
the execution of control activities and risk
behaviour;
●
risk reporting.
Relevant positions pursuant to CRD IV
CRO and member of the Executive Board
of ING Groep N.V. and the Management
Board Banking of ING
Bank N.V.
Tanate Phutrakul
Chief financial officer
Ljiljana
Č
ortan
Chief risk officer
Steven van Rijswijk
Chief executive officer
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Other relevant ancillary positions
None.
Pinar Abay (44) joined the Management
Board
Banking on 1 January 2020. Previously she
was a
board member of ING in Turkey and a non-executive
member of the board of ING in Belgium.
As head of Market Leaders she is responsible
for:
●
the execution of the strategy and priorities
for ING as well as the strategies for
Retail in the
Benelux and Wholesale Banking in Belgium
and Luxemburg;
●
driving performance, operations and compliance,
including profitability and risk management
within Market Leaders across all products and
segments in the Benelux; and
●
creating a platform in which the interests
of Retail, Business Banking and Wholesale
Banking are
appropriately balanced.
Relevant positions pursuant to CRD IV
Member of the Management Board Banking
of ING Bank N.V. and non-executive member
of the board
of ING Belgium N.V./S.A.
Other relevant ancillary positions
None.
Andrew Bester (56) was appointed as member
of
the Management Board Banking and head
of
Wholesale Banking with effect from 6 April
2021.
As head of Wholesale Banking he is responsible
for:
●
defining the strategy and priorities for global
Wholesale Banking in line with the overall
strategy
of ING;
●
driving performance, operations and compliance
of wholesale banking, including profitability
and
risk management across all geographies, segments
and products;
●
optimising all aspects of Wholesale Banking
and steering of the different regions,
sectors and
products and Wholesale Banking innovation;
and
●
sustainability.
Relevant positions pursuant to CRD IV
Member of the Management Board Banking
of ING Bank N.V.
Other relevant ancillary positions
None.
Aris Bogdaneris (58) was appointed as member
of
the Management Board Banking with effect from
1 June 2015. He is head of Retail Banking
and
head of Challengers & Growth Markets.
As head of Challengers & Growth Markets he
is responsible for:
●
the execution of the strategy and priorities
for ING as well as the strategies for
Retail and
Wholesale Banking in the Challengers countries
(Australia, Austria, Czech Republic, France,
Germany, Italy, Portugal, Spain) and the
Growth countries (Poland, Romania,
Turkey), Asia region
and the strategic positions in Thailand and
China (where applicable);
●
driving performance, operations and compliance,
including profitability and risk management
within Challengers & Growth Markets across
all products and segments; and
●
creating a platform in which the interests
of Retail, Business Banking and Wholesale
Banking are
appropriately balanced.
As head of Retail Banking he is responsible
for:
●
defining the strategy and priorities for
Retail and Business Banking, facilitating the
global
platform strategy and overseeing the proper
implementation of these in line with ING’s
strategy.
Pinar Abay
Head of Market Leaders
Andrew Bester
Head of Wholesale Banking
Aris Bogdaneris
Head of Retail Banking
Head of Challengers &
Growth Markets
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●
setting targets for implementation of the
global Retail strategy, and monitoring
implementation
and effectiveness thereof;
●
creating effective Retail governance to
deliver a global Retail customer experience;
and
●
leveraging global competencies and bringing
expertise to local units with respect to
Retail
products, channels and client interactions.
Relevant positions pursuant to CRD IV
Member of the Management Board
Banking of ING Bank N.V., member of Management Board of ING
Bank (Australia) Limited and member
of the Supervisory Board of ING DiBa.
Other relevant ancillary positions
None.
Ron van Kemenade (56) was appointed
as
member of the Management Board Banking
and
chief technology officer with effect from
1 May
2021. Prior to his appointment, he was the
chief
information officer of ING Bank.
As chief technology officer he is responsible
for:
●
translating the defined ING and respective
business line (Wholesale Banking and
Retail)
strategies into an IT data and information
security strategy and overseeing proper
implementation thereof;
●
the total IT landscape (including infrastructure
and applications), information security
and data
management;
●
advising the business on technology driven
(business) opportunities.
Relevant positions pursuant to CRD IV
Member of the Management Board Banking
of ING Bank N.V. and member of the management
board of ING Groenbank N.V.
Other relevant ancillary positions
None.
Marnix van Stiphout (51) was appointed
as member
of the Management Board Banking, chief
operations
officer and chief transformation officer
with effect
from 1 September 2021.
In his role, he is responsible for translating
the defined ING and respective business
line (Wholesale
Banking and Retail) strategies into a strategy
for the operations function and overseeing
proper
implementation thereof, in particular on:
●
sourcing and shared services;
●
KYC operations;
●
process management;
●
global analytics;
●
data protection execution;
●
the execution and management of bank-wide
transformation;
●
making decisions on related budget release
in line with ING’s strategy.
Relevant positions pursuant to CRD IV
Member of the Management Board Banking
of ING Bank N.V.
Other relevant ancillary positions
None.
Ron van Kemenade
Chief technology officer
Marnix van Stiphout
Chief operations officer
& chief transformation
officer
Contents
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Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Corporate Governance
ING Bank Annual Report 2021
168
Supervisory Board
The Supervisory Board is composed to be
adequate and balanced, with a mix of persons
with
knowledge, skills and 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
strives 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.
The Supervisory Board is responsible for selecting
and nominating candidates for appointment
or
reappointment to the Supervisory Board, among
others based on the Supervisory Board profile,
which
is available on ing.com. The Supervisory Board
regularly assesses the composition of the
Supervisory
Board.
In 2021, three out of nine members of
the Supervisory Board were female. We
believe the Supervisory
Board 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 2021 was 56 - 44%.
According to the Gender Diversity Act, which
entered into force in the Netherlands on
1 January 2022,
ING is required to comply with a gender
diversity quota of one third male
and one third female for its
Supervisory Board. Currently the Supervisory
Board is compliant.
Ancillary
positions
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 ECB
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 Bank. 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 Bank.
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>
Corporate Governance
ING Bank Annual Report 2021
169
Information on the members of the Supervisory Board
Relevant positions pursuant to CRD IV
Chairman of the Supervisory Board of ING Groep N.V./ING Bank N.V. and supervisory board member of HAL Holding N.V.
Other relevant ancillary positions
Member of the Temasek European Advisory Panel of Temasek Holdings Private Limited and Chairman of the Supervisory
Council of SEO Amsterdam Economics.
Relevant positions pursuant to CRD IV
Vice-chairman of the Supervisory Board of ING Groep N.V./ING Bank N.V., non-executive chairman of Athla Capital
Management Limited, non-executive chairman of Travelex Topco Limited and non-executive chairman of the board of
Satsanga Fintech Holdings.
Other relevant ancillary positions
Non-executive chairman of Mauritius Africa FinTech Hub.
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING Bank N.V. and non-executive member of the board of
directors and member of the audit committee, the compensation committee and the risk committee of Credit Suisse
Group AG and Credit Suisse AG.
Other relevant ancillary positions
None.
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, member of the board of
Envisia – Boards of Elite and member of the board of Teach for Romania.
Contents
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Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Corporate Governance
ING Bank Annual Report 2021
170
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING Bank N.V., member of the supervisory board and chairwoman
of the audit committee of Fraport AG, member of the supervisory board and member of the audit committee of AMS
AG, and member of the supervisory board of Marquard & Bahls AG.
Other relevant ancillary positions
Chairwoman of the Employers Association of Kölnmetall and member of the German Corporate Governance
Commission.
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING Bank N.V., deputy chairman of the supervisory board of HAL
Holding N.V., chairman of the supervisory board of BE Semiconductor Industries N.V. and non-executive chairman of
the board of directors of Fortino Capital Partners N.V.
Other relevant ancillary positions
Chairman of the board of Utrecht University Fund (the Netherlands), chairman of the executive committee of
Vereniging Aegon and external advisor to the management committee of De Brauw Blackstone Westbroek N.V.
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING Bank N.V.
Other relevant ancillary positions
None.
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING Bank N.V., CEO of Cardano Risk Management B.V. and CFO of
Cardano Holding Limited.
Other relevant ancillary positions
Chairman of the Curatorium VU Amsterdam “Risk Management for Financial Institutions”.
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING Bank N.V. and CEO of PostNL N.V.
Other relevant ancillary positions
Member of the supervisory board, member of the audit 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.).
Contents
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Parent company financial statements
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>
Conformity Statement
ING Bank Annual Report 2021
171
Conformity statement
The Management Board Banking is required
to prepare the Financial statements and the
Annual Report
of ING Bank N.V. for each financial year in
accordance with applicable Dutch law and
those
International Financial Reporting Standards
(IFRS) that were endorsed by the European
Union.
Conformity statement pursuant to section 5:25c
paragraph 2(c) of the Dutch Financial Supervision
Act (Wet op het financieel toezicht).
The Management Board Banking is responsible
for maintaining proper accounting records,
for
safeguarding assets and for taking reasonable
steps to prevent and detect fraud and
other
irregularities. It is responsible for selecting
suitable accounting policies and applying
them on a
consistent basis, making judgements and
estimates that are prudent and reasonable.
It is also
responsible for establishing and maintaining
internal procedures which ensure that
all major financial
information is known to the Management
Board Banking, so that the timeliness,
completeness and
correctness of the external financial reporting
are assured.
As required by section 5:25c paragraph
2(c) of the Dutch Financial Supervision
Act, each of the
signatories hereby confirms that to the best
of his knowledge:
◾
the ING Bank N.V. 2021 Financial statements
give a true and fair view of the assets, liabilities,
financial position and profit or loss of ING
Bank N.V. and the enterprises included in the
consolidation taken as a whole; and
◾
the ING Bank N.V. 2021 Annual Report gives
a true and fair view of the position at the
balance
sheet date, the development and performance
of the business during the financial year
2021
of ING Bank N.V. and the enterprises included
in the consolidation taken as a whole,
together
with a description of the principal risks ING
Bank N.V. is being confronted with.
Amsterdam, 7 March 2022
The Management Board Banking
S.J.A. (Steven) van Rijswijk
CEO, chairman of the Management Board
Banking
T. (Tanate) Phutrakul
CFO
L. (Ljiljana)
Č
ortan
CRO
P. (Pinar) Abay
Head of Market Leaders
A.J.M. (Andrew) Bester
Head of Wholesale Banking
A. (Aris) Bogdaneris
Head of Retail Banking
Head of Challengers & Growth Markets
R.H.E. (Ron) van Kemenade
Chief technology officer
M.A. (Marnix) Stiphout
Chief operations officer / Chief transformation
officer
Contents
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Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
ING Bank Annual Report 2021
172
Contents
Consolidated financial statements
Consolidated statement of financial position
174
Consolidated statement of profit or loss
175
Consolidated statement of comprehensive income
176
Consolidated statement of changes in equity
177
Consolidated statement of cash flows
180
Notes to the consolidated financial statements
1
Basis of preparation and accounting policies
182
Notes to the consolidated statement of financial position
2
Cash and balances with central banks
206
3
Loans and advances to banks
206
4
Financial assets at fair value through profit or loss
206
5
Financial assets at fair value through other comprehensive income
208
6
Securities at amortised cost
209
7
Loans and advances to customers
210
8
Investments in associates and joint ventures
211
9
Property and equipment
212
10
Intangible assets
213
11
Other assets
215
12
Deposits from banks
215
13
Customer deposits
215
14
Financial liabilities at fair value through profit or loss
216
15
Provisions
216
16
Other liabilities
217
17
Debt securities in issue
218
18
Subordinated loans
219
19
Equity
219
Notes to the consolidated statement of profit or loss
20
Net interest income
224
21
Net fee and commission income
225
22
Valuation results and net trading income
225
23
Investment income
226
24
Result on disposal of group companies
227
25
Net result on derecognition of financial assets
measured at amortised cost
227
26
Other income
227
27
Staff expenses
228
28
Other operating expenses
229
Notes to the consolidated statement of cashflows
29
Net cash flow from operating activities
230
30
Changes in liabilities arising from financing activities
231
31
Cash and cash equivalents
231
Segment reporting
32
Segments
232
33
Information on geographical areas
236
Contents
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ING Bank Annual Report 2021
173
Additional notes to the consolidated financial statements
34
Pension and other post-employment benefits
238
35
Taxation
241
36
Fair value of assets and liabilities
245
37
Derivatives and hedge accounting
256
38
Assets by contractual maturity
265
39
Liabilities and off-balance sheet commitments by maturity
267
40
Transfer of financial assets, assets pledged and received as
collateral
270
41
Offsetting financial assets and liabilities
271
42
Contingent liabilities and commitments
276
43
Legal proceedings
276
44
Consolidated companies and businesses acquired and divested
279
45
Principal subsidiaries
281
46
Structured entities
282
47
Related parties
284
48
Capital management
286
49
Subsequent events
288
Parent company financial statements
Parent company statement of financial position
290
Parent company statement of profit or loss
291
Parent company statement of changes in equity
292
Notes to the parent company financial statements
294
Other information
Independent auditor’s report
312
Articles of Association – Appropriation of results
319
Contents
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Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
ING Bank Annual Report 2021
174
Consolidated statement of financial position
As at 31 December
in EUR million
2021
2020
2021
2020
Assets
Liabilities
Cash and balances with central banks
2
106,520
111,087
Deposits from banks
12
85,092
78,098
Loans and advances to banks
3
23,591
25,363
Customer deposits
13
657,831
643,138
Financial assets at fair value through profit or loss
4
Financial liabilities at fair value through profit or loss
14
– Trading assets
51,389
51,361
– Trading liabilities
27,113
32,709
– Non-trading derivatives
1,536
3,583
– Non-trading derivatives
2,120
1,629
– Designated as at fair value through profit or loss
6,355
4,126
– Designated as at fair value through profit or loss
41,808
48,445
– Mandatorily at fair value through profit or loss
42,684
44,305
Current tax liabilities
271
341
Financial assets at fair value through other comprehensive income
5
30,635
35,895
Deferred tax liabilities
35
603
584
Securities at amortised cost
6
48,319
50,587
Provisions
15
973
666
Loans and advances to customers
7
627,550
598,306
Other liabilities
16
12,695
11,605
Investments in associates and joint ventures
8
1,587
1,475
Debt securities in issue
17
57,443
55,573
Property and equipment
9
2,515
2,841
Subordinated loans
18
16,719
15,897
Intangible assets
10
1,156
1,394
Total liabilities
902,668
888,683
Current tax assets
533
403
Deferred tax assets
35
957
773
Equity
19
Other assets
11
5,991
5,879
Share capital and share premium
17,067
17,067
Other reserves
1,069
2,334
Retained earnings
29,778
28,273
Shareholders’ equity (parent)
47,914
47,675
Non-controlling interests
736
1,022
Total equity
48,650
48,697
Total assets
951,317
937,379
Total liabilities and equity
951,317
937,379
References relate to the accompanying notes.
These are an integral part of the Consolidated
financial
statements.
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ING Bank Annual Report 2021
175
Consolidated statement of profit or loss
for the years ended 31 December
in EUR million
2021
2020
2019
2021
2020
2019
Continuing operations
Interest income using effective interest rate method
18,657
20,865
25,355
Addition to loan loss provisions
516
2,675
1,120
Other interest income
2,474
1,846
3,110
Staff expenses
27
5,938
5,817
5,753
Total interest income
21,131
22,711
28,465
Other operating expenses
28
5,257
5,344
4,590
Total expenses
11,711
13,835
11,463
Interest expense using effective interest rate method
-5,550
-7,507
-11,305
Other interest expense
-1,966
-1,603
-3,085
Result before tax
6,774
3,810
6,831
Total interest expense
-7,516
-9,110
-14,391
Taxation
35
1,876
1,317
1,889
Net interest income
20
13,615
13,600
14,074
Net result
4,898
2,493
4,942
Fee and commission income
5,004
4,514
4,439
Net result (before non-controlling interests)
4,898
2,493
4,942
Fee and commission expense
-1,487
-1,503
-1,571
Net result attributable to Non-controlling interests
128
78
99
Net fee and commission income
21
3,517
3,011
2,868
Net result attributable to Shareholder of the parent
4,770
2,415
4,843
Valuation results and net trading income
22
847
852
765
Dividend per ordinary share
6.72
0.09
6.06
Investment income
23
167
152
188
Total amount of dividend paid (in million euros)
3,125
43
2,819
Share of result from associates and joint ventures
8
141
66
64
Impairment of associates and joint ventures
8
-3
-235
-34
Result on disposal of group companies
24
-29
-3
117
Net result on derecognition of financial assets measured at amortised cost
25
-0
189
38
Other income
26
230
12
213
Total income
18,485
17,645
18,295
References relate to the accompanying notes.
These are an integral part of the Consolidated
financial
statements.
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ING Bank Annual Report 2021
176
Consolidated statement of comprehensive income
for the years ended 31 December
in EUR million
2021
2020
2019
Net result (before non-controlling interests)
4,898
2,493
4,942
Other comprehensive income
Items that will not be reclassified to the statement of profit or loss:
Realised and unrealised revaluations property in own use
-2
-7
60
Remeasurement of the net defined benefit asset/liability
34
95
28
58
Net change in fair value of equity instruments at fair value through other
comprehensive income
96
-335
139
Change in fair value of own credit risk of financial liabilities at fair value through profit
or loss
37
-19
-116
Items that may subsequently be reclassified to the statement of profit or loss:
Net change in fair value of debt instruments at fair value through other
comprehensive income
-178
36
-32
Realised gains/losses on debt instruments at fair value through other comprehensive
income reclassified to the statement of profit or loss
-42
-34
-34
Changes in cash flow hedge reserve
-1,955
355
640
Exchange rate differences
143
-1,620
-5
Share of other comprehensive income of associates and joint ventures and other
income
-3
7
Total comprehensive income
3,089
904
5,651
Comprehensive income attributable to:
Non-controlling interests
-247
133
142
Shareholders of the parent
3,336
770
5,509
3,089
904
5,651
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 35 ‘Taxation’.
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ING Bank Annual Report 2021
177
Consolidated statement of changes in equity
in EUR million
Share capital
and share
premium
Other
reserves
Retained
earnings
Shareholders'
equity
(parent)
Non-
controlling
interests
Total
equity
Balance as at 31 December 2020
17,067
2,334
28,273
47,675
1,022
48,697
Net change in fair value of equity instruments at fair value through other comprehensive income
101
-6
94
2
96
Net change in fair value of debt instruments at fair value through other comprehensive income
-164
-164
-13
-178
Realised gains/losses on debt instruments at fair value through other comprehensive income reclassified to the statement of profit or loss
-40
-40
-1
-42
Changes in cash flow hedge reserve
-1,603
-1,603
-352
-1,955
Realised and unrealised revaluations property in own use
-13
11
-2
-0
-2
Remeasurement of the net defined benefit asset/liability
34
95
95
95
Exchange rate differences and other
153
153
-10
143
Share of other comprehensive income of associates and joint ventures and other income
-21
18
-3
-3
Change in fair value of own credit risk of financial liabilities at fair value through profit or loss
37
37
37
Total amount recognised directly in other comprehensive income net of tax
-1,456
23
-1,433
-375
-1,809
Net result
191
4,579
4,770
128
4,898
Total comprehensive income net of tax
-1,265
4,601
3,336
-247
3,089
Dividends
-3,125
-3,125
-40
-3,165
Employee stock option and share plans
28
28
0
28
Changes in the composition of the group and other changes
-0
-0
Balance as at 31 December 2021
17,067
1,069
29,778
47,914
736
48,650
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 19 ‘Equity’.
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Consolidated financial statements
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ING Bank Annual Report 2021
178
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 2019
17,067
4,000
25,857
46,924
893
47,817
Net change in fair value of equity instruments at fair value through other comprehensive income
-399
62
-337
2
-335
Net change in fair value of debt instruments at fair value through other comprehensive income
31
31
5
36
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
242
242
112
355
Realised and unrealised revaluations property in own use
-33
26
-7
-0
-7
Remeasurement of the net defined benefit asset/liability
34
28
28
28
Exchange rate differences and other
-1,557
-1,557
-63
-1,620
Share of other comprehensive income of associates and joint ventures and other income
-37
44
7
7
Change in fair value of own credit risk of financial liabilities at fair value through profit or loss
-3
-16
-19
-19
Total amount recognised directly in other comprehensive income net of tax
-1,760
115
-1,644
55
-1,589
Net result
94
2,321
2,415
78
2,493
Total comprehensive income net of tax
-1,666
2,436
770
133
904
Dividends
-43
-43
-3
-46
Employee stock option and share plans
23
23
0
23
Changes in the composition of the group and other changes
-1
-1
Balance as at 31 December 2020
17,067
2,334
28,273
47,675
1,022
48,697
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 19 ‘Equity’.
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ING Bank Annual Report 2021
179
Consolidated statement of changes in equity - continued
in EUR million
Share capital
and share
premium
Other
reserves
Retained
earnings
Shareholders'
equity
(parent)
Non-
controlling
interests
Total
equity
Balance as at 31 December 2018
17,067
3,504
23,602
44,173
803
44,976
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
-33
-33
1
-32
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
51
9
60
-0
60
Remeasurement of the net defined benefit asset/liability
34
58
58
58
Exchange rate differences and other
-11
-11
7
-5
Share of other comprehensive income of associates and joint ventures and other income
137
-137
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
316
350
666
44
709
Net result
180
4,663
4,843
99
4,942
Total comprehensive income net of tax
496
5,013
5,509
142
5,651
Dividends
-2,819
-2,819
-29
-2,848
Employee stock option and share plans
39
39
0
39
Changes in the composition of the group and other changes
22
22
-23
-1
Balance as at 31 December 2019
17,067
4,000
25,857
46,924
893
47,817
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 19 ‘Equity’.
Contents
Introduction
Report of
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180
Consolidated statement of cash flows
for the years ended 31 December
in EUR million
2021
2020
2019
2021
2020
2019
Cash flows from operating activities
29
Disposals and redemptions:
– Associates and joint ventures
57
24
60
Result before tax
6,774
3,810
6,831
– Disposal of subsidiaries, net of cash disposed
27
-3
Adjusted for:
– Depreciation and amortisation
834
829
789
- Financial assets at fair value through other
comprehensive income
17,750
14,571
13,390
– Addition to loan loss provisions
516
2,675
1,120
- Securities at amortised cost
46,933
31,918
13,001
– Other non-cash items in Result before tax
413
1,259
64
– Property and equipment
39
75
81
Taxation paid
-1,871
-1,735
-2,369
– Loans sold
744
Changes in:
–
Net change in Loans and advances to/from banks,
not available/payable on demand
8,700
53,076
-3,909
– Other investments
0
12
34
–
Net change in Trading assets and Trading liabilities
-5,624
2,571
-2,567
Net cash flow from/(used in) investing activities
6,220
-8,487
-2,681
–
Loans and advances to customers
-27,772
2,888
-16,696
–
Customer deposits
18,339
40,576
24,828
Cash flows from financing activities
30
–
Other
29
-8,179
-2,770
11,463
Proceeds from debt securities
77,298
63,269
84,641
Net cash flow from/(used in) operating activities
-7,869
103,179
19,553
Repayments of debt securities
-76,150
-99,212
-94,497
Proceeds from issuance of subordinated loans
3,169
2,138
3,440
Cash flows from investing activities
Repayments of subordinated loans
-2,538
-2,608
-931
Investments and advances:
- Acquisition of subsidiaries, net of cash acquired
-17
Repayments of principal portion of lease liabilities
-301
-273
-271
- Associates and joint ventures
-91
-24
-686
Dividends paid
-3,165
-46
-2,848
- Financial assets at fair value through other
comprehensive income
-13,186
-16,949
-16,270
Net cash flow from/(used in) financing activities
-1,686
-36,732
-10,465
- Securities at amortised cost
-44,945
-37,522
-12,268
– Property and equipment
-184
-287
-355
Net cash flow
-3,335
57,960
6,406
– Other investments
-179
-300
-395
Cash and cash equivalents at beginning of year
31
111,565
54,029
47,528
Effect of exchange rate changes on cash and cash equivalents
-565
-425
95
Cash and cash equivalents at end of year
31
107,664
111,565
54,029
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Consolidated statement of cash flows - continued
As at 31 December 2021, Cash and cash
equivalents includes cash and balances with
central banks of
EUR
106,520
million (2020: EUR
111,087
million; 2019: EUR
53,202
million).
In 2020 the increase was mainly driven by
ING’s participation of EUR
59.5
billion in the targeted longer-
term refinancing operations (TLTRO III) in
2020, which were mainly placed on deposit
with the ECB as at
31 December 2020, and by increased customer
deposits. Reference is made to Note 31 ‘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.
in EUR million
2021
2020
2019
Interest received
21,515
23,365
28,968
Interest paid
-8,723
-9,690
-14,594
12,792
13,675
14,374
Dividend received
1
172
144
212
Dividend paid
-3,165
-46
-2,848
1
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.
Dividends received from associates and joint
ventures are included in investing activities,
interest
received, interest paid and other dividends
received are included in operating activities
and dividend
paid is included in financing activities in the
Consolidated statement of cash flows.
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Notes to the Consolidated financial statements
1
Basis of preparation and
significant accounting policies
1.1 Reporting entity and authorisation of the Consolidated financial statements
ING Bank N.V.
(
Naamloze vennootschap
) is a company domiciled in
Amsterdam, the Netherlands
.
Commercial Register of
Amsterdam
, number 33031431. ING Bank N.V.
is a wholly-owned subsidiary
of
ING Groep N.V.
domiciled in Amsterdam, the Netherlands.
These Consolidated financial
statements, as at and for the year ended
31 December 2021, comprise ING Bank N.V.
(the Parent
company) and its subsidiaries, together referred
to as ING Bank.
ING Bank 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
.
The ING Bank Consolidated financial statements,
as at and for the year ended 31 December
2021,
were authorised for issue in accordance with
a resolution of the Management Board Banking
on 7
March 2022. The General Meeting of
Shareholder may decide not to adopt
the financial statements,
but may not amend these.
1.2 Basis of preparation of the Consolidated financial statements
The ING Bank Consolidated financial statements
have been prepared in accordance with
International Financial Reporting Standards
(IFRS) as adopted by the European
Union (EU) and the
relevant articles of Part 9 of Book 2 of the
Dutch Civil Code.
IFRS as adopted by the EU are IFRS Standards
and IFRS Interpretations as issued by the
International Accounting Standards
Board (IASB) and the IFRS Interpretations Committee
(IFRIC) with
some limited modifications such as the temporary
‘carve-out’ from IAS 39 ‘Financial
Instruments: Recognition and Measurement’
(herein, referred to as IFRS).
Under the EU carve-out, ING Bank applies
fair value hedge accounting to portfolio
hedges of interest
rate risk (macro hedging). For further information,
reference is made to paragraph 1.6.4
‘Derivatives and hedge accounting’ of this note
and to note 37 ‘Derivatives and hedge accounting’.
The ING Bank Consolidated financial statements
have been prepared on a going concern
basis and
there are no significant doubts about the ability
of ING Bank to continue as a going concern.
In 2021
ING Bank’s capital and liquidity position remained
strong despite the Covid-19 impact and
ING Bank
has sufficient buffers to withstand certain
adverse scenarios without breaching currently
applicable
and likely future requirements. Strong
capital position allowed ING Bank to pay
a cash dividend to the
shareholder during 2021. Reference is made
to Note 19 ‘Equity’.
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.
1.2.1 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
‘Financial instruments: Disclosures’ are
included in the ‘Risk management’ section
of the Annual
Report.
These disclosures are an integral part of
ING Bank 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 Impact of Covid-19
In 2021, the Covid-19 pandemic continued
to have an impact on people, businesses
and the
economy. While vaccination rates continued
to increase and Covid-19 related restrictions
were lifted
in some jurisdictions in the first part of 2021,
the end of 2021 was again marked by
new waves of
infections, supply chain disruptions, rising
energy prices and increasing inflation
impacting
companies and consumers. In many countries,
governments have adopted economic
support
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programs. In addition, various initiatives
have been taken by ING to support our
clients to manage
these extraordinary times by way of granting,
amongst others, temporary payment holidays.
Governments in almost all Retail Banking
countries have adopted measures providing for
payment
holidays. During 2020 and 2021, in line with the
EBA moratoria guidelines, approximately
137
thousand customers had been granted payment
holidays under schemes that were
eligible under
the EBA moratoria guidelines. The total
exposure of loans for which a payment
holiday was granted
amounts to EUR 15.3 billion of which over
57% were for customers located in the Netherlands
and
Belgium. At the end of 2021, 99.8% of granted
payment holidays had expired.
As government support measures will, or have
already ended, and Covid-19 remains a
threat as was
evidenced with the emergence of the omicron
variant at the end of 2021, Covid-19 is still
bringing
uncertainties and risks.
Certain sector were particularly impacted
by the Covid-19 pandemic. An economic
sector-based
adjustments of EUR 341 million was taken
in December 2021 because of delays in
defaults occurring
in the Covid-19 related crisis, mainly as
a result of government support programmes,
while GDP
growth forecasts as well as unemployment
rates and house prices improved
over 2021 and which
triggered releases of the model based provisions.
For further information on payments holidays
and management adjustments applied, reference
is
made to the ‘Credit risk’ paragraph of the
‘Risk management’ section.
As a result of the economic effects of Covid-19
estimation uncertainty and level of management
judgement remains at an elevated level
in 2021 compared to before the Covid-19
pandemic,
particularly in the estimation of loan loss provisions
(including the need for management
adjustments) and impairment assessment of
an investment in an associate,. Reference
is made to
paragraph
1.5 ‘Significant judgements and critical accounting
estimates and assumptions’ for further
explanation.
1.4 Changes to accounting policies and presentation
ING Bank has consistently applied its accounting
policies to all periods presented in these
Consolidated financial statements.
In 2021, in note 21 ‘Net fee and commission
income’, ING Bank changed the presentation
of net fee
and commission income to better align with
internal management and monitoring.
Comparative
figures for 2020 and 2019 have been updated
accordingly.
1.4.1 Changes in IFRS effective in 2021
The following amended standards became
effective in 2021:
◾
Amendments to IFRS 9 ‘Financial Instruments’,
IAS 39 ‘Financial Instruments: Recognition
and
Measurement’, IFRS 16 ‘Leases’, IFRS 4 ‘Insurance
Contracts’ and IFRS 7 ‘Financial Instruments:
Disclosures’: ‘IBOR Reform and its Effects
on Financial Reporting – Phase 2’ (issued in
August
2020);
◾
Amendments to IFRS 16 ‘Leases’: ‘Covid-19-Related
Rent Concessions’ (issued in May 2020).
The IBOR Reform – Phase 2 amendments relate
mainly to accounting for changes in the basis
for
determining the contractual cash flows of
financial assets and liabilities due to the IBOR
reform and
impact on hedge accounting when an existing
benchmark rate is reformed or replaced with
an
alternative risk free rate. Specifically, Phase
2 amendments require that the effective
interest rate on
debt financial instruments is adjusted, and hedge
accounting continues on transition to
risk free
rates, but only to the extent that the modifications
made to financial instruments are those
necessary to implement the IBOR Reform and
that the new basis for calculating
cash flows is
‘economically equivalent’ to the previous basis.
By applying these mandatory amendments,
ING
Bank avoids recognising modification
gains and losses on debt instruments
that would otherwise be
required in the absence of Phase 2 amendments
(changes to debt instruments resulting from
IBOR
Reform are treated as a reset to the instrument’s
variable interest rate). In addition, ING
Bank avoids
hedge accounting discontinuations when
modifying both hedged items and hedging
instruments
(and related hedge documentation) as a
consequence of IBOR reform that would otherwise
be
required in the absence of Phase 2 amendments.
Refer to ‘Risk Management’ section – ‘Market
Risk’
for more details.
Although ING Bank has significant exposures
to IBORs, the transition to the new
risk free rates did not
have a material impact in 2021 partially
due to the IBOR amendments to IFRS
9 and IAS 39 as
described above.
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The amendments to IFRS 16 ‘Leases’ provide
lessees with an exemption from assessing
whether a
Covid-19-related rent concession is a lease
modification. As ING Bank did not receive
rent
concessions as a lessee, these amendments
had no impact on the accounting policies
of ING Bank.
ING Bank has not early adopted any standard,
interpretation or amendment in 2021 which
has been
issued, but is not yet effective.
1.4.2 Upcoming changes in IFRS after 2021
The following published amendments are not
mandatory for 2021 and have not been
early adopted
by ING Bank. ING Bank 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 Bank’s
Consolidated financial statements.
Effective in 2022:
◾
Amendments to IFRS 3 ‘Business Combinations’:
Reference to the Conceptual Framework (issued
in May 2020).
◾
Amendments to IAS 16 ‘Property, Plant and
Equipment’: Proceeds before Intended
Use (issued in
May 2020).
◾
Amendments to IAS 37 ‘Provisions, Contingent
Liabilities and Contingent Assets’:
Onerous
Contracts — Cost of Fulfilling a Contract (issued
in May 2020).
◾
Annual improvements to IFRS Standards
2018-2020 Cycle: Amendments to IFRS
1 ‘First-time
Adoption of International Financial Reporting
Standards’, amendments to IFRS 9 ‘Financial
Instruments’ and amendments to IFRS 16 ‘Leases’
(issued in May 2020).
Effective in 2023:
◾
Amendments to IAS 1 ‘Presentation of Financial
Statements’: Classification of Liabilities as
Current or Non-current (issued in January
2020).
◾
Amendments to IAS 1 ‘Presentation of
Financial Statements’: Disclosure of Accounting
Policies
(issued in February 2021).
◾
Amendments to IAS 8 ‘Accounting Policies,
Changes in Accounting Estimates and
Errors’:
Definition of Accounting Estimates (issued
in February 2021).
◾
Amendments to IAS 12 ‘Income Taxes’: Deferred
Tax Related to Assets and Liabilities
Arising From
a Single Transaction (issued in May 2021).
IFRS 17 ‘Insurance contracts’
– effective in 2023
In May 2017, the IASB issued IFRS 17 ‘Insurance
Contracts’, a new accounting standard for insurance
contracts covering recognition and measurement,
presentation and disclosure. Once effective,
IFRS
17 will replace IFRS 4 ‘Insurance Contracts’,
which allowed diversity in accounting practices
for
insurance contracts. In June 2020, the IASB published
amendments to IFRS 17 including a scope
exclusion for credit card contracts and similar
contracts that provide insurance coverage,
and an
optional scope exclusion for loans with
death waivers. ING Bank does not have insurance
business,
but mainly sells insurance products as
a broker where it does not run the insurance
risk.
ING Bank is
currently assessing the detailed impact of
adopting this Standard.
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 Bank 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:
◾
Loan loss provisions (financial assets);
◾
The determination of the fair values of financial
assets and liabilities;
◾
Impairment assessment of an investment in
associate;
◾
Provisions; and
◾
Accounting for Targeted Longer-Term
Refinancing Operations (TLTRO).
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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’
(specifically 1.6.8 ‘Impairment of financial
assets’, 1.6.3 for ‘Fair values of financial
assets and liabilities’,
1.10 ‘Investments in associates and joint
ventures’, 1.16 ‘Provisions, contingent
liabilities and contingent assets’ and 1.6.9
‘Accounting for Targeted Longer-Term Refinancing
Operations (TLTRO)’)
of this note and the applicable notes to the
Consolidated financial statements.
1.6 Financial instruments
1.6.1 Recognition and derecognition of financial instruments
Recognition of financial assets
Financial assets are recognised in the balance
sheet when ING Bank 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 Bank has transferred
the rights to receive the cash flows from
the
financial asset or assumed an obligation to
pass on the cash flows and has transferred
substantially
all the risks and rewards of the asset. If
ING Bank 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.
1.6.2 Classification and measurement of financial instruments
Financial assets
ING Bank 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 Bank 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
Bank’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
consideration
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.
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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 Bank 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.
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 Bank 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 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 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
Bank 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 Bank reclassifies debt instruments if,
and only if, its business model for managing
those financial
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 Bank applies the fair value through
OCI option
to investments which are considered strategic,
consisting of investments that add value
to ING
Bank’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. However,
the
cumulative gain or loss is transferred within
equity to retained earnings on derecognition
of such
equity instruments. Dividends from such investments
continue to be recognised in profit or loss
as
Investment income when ING Bank’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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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 Bank 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 ‘Financial instruments’ (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 ‘Revenue
from contracts with customers’.
1.6.3 Fair values of financial assets and liabilities
All financial assets and liabilities are recognised
initially at fair value. The fair value of a
financial
instrument on initial recognition is generally
its transaction price (that is, the fair value
of the
consideration given or received). However,
if there is a material difference between
the transaction
price and the fair value of financial instruments
whose fair value is based on a valuation
technique
using significant unobservable inputs, the
entire day one difference (a ‘Day One profit
or loss’) is
deferred. ING Bank defers the Day One profit
or loss relating to financial instruments
classified as
Level 3 and financial instruments with material
unobservable inputs into CVA which are
not
necessarily classified as Level 3. The deferred
Day One profit or loss is recognised in the
statement of
profit or loss over the life of the transaction
until the transaction matures or until the
observability
improves. In all other cases, ING Bank recognises
the difference as a gain or loss at inception.
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 Bank 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 Bank
applies both Credit and Debit Valuation
Adjustments
(CVA, DVA, also known as Bilateral Valuation
Adjustments or BVA). Own issued debt
and structured
notes that are designated at FVPL are adjusted
for ING Bank’s own credit risk by means
of a DVA.
Additionally, derivatives valued at fair value
are adjusted for credit risk by a BVA. The
BVA is of a
bilateral nature as both the credit risk on the
counterparty (CVA) as well as the credit risk
on ING
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Bank (DVA) are included in the adjustment.
All input data that is used in the determination
of the
BVA 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 counterparty
improves) are
taken into account in the measurement
of the valuation adjustment.
To include the funding risk, ING Bank applies
an additional ‘Funding Valuation Adjustment’
(FVA) to
the uncollateralised derivatives based
on the market price of funding liquidity.
ING Bank also applies to certain positions
other valuation adjustments to arrive
at the fair value: Bid-
Offer adjustments, Model Risk Adjustments
and Collateral Valuation Adjustments
(CollVA).
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 minimise the potential
risks of economic losses due to incorrect
or
misused models.
Assessing whether a market is active, and
whether an input is observable and significant,
requires
judgement. ING Bank categorises 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 observability and significance
of the valuation inputs. The use of different
approaches
to assess whether a market is active, whether
an input is observable, and whether an
unobservable
input is significant could produce different
classification within the fair value hierarchy
as well as
potentially different deferral of the Day
One profit or loss.
Reference is made to note 36 ‘Fair value
of assets and liabilities’ and to the ‘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 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 Bank’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;
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. ING Bank
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
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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
Bank documents the relationship between hedging
instruments and hedged items, its risk
management objective, together with
the methods selected
to assess hedge effectiveness. ING Bank
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 Bank 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
in the
Other Comprehensive Income are included
in the statement of profit or loss when the
foreign
operation is disposed.
IBOR Transition - specific policies applicable from 1 January 2019 for hedges directly
affected by IBOR reform
As further explained in the ‘IBOR Transition’
paragraph of the ‘Risk management’
section,
the
financial markets are going through a significant
reform of interbank offered rates (IBOR)
and
financial institutions are obligated to implement
a replacement of major interest rate reference
rates.
Given that IBOR reform may have various
accounting implications, the International
Accounting
Standards Board (IASB) has undertaken a two
phase project. Phase 1 addresses
those issues that
affect financial reporting before the replacement
of an existing benchmark (Phase 1
amendments to
IFRS were issued by the IASB in 2019). Phase
2 focuses on issues that may affect financial
reporting
when the existing benchmark rate is reformed
or replaced.
Phase 2 amendments to IFRS were issued
by the IASB in 2020.
In 2019, ING Bank early adopted the Phase
1 amendments to IFRS which allowed ING
Bank to apply a
set of temporary exceptions to continue hedge
accounting even when there is uncertainty
about
contractual cash flows arising from the reform.
Under these temporary exceptions, interbank
offered
rates are assumed to continue unaltered
for the purposes of hedge accounting
until such time as the
uncertainty is resolved.
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More specifically, the following temporary
reliefs are part of the Phase 1 amendments:
◾
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 Bank hedges and applies hedge
accounting to
benchmark interest rate exposure part of IBOR
reform. ING Bank hedges are being progressively
amended, where necessary, to incorporate the
new benchmark rates. During 2021, ING transitioned
significant portions of its financial instruments
(designated in hedge accounting relationships)
linked
to benchmarks ceasing in 2021. In the
coming year, ING Bank will shift the focus to USD
LIBOR
contracts (USD LIBOR tenors will continue to
be published until the end of June 2023).
As at 31 December 2021, ING Bank still maintains
hedging instruments and hedged items
indexed by
the IBOR benchmark rates (mainly, USD LIBOR).
Therefore, although the path for IBOR transition
is
well progressed (including the timeline of IBOR
cessation and for some contracts the replacement
rate and spread adjustment), some uncertainties
still remain in 2021 over the timing
and the
amount of the replacement rate cash flows
and, thus, temporary exceptions
under Phase 1
continued to be relevant for ING Bank as
at 31 December 2021. ING Bank will completely
cease to
apply the amendments when this uncertainty
is no longer present or when the
hedging relationship
is discontinued. Refer to note 37 ‘Derivatives
and hedge accounting’ for the disclosures
relating to the
application of the amendments as part of
Phase 1. Refer to note Risk management/
IBOR Transition
for more information regarding the end
of Phase 1 reliefs for ING Bank’s hedging
relationships
In 2021 Phase 2 amendments became effective
for ING Bank. For hedge accounting, Phase
2
amendments require that hedge accounting
continues on transition to risk free rates
provided that
the modifications made to financial instruments
are those necessary to implement the IBOR
Reform
and that the new basis for calculating cash
flows is ‘economically equivalent’
to the previous basis.
Particularly,
Phase 2 amendments allow the continuation
of hedging relationships, subject to
amending their documentation to reflect
changes in hedged instruments, hedging
instruments,
hedged risk, and/or the method for measuring
effectiveness during the transition to the
new
benchmark rates.
More specifically, the following temporary
reliefs are part of the Phase 2 amendments:
◾
Relief from discontinuing hedging relationships
◾
Amendments in the hedge documentation
as a consequence of changes required by
the
IBOR reform do not result in the discontinuation
of the hedge relationship nor the
designation of a new hedge relationship.
The changes can be in form of designating
an
alternative benchmark rate as a hedged risk,
the description of the hedging instrument,
the
description of the hedged item, or the method
to measure the effectiveness.
◾
When the hedged item is amended as a
consequence of the IBOR reform (or if the
hedge
has previously been discontinued), amounts
accumulated in the cash flow hedge
reserve
are deemed to be based on the RFR. This results
in the release of the cash flow hedge
reserve to profit or loss in the same period
or periods in which the hedged cash flows that
are now based on the RFR affect profit or
loss.
◾
When the items within a designated group
of hedged items are amended as a consequence
of the IBOR reform, the hedging strategy remains
and is not discontinued. As items within
the hedged group transition at different times
from IBORs to RFRs, they are transferred to
sub-groups of instruments that reference
RFRs as the hedged risk. The existing IBORs
remain designated as the hedged risk for
the other sub-group of hedged items,
until they
are also updated to reference the new RFR. The
usual hedge accounting requirements are
applied to the hedge relationship in its entirety.
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◾
For the assessment of retrospective hedge
effectiveness, the cumulative fair value changes
may
be reset to zero when the exception to the
retrospective assessment of the Phase
1 reliefs ends.
This election is made separately for each hedging
relationship (i.e., on a hedge-by-hedge
basis).
◾
Temporary relief from having to meet the
separately identifiable requirement: a
RFR is
considered a separately identifiable risk
component if it is reasonably expected to
meet the
separately identifiable requirement within
24 months from the date it is first
designated as a
non-contractually specified risk component
(i.e. when the entity first designates the
RFR as a
non-contractually specified risk component).
This relief applies to each RFR on
a rate-by-rate
basis.
Reference is made to paragraph 1.4.1 ‘Changes
in IFRS effective in 2021’ of this note.
Non-trading derivatives that do not qualify for hedge accounting
Derivative instruments that are used by
ING Bank as part of its risk management
strategies, but
which do not qualify for hedge accounting
under ING Bank’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.
1.6.5 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 ING Bank 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.
1.6.6 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 of
the agreement using the effective interest method
for instruments that are not measured at
FVPL.
1.6.7 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. Reference is
made to Note 42
‘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 Bank 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.
1.6.8
Impairment of financial assets
An Expected Credit Loss (ECL) model is applied
to financial assets accounted for
at AC or FVOCI such
as loans, debt securities and lease receivables,
as well as off-balance sheet items such as undrawn
loan commitments, certain financial guarantees
issued, and undrawn committed revolving
credit
facilities. Under the ECL model ING Bank calculates
the expected credit losses (ECL) by
considering on
a discounted basis the cash shortfall it would
incur in case of a default and multiplying
the shortfall
by the probability of a default occurring.
The ECL is the sum of the probability-weighted
outcomes.
The ECL estimates are unbiased and include
reasonable and supportable information
about past
events, current conditions, and forecasts of
future economic conditions. ING Bank’s
approach
leverages the Advanced Internal Ratings
Based (AIRB) models that are used for regulatory
purposes.
Adjustments are applied to make these
models suitable for determining ECL.
ECL is recognised on
the balance sheet as loan loss provisions (LLP).
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Three stage approach
Financial assets are classified in one of the below
three 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
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 ECL is
determined by the probability that a default
occurs in the next 12 months (12 months
ECL);
◾
Stage 2
Financial assets showing a significant
increase in credit risk since initial recognition.
For assets
in Stage 2 ECL reflects an estimate on the
credit losses over the remaining maturity
of the
asset (lifetime ECL); or
◾
Stage 3
Financial assets that are credit-impaired.
Also for these assets ECL is determined over
the
remaining maturity of the asset.
Significant increase in credit risk
ING Bank 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
Stage for each financial asset.
The main determinate of SICR is a quantitative
test, whereby the lifetime Probability
of Default (PD)
of an asset at each reporting date is compared
against its lifetime PD determined at the
date of
initial recognition. If the delta is above pre-defined
absolute or relative thresholds the item is
considered to have experienced a SICR. Consequently,
the item moves from Stage 1 to
Stage 2
(unless the item is credit-impaired). In these
instances, items are no longer assigned
a 12 month ECL
and instead are assigned a lifetime ECL.
Items can return to Stage 1 if there is
sufficient evidence
that there is no longer a significant increase
in credit risk. Refer to ‘Criteria for
identifying a significant
increase in credit risk’ in the ‘Risk Management’
section of the Annual Report for more
details on
relative and absolute PD thresholds, including
quantitative disclosures on those thresholds.
ING Bank also 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 (including 30 days past due
used as a backstop).
An asset that is in Stage 2 will move back
to Stage 1 when none of the above criteria
are in place
anymore. However, if the asset was moved
to Stage 2 based on the forbearance status,
then the
asset stays in Stage 2 for at least 24 months.
If the asset was classified as Stage 2
due to 30 days
past due trigger, then the asset is moved back
to Stage 1 only after three months
from when the
trigger no longer applies.
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.
The
definition of credit-impaired under IFRS 9
(Stage 3) is aligned with the definition
of default used by
ING Bank for internal risk management purposes,
which is also the definition used for regulatory
purposes.
An asset (other than a POCI 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 subject to certain probation
periods.
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.
Macroeconomic scenarios
ING Bank has established a quarterly process
whereby forward-looking macroeconomics
scenarios
and probability weightings are developed for
the purpose of ECL. ING Bank applies
data
predominantly from a leading service provider
(Oxford Economics (OE))
enriched with the internal
ING Bank 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 Bank applies
the market-neutral
view combining consensus forecasts for economic
variables such as unemployment rates, GDP
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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 Bank applies a collective assessment method
to measure ECL for Stage 1, Stage 2,
and certain
Stage 3 assets. Other credit-impaired assets subject
to ECL measurement apply the individual
assessment method.
Collectively assessed assets (Stages 1 to 3)
For collective assessed assets, ING Bank applies
a model-based approach. ECL is determined
by,
expressed simplistically, multiplying the probability
of default (PD) with the loss given default
(LGD)
and exposure at default (EAD), 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 and the loss in case
the debtor is not able to pay all amounts
due.
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.
For the purpose of ECL, ING Bank’s expected
credit loss models (PD, LGD, EAD) used for
regulatory
purposes have been adjusted. These adjustments
include removing embedded prudential
conservatism (such as floors) and converted
through-the-cycle estimates to point-in-time
estimates.
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.
Individually assessed assets (Stage 3)
ING Bank estimates ECL for individually significant
credit-impaired financial assets within Stage
3 on
an individual basis. ECL for these Individually
assessed assets are determined 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 include
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 taking into account ING Bank’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 arise from, among others, repayment
of the loan, collateral recovery and the sale
of the asset. Cash flows from collateral
and other credit
enhancements are included in the measurement
of ECL 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 asset-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 is no longer recognised based
on the accrual
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 ECL 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.
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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 Bank grants borrowers
postponement, reduction of loan principal
and/or interest payments on a temporary period
of time to maximise collection opportunities,
and if
possible, avoid default, foreclosure, or repossession.
When such postponement, 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,
reduction of loan principal and/or interest
payments is taken into account in the
determination of the appropriate level
of ECL. 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 fair value at the modification date. ING
Bank
determines whether there has been a substantial
modification using both quantitative and
qualitative factors.
Write-off and debt forgiveness
Loans and debt securities are written off
(either partially or in full) when there
is no reasonable
expectation of recovery and/or collectability
of amounts due. 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;
◾
Specific fraud cases with no recourse options.
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 ‘Addition to loan
loss provisions’ in the
Consolidated 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 Bank 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 Bank ends the relationship with the
client and situations where ING Bank (partially)
continues the financing of the client.
Presentation of ECL
ECL for financial assets measured at AC are
deducted from the gross carrying amount
of the assets.
For debt instruments at FVOCI, the ECL is
recognised in OCI, instead of deducted the
carrying amount
of the asset. 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 ECL 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 ECL for financial
assets assessed on both a collective and
an individual
basis. The need for management judgement
has increased even further due to the
Covid-19 pandemic. In particular, this judgement
requires ING
Bank to make various assumptions about the
risk of default, the credit loss rates in
case of a default
and expected future cash flows. These assumptions
are based on a combination of ING Bank’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 ECL over time. Given
they are
subjective and complex in nature, and because
the ECL and the underlying exposures
subject to ECL
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 use of forward-looking macroeconomic scenarios
in both collective and individual impairment
assessments
Forward-looking macroeconomic scenarios
are uncertain in nature. The process ING Bank
follows
involves two internal groups, the Macroeconomics
Scenarios Team and the Macroeconomics
Scenarios Expert Panel. The latter team consists
of senior management representatives from the
Business, Risk and Finance. These groups review
inputs obtained from a third party provider
and
subject these to internal expert challenge
to ensure the inputs used in the models
reflect ING Bank’s
view on the macro economy. The use
of alternate forward-looking macroeconomic
scenarios can
produce significantly different estimates of ECL.
This is demonstrated in the sensitivity
analysis in the
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‘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
ING Bank uses three macroeconomic scenarios
when determining IFRS 9 ECL (baseline,
upside and
downside). Management judgement is applied
in the design of the approach used to
determine the
weights of each scenario and in selecting the
parts of the distribution of forecast errors
from which
the weights are derived. Reference is made
to the ‘Alternative scenarios and
probability weights’ and
the sensitivity analysis in the ‘Risk Management’
section of the Annual Report for further
details.
The criteria for identifying
a significant increase in credit risk
When determining whether the credit risk
on a financial asset has increased significantly,
ING Bank
considers reasonable and supportable information
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 a PD rating
to each financial asset, there is significant
judgement
used in 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
in assigning financial asset PDs and the 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 that
larger exposures are credit-impaired. Management
judgement is required in assessing evidence
of
credit-impairment.
Management adjustments applied as at 31
December 2021
As Covid-19 continues to bring uncertainties,
management adjustments to the model-based
ECL
were still necessary as at 31 December 2021,
although they decreased compared to
2020. The
Covid-19 related management adjustments
comprised EUR 373 million as at 31 December
2021 (31
December 2020: EUR 638 million) consisting
of economic sector-based and payment
holidays
management adjustments. Reference is made
to the ‘Management adjustments applied this
year’
paragraph in the ‘Risk management’ section
of the Annual Report.
1.6.9
Accounting for Targeted Longer-Term Refinancing Operations (TLTRO)
ING Bank participates
in Targeted Longer-Term Refinancing
Operations (TLTRO III), reference is made
to Note 12 ‘Deposits from banks’.
ING Bank considers TLTRO funding provided
by the ECB to banks to be on market
terms on the basis
that the ECB has established a separate
market with TLTRO programmes. They
have specific terms
which are different from other sources
of funding available to banks, including
those provided by the
ECB. Consequently, the rate under TLTRO
is considered to be a market conforming
rate and TLTRO
funding is recognized fully as a financial
liability.
ING Bank interprets the whole rate set by the
ECB under TLTRO as a floating rate on the
financial
liability, being the market rate for each
specific period in time. This results in
discrete rates for
discrete interest periods over the life of TLTRO.
The change in the applicable rate between
interest
periods is seen as a change in the floating rate
and is accounted for prospectively. Similarly,
if the
ECB announces changes in the rate for
the amounts already drawn under the
existing TLTRO, then
such changes also represent a change in a floating
rate. Following this, such changes lead to
the
recognition of an increased interest in the relevant
period of life of the exposure, rather than
by the
recognition of an immediate modification
gain or loss at the moment of the
change of terms by the
ECB.
Furthermore, the change in the TLTRO
rate driven by changes in expectations
of meeting the targets
impacts interest income. As a result, interest
income which relates to the period that
already passed
until the moment when the change in expectations
occurs, is recognised as a catch up adjustment
in
Consolidated statement of profit or loss.
This change occurs only when ING Bank
has a reasonable
expectation that the lending targets will be
met.
ING Bank views ‘reasonable expectation’
in case of TLTRO funding as a high hurdle. This
is the
moment when it becomes highly probable,
i.e. the probability of meeting the lending
targets is
substantially greater than the probability that
it will not. As a result, if interest income
is recognised
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during the period based on the expectation
of meeting the targets, there should only be
a limited
possibility that the interest may need to be
reversed in future reporting periods.
Reference is made to note 12 ‘Deposits from
banks’ and to note 20 ‘Net interest
income’ for the
presentation of ING Bank’s participation
in TLTRO programmes.
Significant judgements:
Significant management judgement is exercised
in determining the accounting treatment
of TLTRO
transactions. In particular, ING Bank applied judgement
in:
●
assessing and concluding that in ING Bank’s
view the rate under TLTRO is considered
to be a
market conforming rate and, hence, accounting
for TLTRO in accordance with IFRS 9;
and
●
selecting accounting policies regarding the
calculation of the effective interest rate under
TLTRO,
including treatment of changes in expectations
of meeting the lending targets.
In addition, estimation uncertainty exists
when the end of the observation period for
lending growth
does not coincide with the end of the reporting
period. At 31 December 2021, however,
no
estimation uncertainty exists as the lending targets
were met as at 31 December 2021 (subject to
the final confirmation by the ECB), which is
the end of the observation period 2 and
determines the
conditional rate applicable during the period
between June 2021 and June 2022.
1.7 Consolidation
ING Bank comprises ING Bank N.V. (the Parent
Company) and all other subsidiaries. Subsidiaries
are
entities controlled by ING Bank N.V. Control
exists if ING Bank 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 ING Bank
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 45 ‘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.
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 Bank has agreed to sell
but is still legally owned by ING Bank
may still be
controlled by ING Bank 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 Bank N.V.
ING Bank 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. Certain Group companies are
also
subject to other restrictions in certain countries,
in addition to the restrictions on the amount
of
funds that may be transferred in the form
of dividends, or otherwise, to the parent
company.
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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.
1.8 Segment reporting
An operating segment is a distinguishable
component of ING Bank, engaged in providing
products or
services, whose operating results are regularly
reviewed by the Management Board Banking
of ING
Bank (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
ING Bank 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 Bank’s performance
both by line of business and geographic
perspective
and has identified five reportable segments by
line of business. The geographical analyses
are based
on the location of the office from which the
transactions are originated.
1.9 Foreign currency translation
Functional and presentation currency
Items included in the financial statements
of each of ING Bank’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 ING Bank’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.
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 the
fair value is determined. Exchange rate differences
on non-monetary items measured at fair
value
through other comprehensive income
are included in other comprehensive income
and get
accumulated 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 22 ‘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 19 ‘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.
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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.
1.10 Investments in associates and joint ventures
Associates are all entities over which ING
Bank 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 ING
Bank 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.
ING Bank’s investment in associates and
joint ventures (net of any accumulated impairment
loss)
includes goodwill identified on acquisition.
ING Bank’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 ING Bank’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,
ING Bank 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 ING
Bank and its associates and joint ventures
are
eliminated to the extent of ING Bank’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 ING
Bank.
The recoverable amount, being the higher
of fair value less cost of disposal and value in
use, of the
investment in associate and joint venture
is determined when there is an indication
of potential
(reversal of) impairment. An impairment
loss is recognised when the carrying amount
of the
investment exceeds its recoverable amount.
Goodwill on acquisitions of interests
in associates and
joint ventures is not tested separately for impairment,
but is assessed as part of the carrying
amount
of the investment. An impairment loss is subsequently
reversed if there is indication of a reversal
and
there is a change in the estimates used
to determine the recoverable amount.
An impairment loss is
reversed to the extent that the recoverable
amount exceeds its carrying amount,
but cannot exceed
the original impairment loss.
Significant judgements and critical accounting
estimates and assumptions:
The most significant estimates and assumptions
relate to the assessment of (reversal of)
impairment
of the investment in TMBThanachart
Bank Public Company Limited (hereafter:
TTB) which involves
estimation of value in use.
Management’s best estimate of TTB’s expected
future earnings are based on forecasts
derived from
broker consensus over the short to medium
term and TTB observable targets
for steady state
earnings into perpetuity. A capital maintenance
charge is applied, which is management’s
forecast
of the earnings that need to be withheld in
order for TTB to meet target regulatory requirements
over the forecast period. Both of these factors
are subject to a high degree of uncertainty.
Key assumptions used in estimating TTB’s
value in use and the sensitivity of the
value in use
calculations to different assumptions are
described in note 8 ‘Investments in associates
and joint
ventures’.
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1.11 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 appraised
annually by independent qualified valuers.
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 ING Bank 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.
Right-of-use assets
ING Bank 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 Bank. 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 Bank business and treasury
departments. It is
determined by either ING Bank or Local Asset
and Liability Committee (ALCO). Reference
is made to
the ‘Risk management’ section of the
Annual Report.
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
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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 to note 16 ‘Other liabilities’.
Subsequent to initial recognition,
the right-of-use asset amortises using
a straight-line method to the
income statement over the life of the lease.
The lease liability increases 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 results
in a corresponding adjustment to the
carrying amount of
the right-of-use asset.
ING Bank as the lessor
When ING Bank acts as a lessor, a distinction
should be made between finance leases
and operating
leases. For ING Bank 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.
1.12 Acquisitions, goodwill and other intangible assets
Goodwill resulting from a business combination
ING Bank’s business combinations are accounted
for using the acquisition method of accounting.
The
consideration for each business combination
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 Bank’s interest in the fair value
of the fair value of
investee's identifiable 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
business combination 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 Bank’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 Bank obtains control) and
the resulting 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.
Impairment of goodwill and other non-financial assets
ING Bank assesses at each reporting period,
whether there is an indication that a non-financial
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
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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. The carrying value
is determined on a basis that is
consistent with the way
in which the recoverable amount of the CGU
is determined. The recoverable amount
is estimated as
the higher of fair value less costs of disposal
and value in use. Impairment of goodwill,
if applicable, is
included in the statement of profit or
loss in Other operating expenses and is
not subsequently
reversed.
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.
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.
1.13 Taxation
Income tax on the result for the year consists
of 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, for temporary
differences arising
between the tax basis of assets and liabilities
and their carrying amounts in the Consolidated
statement of financial position.
Deferred income tax is determined using
tax rates (and laws) that
have been enacted or substantively enacted
at 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 when it is probable
that future taxable profit will be available
against which the temporary differences
can be utilised. Deferred income tax is
provided for
temporary differences arising from investments
in subsidiaries and associates, except where
the
timing of the reversal of the temporary difference
is controlled by ING Bank 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 remeasurements 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 Bank and in case it is
probable that there will
be a cash outflow, a current tax liability
is recognised.
1.14 Other assets
Investment property
Investment properties are recognised at fair
value at the balance sheet date. The fair values
of
investment properties are appraised annually
by independent qualified valuers.
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.
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Property development
Property developed and under development
is included in Other assets – Property development
and
obtained from foreclosures. Depending
on the intention of ING Bank 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.
1.15 Disposal groups held for sale and discontinued operations
Disposal groups (and 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 non-current
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 ‘Non-current
Assets Held for Sale and Discontinued Operations.
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’.
1.16 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 ING Bank is
demonstrably
committed to either terminate
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 Bank; 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 Bank. Contingent
assets are recognised in the statement
of financial
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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 Bank may become involved in governmental,
regulatory, arbitration and legal proceedings
and
investigations and may be subject to third party
claims. With or without reference to the
above, ING
Bank may also offer compensation to
certain of its customers. Judgement is required
to assess
whether a present obligation exists and to
estimate the probability of an unfavourable
outcome and
the amount of potential loss. The degree of uncertainty
and the method of making the accounting
estimate depends on the individual case, its
nature and complexity. Such cases
are usually one of a
kind. For the assessment of related provisions
ING Bank consults with internal and
external legal
experts. Even taking into consideration
legal experts’ advice, the probability of
an outflow of
economic benefits can still be uncertain
and the provision recognised can remain
sensitive to the
assumptions used. Reference is made to
note 15 ‘Provisions’. For 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,
where relevant.
Reference is made to note 43 ‘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 15 ‘Provisions’.
1.17 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.
The defined benefit obligation is calculated
by internal and external independent qualified
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.
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.
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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, ING Bank pays
contributions to publicly or privately
administered
pension insurance plans on a mandatory,
contractual or voluntary basis. ING Bank 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 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.
1.18 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, ING Bank 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’.
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 performance
obligation has been satisfied based on the
particular
contract and ING Bank 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
Bank is the lessor are divided into an interest
component (recognised as interest
income) and a
repayment component based on a pattern
reflecting a constant periodic rate of return on
the
lessor’s net investment in the lease.
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1.19 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 Bank’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
ING Bank only engages in share-based payment
transactions with its staff and directors.
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.
1.20 Statement of cash flows
The statement of cash flows is prepared
in accordance with the indirect method,
distinguishing 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,
lease liabilities and subordinated loans.
1.21 Parent company accounts
The parent company accounts of ING Bank
N.V. are prepared in accordance with
the financial
reporting requirements included in Part
9 of Book 2 of the Dutch Civil Code. In
accordance with
subsection 8 of section 362, Book 2 of the
Dutch Civil Code, the recognition and
measurement
principles applied in the Parent company
accounts are the same as those applied in
the Consolidated
financial statements.
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Cash and balances with central banks
ING Bank Annual Report 2021
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Notes to the Consolidated statement of financial position
2
Cash and balances with central
banks
Cash and balances with central banks
in EUR million
2021
2020
Amounts held at central banks
1
104,870
109,237
Cash and bank balances
1,650
1,851
106,520
111,087
1 Amounts held at central banks include an amount of EUR -6 million (2020: EUR -3 million) of
Loan loss provisions.
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 40 ‘Transfer of
financial assets, assets pledged and
received as collateral’ for
restrictions on amounts held at central banks.
3
Loans and advances to banks
Loans and advances to banks
Netherlands
Rest of the world
Total
in EUR million
2021
2020
2021
2020
2021
2020
Loans and advances to banks
7,018
7,441
16,595
17,945
23,613
25,386
Loan loss provisions
-10
-10
-13
-13
-22
-23
7,009
7,431
16,582
17,933
23,591
25,363
Loans include balances (mainly short-term
deposits) with central banks amounting
to EUR 1,952
million (2020: EUR 2,519 million).
As at 31 December 2021, Loans include receivables
related to finance lease contracts amounting
to
EUR 5 million (2020: EUR 6 million). Reference
is made to Note 7 ‘Loans and advances to
customers’ for
information on finance lease receivables.
As at 31 December 2021, 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
in EUR million
2021
2020
Trading assets
51,389
51,361
Non-trading derivatives
1,536
3,583
Designated at fair value through profit or loss
6,355
4,126
Mandatorily measured at fair value through profit or loss
42,684
44,305
101,964
103,374
(Reverse) repurchase transactions
Financial assets at fair value through profit
or loss includes securities lending and sales
and repurchase
transactions which were not derecognised, because
ING Bank continues to be exposed to substantially
all risks and rewards of the transferred financial
asset. For repurchase agreements the
gross amount of
assets must be considered together with
the gross amount of related 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.
ING Bank’s exposure to (reverse) repurchase
transactions is included in the following
lines in the
statement of financial position:
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Exposure to (reverse) repurchase agreements
in EUR million
2021
2020
Reverse repurchase transactions
Loans and advances to banks
3,403
4,869
Loans and advances to customers
71
624
Trading assets, loans and receivables
8,026
10,947
Loans and receivables mandatorily measured at fair value through profit or loss
39,823
41,735
51,322
58,175
Repurchase transactions
Deposits from banks
4,138
1,971
Trading liabilities, funds on deposit
7,127
5,787
Funds entrusted designated and measured at fair value through profit or loss
34,608
41,177
45,873
48,935
Securities purchased under agreements
to resell (reverse repos), securities borrowings
and similar
agreements are not recognised in the consolidated
statement of financial position. Based on the
business model assessment and counterparty,
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.
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.
Reference is made to Note 40 ‘Transfer of
financial assets, assets pledged and
received as collateral’ for
information on transferred assets which were
not derecognised.
Trading assets
Trading assets by type
in EUR million
2021
2020
Equity securities
17,574
7,813
Debt securities
5,319
5,183
Derivatives
19,764
27,238
Loans and receivables
8,733
11,126
51,389
51,361
Trading assets include assets that are classified
under IFRS as Trading, but are closely
related to
servicing the needs of the clients of ING
Bank. 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).
Reference is made to Note 14 ‘Financial
liabilities at fair value through profit or
loss’ for information on
trading liabilities.
Non-trading derivatives
Non-trading derivatives by type
in EUR million
2021
2020
Derivatives used in
-
fair value hedges
365
486
-
cash flow hedges
300
1,376
-
hedges of net investments in foreign operations
18
69
Other non-trading derivatives
852
1,653
1,536
3,583
Reference is made to Note 37 ‘Derivatives
and hedge accounting’ for information
on derivatives
designated in hedge accounting.
Other non-trading derivatives mainly includes
interest rate swaps and foreign exchange
currency
swaps for which no hedge accounting
is applied.
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5
Financial assets at fair value through other comprehensive income
ING Bank Annual Report 2021
208
Designated at fair value through profit or loss
Designated at fair value through profit or loss by type
in EUR million
2021
2020
Debt securities
5,870
3,544
Loans and receivables
485
582
6,355
4,126
‘Financial assets designated at fair value
through profit or loss’ is partly economically
hedged by credit
derivatives. The hedges do not meet the
criteria for hedge accounting and the loans
and debt
securities are recorded at fair value to avoid
an accounting mismatch. The maximum
credit exposure
of the loans and receivables and debt securities
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
and debt securities attributable to changes
in credit risk is not significant.
The notional value of the related credit derivatives
is EUR 2,640 million (2020: EUR 1,077 million).
The
cumulative change in fair value of the
credit derivatives attributable to changes
in credit risk since the
financial assets were first designated, amounts
to EUR -69 million (2020: EUR -16 million)
and the
change for the current year amounts to
EUR -53 million (2020: EUR -45 million).
These 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
in EUR million
2021
2020
Equity securities
161
228
Debt securities
787
787
Loans and receivables
41,735
43,290
42,684
44,305
None of the equity securities are individually
significant for ING Bank.
Loans and receivables mainly include reverse
repurchase agreements.
For details on ING Bank’s total exposure to
debt securities reference is made to Note
6 ‘Securities at
amortised cost’.
5
Financial assets at fair value through
other comprehensive income
Financial assets at fair value through other comprehensive income by type
in EUR million
2021
2020
Equity securities
2,457
1,862
Debt securities
1
27,340
32,977
Loans and advances
1
838
1,056
30,635
35,895
1 Debt securities include an amount of EUR -12 million (2020: EUR -12 million)
and the Loans and advances includes EUR -1
million (2020: EUR -2 million) of Loan loss provisions.
Exposure to equity securities
Equity securities designated as at fair value through other comprehensive income
Carrying
value
Carrying
value
Dividend
income
Dividend
income
in EUR million
2021
2020
2021
2020
Investment in Bank of Beijing
1,700
1,662
97
95
Other Investments
757
200
25
12
2,457
1,862
122
107
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 2021 ING holds approximately
13% (2020: 13%)
of the shares of Bank of Beijing, a
bank listed on the stock exchange of Shanghai.
As per 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 2021
(2020: nil).
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6
Securities at amortised cost
ING Bank Annual Report 2021
209
Changes in fair value through other comprehensive income
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
in EUR million
2021
2020
2021
2020
2021
2020
Opening balance
1,862
2,306
34,033
32,163
35,895
34,468
Additions
518
13
12,669
16,936
13,186
16,949
Amortisation
-46
-9
-46
-9
Transfers and reclassifications
-7
-107
0
-7
-107
Changes in unrealised revaluations
2
-88
-283
-1,209
520
-1,296
237
Impairments
-5
-2
-5
-2
Reversals of impairments
4
-4
4
-4
Disposals and redemptions
-19
-13
-17,730
-14,557
-17,750
-14,571
Exchange rate differences
191
-53
460
-1,017
651
-1,070
Changes in the composition of the group and other
changes
0
-0
2
2
2
2
Closing balance
2,457
1,862
28,178
34,033
30,635
35,895
1 Fair value through other comprehensive income debt instruments includes both debt
securities and loans and advances.
2 Changes in unrealized revaluations of FVOCI debt instruments include changes on hedged items which
are recognized in the
statement of profit or loss. Reference is made to Note 19 ‘Equity’ for details on the
changes in revaluation reserve.
FVOCI equity securities
In 2021, additions of EUR 518 million mainly
relates
to new investments in HQLA eligible equity
instruments. This is a diversified buy-and-hold
portfolio aimed at generating a stable
dividend income
stream.
In 2021, exchange rate differences of EUR
191 million are fully related to the stake
in Bank of Beijing
following the appreciation of CNY vs EUR.
In 2021, changes in unrealised revaluations
of equity securities decreased mainly
related to negative
revaluation of the stake in Bank of Beijing
following a decline in share price (EUR -153
million)
compensated by positive revaluation in several
other equity stakes of EUR 65 million.
In 2020, transfers and reclassifications of
EUR -107 million mainly relates to ING’s investment
in Visa
preference series C shares (EUR -116 million)
that have been reclassified from equity at fair
value
through other comprehensive income to
debt securities at mandatorily fair value
through profit or loss'
based on variable conversion rate.
FVOCI debt instruments
In 2021, changes in unrealised revaluations
of EUR -1,209 million relates to increased
yield curves.
Reference is made to Note 6 ‘Securities
at amortised cost’ for details on ING
Bank’s total exposure to
debt securities.
6
Securities at amortised cost
Securities at amortised cost fully consist
of Debt securities.
ING Bank’s exposure to debt securities is included
in the following lines in the statement
of financial
position:
Exposure to debt securities
in EUR million
2021
2020
Debt securities at fair value through other comprehensive income
27,340
32,977
Debt securities at amortised cost
48,319
50,587
Debt securities at fair value through other comprehensive income and amortised cost
75,659
83,564
Trading assets
5,319
5,183
Debt securities at fair value through profit or loss
6,658
4,331
1
Total debt securities at fair value through profit or loss
11,976
9,514
87,635
93,078
1 The prior period has been updated to improve
consistency and comparability of exposure
to debt
securities.
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Loans and advances to customers
ING Bank Annual Report 2021
210
ING Bank’s total exposure to debt securities
(excluding debt securities held in the trading
portfolio) of
EUR 82,316 million (31 December 2020: EUR
87,895 million) is specified as follows:
Debt securities by type of exposure
Debt Securities
at FVPL
Debt Securities
at FVOCI
Debt Securities
at AC
Total
in EUR million
2021
2020
2021
2020
2021
2020
2021
2020
Government bonds
48
48
16,271
22,448
26,588
26,801
42,908
49,296
Sub-sovereign,
Supranationals and Agencies
3,115
2,331
7,587
7,510
13,752
14,858
24,454
24,699
Covered bonds
1,729
1,821
5,063
5,965
6,792
7,786
Corporate bonds
778
26
156
207
90
131
1,024
364
Financial institutions' bonds
1,993
1,199
1
798
523
1,932
1,956
4,724
3,679
ABS portfolio
723
726
810
480
913
894
2,445
2,100
6,658
4,331
27,352
32,990
48,338
50,604
82,347
87,924
Loan loss provisions
-12
-12
-19
-17
-31
-29
Debt securities portfolio
6,658
4,331
27,340
32,977
48,319
50,587
82,316
87,895
1 The prior period has been updated to improve consistency and comparability of exposure
to debt securities.
7
Loans and advances to customers
Loans and advances to customers by type
Netherlands
Rest of the world
Total
in EUR million
2021
2020
2021
2020
2021
2020
Loans to, or guaranteed by, public authorities
23,770
24,292
17,563
17,210
41,333
41,502
Loans secured by mortgages
116,666
117,967
250,312
238,370
366,978
356,337
Loans guaranteed by credit institutions
259
305
6,022
4,896
6,282
5,201
Personal lending
2,577
3,019
24,682
24,776
27,260
27,794
Corporate loans
42,819
37,724
148,153
135,527
190,972
173,251
186,091
183,306
446,733
420,780
632,824
604,086
Loan loss provisions
-1,119
-1,286
-4,156
-4,493
-5,274
-5,779
184,972
182,020
442,577
416,287
627,550
598,306
For details on credit quality and loan loss
provisioning, refer to ‘Risk management
– Credit risk’
paragraph ‘Credit quality’.
Loans and advances to customers by subordination
in EUR million
2021
2020
Non-subordinated
627,390
598,207
Subordinated
160
99
627,550
598,306
No individual loan or advance has terms
and conditions that significantly affect the
amount, timing or
certainty of the consolidated cash flows
of ING Bank.
Loans and advances to customers and Loans
and advances to banks include finance
lease receivables
and are detailed as follows:
Finance lease receivables
in EUR million
2021
2020
Maturities of gross investment in finance lease receivables
-
within 1 year
3,204
3,175
-
between 1-2 years
2,311
2,212
-
between 2-3 years
1,716
1,722
-
between 3-4 years
1,178
1,166
-
between 4-5 years
734
711
-
more than 5 years
1,495
1,487
10,637
10,473
Unearned future finance income on finance leases
-525
-508
Net investment in finance leases
10,112
9,965
Included in Loans and advances to banks
5
6
Included in Loans and advances to customers
10,106
9,958
10,112
9,965
The finance lease receivables mainly relate to
the financing of equipment and are part
of corporate
loans. To a lesser extent, the finance lease
receivables relate to real estate for
third parties, where ING
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Investment in associates and joint ventures
ING Bank Annual Report 2021
211
is the lessor. These finance lease receivables
are part of loans secured by mortgages.
Interest income
in 2021 on Finance lease receivables amounts
to EUR 217 million (2020: EUR 229 million).
The total loan loss provision of EUR 167 million
(2020: EUR 164 million) for finance lease receivables
is
classified into the following loan loss provision
stages:
◾
Stage 1: EUR 8 million (2020: EUR 8 million)
◾
Stage 2: EUR 30 million (2020: EUR 25 million)
◾
Stage 3: EUR 129 million (2020: EUR 131
million)
8
Investment in associates and joint
ventures
Investments in associates and joint ventures
2021
Interest
held (%)
Fair value
of listed
invest-
ments
Balance
sheet
value
Total
assets
Total
liabilities
Total
income
Total
expenses
TMBThanachart Bank Public Company
23
866
1,208
46,478
40,957
1,286
1,038
Other investments in associates and joint
ventures
379
1,587
Investments in associates and joint ventures
2020
Interest
held (%)
Fair value
of listed
invest-
ments
Balance
sheet
value
Total
assets
Total
liabilities
Total
income
Total
expenses
TMBThanachart Bank Public Company
23
653
1,202
50,123
44,597
1,388
1,093
Other investments in associates and joint
ventures
273
1,475
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.
TMBThanachart Bank Public Company Limited
ING Bank has a 23% investment in TMBThanachart
Bank Public Company Limited (hereafter: TTB),
a
bank listed on the Stock Exchange of Thailand.
TTB is providing products and services to
Wholesale,
Small and Medium Enterprise (SME), and
Retail customers. TTB is accounted for as an investment
in
associate based on the size of ING shareholding
and representation on the Board.
Impairment testing
The fair value has been below the purchase
cost of the investment for a prolonged
period of time
(since 1Q 2020). This is considered to be objective
evidence of impairment. As a result ING performed
an impairment test at 31 December 2021
that did not lead to an impairment loss
(2020: EUR 230
million). Furthermore, no reversal of impairment
was recognised.
Methodology
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 price.
The VIU calculation uses
discounted cash flow projections based on
management’s best estimates. VIU
is derived using a
Dividend Discount Model (DDM) where distributable
equity, i.e. future earnings available to ordinary
shareholders, is used as a proxy for future
cash flows. The valuation looks at expected
cash flows into
perpetuity resulting in two main components
to the VIU calculation:
i) the estimation of future earnings over
a 5 year forecast period; and
ii) the terminal value being the extrapolation
of earnings into perpetuity applying
a long term
growth rate. The earnings that are used for
extrapolation represent the stable
long term
financial results and position of TTB, i.e.
a steady state. The terminal value comprises
the
majority of the total VIU.
Key assumptions used in the VIU calculation
as at 31 December 2021
The VIU is determined using a valuation
model which is subject to multiple
management assumptions.
The key assumptions, i.e. those to which the
overall result is most sensitive to,
are the following:
Expected future earnings of TTB: based on forecasts
derived from broker consensus over the short
to medium term and TTB observable targets
for steady state earnings into perpetuity.
A capital
maintenance charge is applied, which is
management’s forecast of the earnings
that need to be
withheld in order for TTB to meet target regulatory
requirements over the forecast period;
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Property and equipment
ING Bank Annual Report 2021
212
Discount rate (cost of equity): 8.74% (2020:
8.49%), based on the capital asset pricing
model
(CAPM) calculated for TTB using current market
data.
Terminal growth rate: 2.30% (2020: 1.60%)
consistent with current long term government
bond
yield in Thailand as a proxy for a risk-free rate;
To assess the risk of further impairment
at 31 December 2021, the model was evaluated
for
reasonably possible changes to key assumptions
in the model. This reflects the sensitivity
of the VIU to
each key assumption on its own and it is
possible that more than one favourable
and/or unfavourable
change may occur at the same time. Holding
the other key assumptions constant,
a reduction in all of
the forecasted annual cash flows, including
terminal value, of 13.0% or an increase in
the discount of
112bps would reduce the recoverable amount
to the carrying amount. A reasonably possible
change
in the terminal growth rate to zero would
not cause the VIU to equal the carrying
amount.
Reversal of the impairment loss recognised
in 2020 was not considered appropriate
as at 31 December
2021 mainly due to the lack of sufficiently positive
changes observed in the underlying performance
of
TTB since the impairment loss in 2020 as reflected
in the broker consensus. Furthermore, the
share
price remains below the original cost of the
investment for a prolonged period of time.
Other investments in associates
and joint ventures
Included in Other investments in associates
and joint ventures are mainly financial
services and
financial technology funds or vehicles operating
predominantly in Europe.
Other investments in associates and joint ventures
represents a number of associates
and joint
ventures that are individually not significant
to ING Bank.
Significant influence for associates in which
the interest held is below 20%, is
based on the
combination of ING Bank’s financial interest
and other arrangements, such as participation
in the
Board of Directors.
The associates and joint ventures of ING are subject
to legal and regulatory restrictions regarding
the
amount of dividends they 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
in EUR million
2021
2020
Opening balance
1,475
1,790
Additions
91
24
Revaluations
-24
-3
Share of results
141
66
Dividends received
-34
-12
Disposals
-23
-12
Impairments
-3
-235
Exchange rate differences
-31
-144
Other
-5
0
Closing balance
1,587
1,475
Share of results from associates and joint
ventures of EUR 141 million (2020:
EUR 66 million) as
included in the table above is mainly
attributable to results of TTB of EUR 61
million (2020: EUR 70
million), EUR 28 million gain on our stake in
Ebusco and other share of results. In
2020 impairments is
predominantly attributable to TTB.
9
Property and equipment
Property and equipment by type
in EUR million
2021
2020
Property in own use
702
745
Equipment:
- Data processing equipment
207
281
- Other equipment
493
561
Right- of- use assets:
- ROU property
1,009
1,129
- ROU cars
83
89
- ROU other leases
21
38
2,515
2,841
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Intangible assets
ING Bank Annual Report 2021
213
Changes in property and equipment
Property in own use
Equipment
Right-of-use assets
Total
in EUR million
2021
2020
2021
2020
2021
2020
2021
2020
Opening balance
745
757
842
940
1,255
1,476
2,841
3,172
Additions
9
10
175
277
164
134
348
421
Transfers
-5
57
1
-42
-20
-4
-24
11
Depreciation
-15
-12
-287
-291
-271
-275
-573
-578
Impairments
-10
-8
-8
-9
-15
-35
-33
-52
Reversals of impairments
6
9
0
0
1
0
7
9
Remeasurements
17
20
6
8
24
28
Disposals
-24
-63
-15
-12
-10
-14
-49
-89
Exchange rate differences
-21
-24
-7
-22
4
-35
-25
-81
Closing balance
702
745
699
842
1,113
1,255
2,515
2,841
Costprice
910
948
3,581
3,786
1,738
1,737
6,229
6,472
Accumulated depreciation
-373
-378
-2,871
-2,940
-644
-492
-3,888
-3,810
Accumulated impairments
-134
-135
-10
-5
-29
-36
-173
-175
Accumulated revaluation
surplus
299
310
299
310
Accumulated
remeasurement
48
45
48
45
Net carrying value
702
745
699
842
1,113
1,255
2,515
2,841
Right-of-use assets relate to leased land
and buildings, cars, data-processing equipment
and other
leases. ING considers valuations from third
party experts in determining the fair
values of property in
own use.
Property in own use purchase costs amounted
to EUR 910 million (2020: EUR 948 million). Cost
or the
purchase price less accumulated depreciation
and impairments would have been EUR
403 million
(2020: EUR 435 million) had property in own
use been valued at cost instead of at fair
value.
The reported impairment losses of EUR
33 million (2020: EUR 52 million)
mainly result from anticipation
of a change in the post-pandemic way
of working and phasing out of activities.
10
Intangible assets
Changes in intangible assets
Goodwill
Software
Other
Total
in EUR million
2021
2020
2021
2020
2021
2020
2021
2020
Opening balance
533
907
846
958
15
52
1,394
1,916
Additions
44
86
44
87
Capitalised expenses
135
213
135
213
Amortisation
-260
-249
-1
-2
-261
-251
Impairments
1
-310
-82
-167
-12
-35
-94
-513
Exchange rate differences
-61
-63
-0
-6
0
-0
-62
-69
Disposals
-0
-9
-0
-9
Changes in the composition of the group and
other changes
-1
19
0
-0
19
Closing balance
472
533
682
846
2
15
1,156
1,394
Gross carrying amount
472
843
2,521
2,642
59
60
3,052
3,545
Accumulated amortisation
-1,710
-1,621
-9
-9
-1,719
-1,630
Accumulated impairments
-310
-129
-175
-48
-37
-177
-522
Net carrying value
472
533
682
846
2
15
1,156
1,394
1 Impairments of intangible assets are presented within Other operating expenses in the statement of
Profit or Loss.
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
Terminal
growth rate
Goodwill
Goodwill
Group of CGU’s
2021
2020
Retail Netherlands
Values in use
8.84%
0.19%
30
30
Retail Germany
Values in use
8.81%
0.67%
349
349
Retail Growth Markets
Values in use
12.87%
3.68%
92
153
472
533
Impairment testing
Goodwill is tested for impairment annually
in the fourth quarter by comparing the recoverable
amount
of each goodwill-carrying CGU with its carrying
amount. The key assumptions used
in the calculation
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10
Intangible assets
ING Bank Annual Report 2021
214
of the recoverable amounts are included in
the table above. In addition ING Bank tests
goodwill
whenever a triggering event is identified.
The recoverable amount exceeds the carrying
value of the CGUs as at 31 December 2021
and
therefore no impairment is required.
In 2020, Covid-19 has resulted in adverse
changes in the market and economic
environment. Due to
the impact of the significant deterioration
in the economic environment on the
cash flow outlook of
our businesses, we also completed a goodwill
impairment review across ING Bank
in 2020. The goodwill
impairment test resulted in the recognition of
goodwill impairments on the CGU Retail
Belgium of EUR
50 million (of which EUR 43 million is reported
in Retail Belgium segment and EUR 8 million
in Corporate
Line segment) and on the CGU Wholesale
Banking of EUR 260 million (fully reported
in the Wholesale
Banking segment). For both CGUs the impairment
resulted from the negative developments
in the
macro-economic outlook in the context of the
Covid-19 pandemic.
Methodology
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). The VIU
calculation is based on a Dividend Discount
model using three
year management approved plans, updated for
expected changes in the macroeconomic
environment. 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 Bank. 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.
Sensitivity of key assumptions
Key assumptions in the goodwill impairment
test model are the projected locally available
cash flows
(based on local capital requirements and projected
profits), discount rates (cost of equity), and
long
term growth rates.
The recoverable
amounts of
the CGUs
are sensitive
to the
above key
assumptions. A
decrease in
the
available cash flows of 10%, an increase in the discount
rate of 1 percent point or a reduction of
future
growth
rate
to
zero
are
considered
reasonably
possible
changes
in
key
assumptions.
If
the
aforementioned
changes
occur
to
the
above
key
assumptions
holding
the
other
key
assumptions
constant, goodwill of the remaining CGUs will
continue to be recoverable and no impairment
will occur.
Other changes
Other changes in goodwill in 2021 related
to changes in currency exchange rates
of Retail Growth
Markets goodwill.
Software
Software, includes internally developed software
amounting to EUR 573 million (2020: EUR
688 million).
In 2021
an impairment
of EUR
51 million
with regard
to software
in the
payments
and cash
management
business was
recognised. The
remaining software impairments
in 2021
related
to various,
individually
immaterial items.
In 2020, following the decision
to discontinue the Maggie programme
an impairment of EUR 141
million
was recognised, primarily
related to capitalised
software development
costs. In addition,
an impairment
of
EUR
19
million
with
regard
to
software
in
the
payments
and
cash
management
business
was
recognised.
The
remaining
software
impairments
in
2020
related
to
various,
individually
immaterial
items.
Other intangible assets
In 2021 an
impairment of an indefinite useful life
asset related to brand names
of EUR 7 million
(2020:
14 million)
was recognised. Additionally EUR 5
million (2020: EUR 20 million)
was recognised related to
intangible assets from
a previous acquisition
(customer relationships), following a
re-evaluation of the
business plan.
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Other assets
ING Bank Annual Report 2021
215
11
Other assets
Other assets by type
in EUR million
2021
2020
Net defined benefit assets
783
725
Investment properties
26
20
Property development and obtained from foreclosures
52
72
Accrued assets
795
773
Amounts to be settled
2,424
2,215
Other
1,910
2,074
5,991
5,879
Disclosures in respect of Net defined benefit
assets are provided in Note 34 ‘Pension
and other post-
employment benefits’.
Amounts to be settled include primarily transactions
not settled at the balance sheet date. The nature
of these transaction is short term and they
are expected to settle shortly after the
closing date of the
balance sheet.
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
Deposits from banks
Deposits from banks includes non-subordinated
deposits and repurchase agreements from
banks.
Deposits from banks by type
Netherlands
Rest of the world
Total
in EUR million
2021
2020
2021
2020
2021
2020
Non-interest bearing
570
596
321
196
891
792
Interest bearing
51,893
49,336
32,307
27,971
84,201
77,306
52,463
49,931
32,629
28,166
85,092
78,098
Deposits from banks includes ING’s participation
in the Targeted Longer-Term Refinancing
Operations
of EUR 65.5 billion (2020: EUR 59.5 billion).
ING participated in a new series of Targeted
Longer-Term
Refinancing Operations (TLTRO III) for EUR
6.0 billion in March 2021.
For the details of the applicable rates and
impact on net interest income reference
is made to note 20
‘Net interest income’.
13
Customer deposits
Customer deposits
in EUR million
2021
2020
Savings accounts
314,893
336,517
Credit balances on customer accounts
280,028
256,899
Corporate deposits
28,183
22,720
Other
34,727
27,001
657,831
643,138
Customer deposits by type
Netherlands
Rest of the world
Total
in EUR million
2021
2020
2021
2020
2021
2020
1
Non-interest bearing
1,860
24,206
27,712
24,223
29,573
48,429
Interest bearing
254,752
208,169
373,507
386,539
628,258
594,708
256,612
232,375
401,219
410,762
657,831
643,138
1 The prior period has been updated to improve consistency and comparability of customer
deposits by type.
Savings accounts relate to the balances
on savings accounts, savings books, savings
deposits, and time
deposits of private individuals.
In 2021 Customer deposits includes EUR
39,759 million (2020: EUR 31,768 million)
of deposits received
from ING Group.
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14
Financial liabilities at fair value through profit or loss
ING Bank Annual Report 2021
216
14
Financial liabilities at fair value
through profit or loss
Financial liabilities at fair value through profit or loss
in EUR million
2021
2020
Trading liabilities
27,113
32,709
Non-trading derivatives
2,120
1,629
Designated at fair value through profit or loss
41,808
48,445
71,042
82,782
Trading liabilities
Trading liabilities by type
in EUR million
2021
2020
Equity securities
322
191
Debt securities
753
577
Funds on deposit
7,513
6,204
Derivatives
18,525
25,737
27,113
32,709
Non-trading derivatives
Non-trading derivatives by type
in EUR million
2021
2020
Derivatives used in:
-
fair value hedges
270
444
-
cash flow hedges
485
230
-
hedges of net investments in foreign operations
88
98
Other non-trading derivatives
1,278
857
2,120
1,629
Reference is made to Note 37 ‘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
in EUR million
2021
2020
Debt securities
5,585
5,887
Funds entrusted
35,993
42,300
Subordinated liabilities
230
258
41,808
48,445
As at 31 December 2021, 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 95 million (2020:
EUR 141 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 Bank is contractually required
to pay at maturity to the holders of financial
liabilities designated at fair value through profit
or loss excluding repurchase agreements
(part of funds
entrusted) is EUR 6,853 million (2020: EUR
6,682 million).
15
Provisions
Provisions by type
in EUR million
2021
2020
Reorganisation provisions
421
381
Litigation provisions
132
105
Other provisions
420
180
973
666
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Other liabilities
ING Bank Annual Report 2021
217
Changes in provisions
Reorganisation
Litigation
Other
Total
in EUR million
2021
2020
2021
2020
2021
2020
1
2021
2020
Opening balance
381
385
105
102
180
200
666
688
Additions
310
165
50
46
354
66
715
277
Interest
-2
-1
-2
-1
Releases
-96
-16
-11
-25
-79
-47
-186
-88
Utilised
-172
-152
-18
-16
-25
-13
-215
-180
Exchange rate differences
0
-1
-3
-3
-2
-5
-4
-9
Other changes
-3
-0
9
0
-7
-22
-1
-21
Closing balance
421
381
132
105
420
180
973
666
1 The prior period additions and releases
have been updated to improve consistency
and comparability
of Other Provisions.
In 2021, the additions to the reorganisation
provision mainly relate to the discontinuation
of retail
banking activities in France and the restructuring
of the branch network and retail advice
organisation
in the Netherlands.
The additions to the reorganisation provision
in 2020 are mainly attributable to refocusing
of our
activities in Wholesale Banking and decision
on the Maggie project, as well as additional
restructuring
costs in Retail Benelux and Other Challengers
& Growth Markets.
These initiatives are implemented over
a period of several years and the estimate
of the reorganisation
provisions is inherently uncertain.
Reference is made to Note 43 ‘Legal proceedings’
for developments in litigation provisions.
The additions
to the Other provisions in 2021 include
an EUR 180 million provision for the
compensation of Dutch retail customers for
past interest charges that did not
sufficiently track market
rates.
In 2021, Other provisions includes provisions
of EUR 34 million (2020: EUR 17 million) that
relate to
credit replacement facilities and EUR 114 million
(2020: EUR 75 million) that relate to
non-credit
replacement off balance facilities.
As at 31 December 2021, amounts expected
to be settled within twelve months
in Other provisions
amount to EUR 396 million (2020: EUR 113
million). The amounts included are based
on best estimates
with regard to amounts and timing of
cash flows required to settle the obligation.
Additions
to provisions and unused amounts released
are presented in Note 28 ‘Other operating
expenses’.
16
Other liabilities
Other liabilities by type
In EUR million
2021
2020
Net defined benefit liability
227
350
Other post-employment benefits
72
83
Other staff-related liabilities
612
490
Other taxation and social security contributions
409
435
Rents received in advance
19
15
Costs payable
2,015
2,017
Amounts to be settled
5,082
4,877
Lease liabilities
1,220
1,339
Other
3,038
1,998
12,695
11,605
Disclosures in respect of Net defined benefit
liabilities are provided in Note 34 ‘Pension
and other post-
employment benefits’.
Other staff-related liabilities includes
vacation leave provisions, variable compensation
provisions,
jubilee provisions, and disability/illness provisions.
Amounts to be settled includes primarily transactions
not settled at the balance sheet date. The
nature of these transactions is short term
and these are expected to settle shortly
after the closing
date of the balance sheet.
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Debt securities in issue
ING Bank Annual Report 2021
218
Lease liabilities relate to right-of-use
assets. Disclosures in respect to right-of-use assets
are provided
in Note 9 ‘Property and Equipment’.
The total cash outflow for leases in 2021 was
EUR 301 million (2020: EUR 273 million).
The line other relates mainly to balances
on margin accounts or amounts payable
to customers.
17
Debt securities in issue
Debt securities in issue relates 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 Bank, except for
subordinated items. Debt securities in issue
does not
include debt securities presented as Financial
liabilities at fair value through profit
or loss. ING Bank
does not have debt securities that are issued
on terms other than those available in
the normal course
of business.
Debt securities in issue – maturities
In EUR million
2021
2020
Fixed rate debt securities
Within 1 year
31,785
18,315
More than 1 year but less than 2 years
3,135
5,667
More than 2 years but less than 3 years
1,235
3,158
More than 3 years but less than 4 years
1,729
1,222
More than 4 years but less than 5 years
2,914
1,730
More than 5 years
13,133
13,807
Total fixed rate debt securities
53,930
43,898
Floating rate debt securities
Within 1 year
2,266
8,699
More than 1 year but less than 2 years
130
1,998
More than 2 years but less than 3 years
137
155
More than 3 years but less than 4 years
194
138
More than 4 years but less than 5 years
192
91
More than 5 years
593
593
Total floating rate debt securities
3,513
11,675
Total debt securities
57,443
55,573
In 2021 Debt securities in issue increased by
EUR 1.9 billion because of liquidity and funding
needs.
Reference is made to Note 30 ‘Changes
in liabilities arising from financing activities’
for further
information on issuances and redemptions.
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Subordinated loans
ING Bank Annual Report 2021
219
18
Subordinated loans
Subordinated loans
In EUR million
2021
2020
Subordinated loans
16,719
15,897
16,719
15,897
Subordinated loans relate to subordinated
capital debentures and private loans
which may be included
in the calculation of the capital ratio.
Subordinated loans include loans that qualify
as Tier 1 and Tier 2 (CRD IV eligible) capital.
Subordinated
loans of EUR 15.9 billion (2020 : EUR 13.1 billion)
have been placed with ING Bank N.V. by
ING Groep N.V.
In 2021 ING Groep N.V. issued in June EUR
500 million 0.875 % Fixed Rate Subordinated
Tier 2 Green
Notes, in September USD 1 billion 3.875%
and USD 1 billion 4.250% Perpetual
Additional Tier 1
Contingent Convertible Capital Securities
and in November EUR 1 billion 1.000%
Fixed Rate
Subordinated Tier 2 Notes.
These issuances were subsequently placed
by ING Groep N.V. with ING Bank
N.V. against the same
conditions.
In 2021 ING Bank N.V. redeemed in February
EUR 1.5 billion 3.625% Fixed Rate Subordinated
Tier 2
notes on the first call date. ING Bank N.V.
redeemed with ING Groep N.V. EUR 563
million and EUR 432
million Perpetual Debt Securities in September.
Reference is made to Note 30 ‘Changes
in liabilities arising from financing activities’
for further
information on issuances and redemptions
and to the Parent company financial statements,
Note 17
‘Subordinated loans’ for additional information.
The average interest rate on subordinated
loans is
3.74% (2020: 3.73%). The interest expense
during
the year 2021 was EUR 573 million (2020: EUR
613 million).
19
Equity
Total equity
In EUR million
2021
2020
2019
Share capital and share premium
-
Share capital
525
525
525
-
Share premium
16,542
16,542
16,542
17,067
17,067
17,067
Other reserves
-
Revaluation reserve: Equity securities at FVOCI
1,282
1,181
1,580
-
Revaluation reserve: Debt instruments at FVOCI
92
296
299
-
Revaluation reserve: Cash flow hedge
-153
1,450
1,208
-
Revaluation reserve: Credit liability
-80
-117
-114
-
Revaluation reserve: Property in own use
208
221
253
-
Net defined benefit asset/liability remeasurement reserve
-212
-307
-336
-
Currency translation reserve
-3,483
-3,636
-2,079
-
Share of associates and joint ventures and other reserves
3,416
3,246
3,189
1,069
2,334
4,000
Retained earnings
29,778
28,273
25,857
Shareholders’ equity (parent)
47,914
47,675
46,924
Non-controlling interests
736
1,022
893
Total equity
48,650
48,697
47,817
The following components of equity, as included
in Other reserves, cannot be freely distributed:
Revaluation reserve, 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.
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Equity
ING Bank Annual Report 2021
220
Share capital and share premium
Share capital
Share capital
Ordinary shares (par value EUR 1.13)
Number x 1,000
Amount
2021
2020
2019
2021
2020
2019
Authorised share capital
1,600,000
1,600,000
1,600,000
1,808
1,808
1,808
Unissued share capital
1,134,965
1,134,965
1,134,965
1,283
1,283
1,283
Issued share capital
465,035
465,035
465,035
525
525
525
No change occurred in the issued share
capital and share premium in 2021, 2020
and 2019.
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,
subject to the approval of the general
meeting of ING
Bank. The par value of ordinary shares
is EUR 1.13.
The authorised ordinary share capital of
ING Bank N.V. consists of 1,600 million
shares of which as at
31 December 2021, 465 million ordinary shares
were issued and fully paid.
ING Bank has 50 authorised preference shares
with par value of EUR 1.13 per preference
share. As at
31 December 2021, 7 preference shares were
issued and fully paid (2020: 7 preference
shares; 2019: 7
preference shares) amounting to EUR
8 (2020: EUR 8 and 2019: EUR 8).
Dividend restrictions
ING Bank 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
Bank 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 subsidiaries operate,
other limitations exist in
certain countries.
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Equity
ING Bank Annual Report 2021
221
Other reserves
Revaluation reserves
Changes in revaluation reserve
Equity securities at FVOCI
Debt instruments at FVOCI
Cash flow hedge
Credit liability
Property in own use
In EUR million
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
Opening balance
1,181
1,580
1,914
296
299
365
1,450
1,208
604
-117
-114
8
221
253
202
Changes in credit liability reserve
37
-19
-116
Unrealised revaluations
94
-337
137
-164
31
-33
-1,603
242
604
-2
-7
60
Realised gains/losses transferred to the statement of profit or loss
-40
-33
-33
Realised revaluations transferred to retained earnings
6
-1
-472
16
-6
-11
-26
-9
Other changes
-62
Closing balance
1,282
1,181
1,580
92
296
299
-153
1,450
1,208
-80
-117
-114
208
221
253
Equity securities at FVOCI
In 2021, the unrealised revaluation of
EUR 94 million includes revaluation of shares
in Bank of Beijing
for EUR 38 million.
In 2020, the unrealised revaluations of
EUR -337 million includes revaluation
of shares in Bank of Beijing
for EUR -339 million. Other changes of EUR
-62 million is related to prior years revaluations
of Visa
shares, which are reclassified to Financial
assets at fair value through profit or loss and
for which the
unrealised revaluation up until 2019 is transferred
to retained earnings.
Reference is made to note 5
‘Financial assets at fair value through other
comprehensive income’.
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.
Cash flow hedge
ING mainly hedges floating rate lending with
interest rate swaps. Due to an increase
in yield curves in
2021 the interest rate swaps had a negative
revaluation of EUR -1,603 million which
is recognised in
the cash flow hedge reserve.
Net defined benefit asset/liability remeasurement reserve
Reference is made to Note 34 ‘Pension and
other post-employment benefits’.
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Equity
ING Bank Annual Report 2021
222
Currency translation reserve
Changes in currency translation reserve
In EUR million
2021
2020
2019
Opening balance
-3,636
-2,079
-2,068
Unrealised revaluations
-61
106
-134
Realised gains/losses transferred to the statement of profit or loss
-1
-128
Exchange rate differences
214
-1,662
251
Closing balance
-3,483
-3,636
-2,079
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 153 million is related to several
currencies including
USD (EUR 456 million), TRY (EUR -466 million)
GBP (EUR 86 million), CHF (EUR 32 million),
CNY (EUR 27
million) and other currencies (EUR 18 million).
In 2019 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 TTB (EUR
-9 million).
Share of associates and joint ventures and other reserves
Changes in share of associates, joint ventures and other reserves
In EUR million
2021
2020
2019
Opening balance
3,246
3,189
2,872
Result for the year
191
94
180
Transfer to/from retained earnings
-21
-37
137
Closing balance
3,416
3,246
3,189
The Share of associates, joint ventures and
other reserves includes non-distributable
profits from
associates and joint ventures of EUR 738
million (2020: EUR 644 million). Other
reserves includes a
statutory reserve of EUR 2,103 million (2020:
EUR 1,912 million) related to the former Stichting
Regio
Bank and the former Stichting Vakbondsspaarbank
SPN and a legal reserve of EUR 573 million
(2020:
EUR 688 million) related to own developed software.
Retained earnings
Changes in retained earnings
In EUR million
2021
2020
2019
Opening balance
28,273
25,857
23,602
Transfer to/from other reserves
26
108
350
Result for the year
4,579
2,321
4,663
Dividend and other distributions
-3,125
-43
-2,819
Employee stock options and share plans
28
23
39
Changes in composition of the group and other changes
-3
7
22
Closing balance
29,778
28,273
25,857
Dividend
In 2021, a cash dividend of EUR 3,125 million
(2020: EUR 43 million and 2019: EUR
2,819 million) was
paid to the shareholder of ING Bank.
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 2021, an amount of EUR
2,103 million (2020: EUR 1,912 million) related
to the
former Stichting Regio Bank and the former
Stichting Vakbondsspaarbank SPN is included.
ING Bank N.V. is subject to legal restrictions
regarding the amount of dividends
it can pay to its
shareholder. 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.
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Equity
ING Bank Annual Report 2021
223
Moreover, ING Bank N.V.’s ability to pay
dividends is dependent on the dividend
payment ability of its
subsidiaries, associates and joint ventures.
ING Bank 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.
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 Bank’s subsidiaries,
associates and joint
amounts to EUR 8,205 million (2020: 9,829
million).
Furthermore there are restrictions to the
ability of subsidiaries, associates and
joint ventures to
distribute reserves to ING Bank 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
Bank N.V. there are various other considerations
and limitations
that are taken into account in determining
the appropriate levels of equity in
the Bank’s subsidiaries,
associates and joint ventures. These considerations
and limitations include, but are not restricted
to,
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 and may or may not be temporary
in nature. It is not possible to disclose
a reliable
quantification of these limitations. For
an overview of the minimal capital requirements
of ING Bank
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 shares are the most junior securities
issued by ING Bank N.V., no specific dividend
payment
restrictions with respect to the shares exist.
Furthermore, ING Bank N.V. is subject to
legal restrictions with respect to repayment
of capital to Its
shareholder. Pursuant to the Dutch Civil Code,
capital may only be repaid if none of ING Bank
N.V.’s
creditors opposes such a repayment within
two months following the announcement
of a
resolution to that effect.
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Net interest income
ING Bank Annual Report 2021
224
Notes to the Consolidated statement of profit or loss
20
Net interest income
Net interest income
in EUR million
2021
2020
2019
2021
2020
2019
Interest income on loans
13,979
15,766
19,322
Interest expense on deposits from banks
109
177
361
Interest income on financial assets at fair value through OCI
346
512
615
Interest expense on customer deposits
1,999
2,022
3,559
Interest income on debt securities at amortised cost
468
508
673
Interest expense on debt securities in issue
597
1,145
1,767
Interest income on non-trading derivatives (hedge accounting)
2,361
3,392
4,318
Interest expense on subordinated loans
573
613
654
Negative interest on liabilities
1,502
686
428
Negative interest on assets
572
353
349
Total interest income using effective interest rate method
18,657
20,865
25,355
Interest expense on non-trading derivatives (hedge accounting)
1,700
3,198
4,615
Total interest expense using effective interest rate method
5,550
7,507
11,305
Interest income on financial assets at fair value through profit or loss
435
658
1,897
Interest income on non-trading derivatives (no hedge accounting)
2,025
1,156
1,183
Interest expense on financial liabilities at fair value through profit or loss
304
514
1,695
Interest income other
14
31
29
Interest expense on non-trading derivatives (no hedge accounting)
1,605
1,029
1,312
Total other interest income
2,474
1,846
3,110
Interest expense on lease liabilities
14
18
25
Total interest income
21,131
22,711
28,465
Interest expense other
43
42
53
Total other interest expense
1,966
1,603
3,085
Total interest expense
7,516
9,110
14,391
Net interest income
13,615
13,600
14,074
Total net interest income amounts to EUR
13,615 million (2020: EUR 13,600 million).
Higher interest
results were recorded on lending products
(driven by a higher total lending margin). These
increases
were offset by lower revenues on current accounts
and savings, reflecting continued liability
margin
pressure.
Negative interest on liabilities in 2021, amounting
to EUR 1,502 million (2020: EUR 686 million)
includes
ECB funding rate benefit from the TLTRO III programme
of EUR 808 million (2020: EUR 164 million).
This
amount includes EUR 325 million of unconditional
interest benefit and EUR 483 million of
conditional
interest benefit which depends on meeting the
lending growth targets (2020: the full
amount of EUR
164 million represented unconditional interest
benefit).
As at 31 December 2020, ING Bank did not have
a reasonable expectation of meeting the
lending
growth targets for the first special reference period
(1 March 2020 to 31 March 2021), hence
ING Bank
did not accrue for the conditional benefit
and recognised unconditional interest benefit
at -50 bps in
2020. In the first quarter of 2021, ING Bank
met the lending growth targets for the
first special
reference period (1 March 2020 to 31 March
2021) and therefore the interest rate
applicable under
TLTRO III during the period 24 June 2020 to
23 June 2021 changed from -50bps
to -100bps. The effect
of the revised interest rate has been recognised
in the statement of profit or loss (net
interest income)
in 2021 including EUR 158 million related to
the year 2020. Based on the developments
in the eligible
asset base, ING Bank met the lending growth
targets for the second special reference
period (1 October
2020 to 31 December 2021), therefore the
funding rate remains at -100 bps for
the period 24 June
2021 – 23 June 2022.
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21
Net fee and commission income
ING Bank Annual Report 2021
225
21
Net fee and commission income
Net fee and commission income
in EUR million
2021
2020
2019
Fee and commission income
Payment Services
1,661
1,566
1,638
Securities business
853
700
485
Insurance and other broking
734
705
674
Portfolio management
617
525
490
Lending business
477
368
411
Financial guarantees and other commitments
458
364
338
Other
204
286
404
Total fee and commission income
5,004
4,514
4,439
Fee and commission expenses
Payment Services
563
611
669
Securities business
164
133
127
Distribution of products (Externally)
591
548
504
Other
169
211
272
Total fee and commission expenses
1,487
1,503
1,571
Net fee and commission income
3,517
3,011
2,868
ING Bank changed the presentation of net fee
and commission income as of 2021 to
better align with
internal management and monitoring.
Comparative figures for 2020 and 2019 have
been updated
accordingly. The reclassifications
do not affect the total amount of Net
Fee and Commission Income.
Payment services fees are earned for providing
services for deposit accounts and cards,
cash
management and transaction processing
including interchange. Securities fees
and commissions are
fees for securities brokerage and securities
underwriting. Portfolio management
fees include fees
earned for asset management activities,
fiduciary and related activities in which ING
holds or invests
assets on behalf of its customers. Fees
and commissions from Lending business
include income earned
for lending advisory, origination, underwriting
and loan commitments
which are not part of the
effective interest rate. Financial guarantees
and other commitments fees and
commissions are earned
from bank guarantees, letters of credit and
other trade finance related products, factoring
and leasing.
Fees paid for distribution
of products are all fees paid for the distribution
of ING’s products and services
through external providers.
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 32 ‘Segments’
which includes net fee and commission income,
as reported to the Management Board
Banking, disaggregated by line of business
and by geographical
segment.
22
Valuation results
and net trading income
Valuation results and net trading income
in EUR million
2021
2020
2019
Securities trading results
787
-500
974
Derivatives trading results
-554
701
-998
Other trading results
84
72
117
Change in fair value of derivatives relating to
–
fair value hedges
-85
246
-305
–
cash flow hedges (ineffective portion)
1
-5
47
–
other non-trading derivatives
-53
222
105
Change in fair value of assets and liabilities (hedged items)
113
-183
382
Valuation results on assets and liabilities designated at FVPL (excluding trading)
-12
-121
-359
Foreign exchange transactions results
566
422
801
847
852
765
Securities trading results includes the results
of market making in instruments such
as government
securities, equity securities, corporate
debt securities, money-market instruments.
Derivatives trading
results includes the results of derivatives
such as interest rate swaps, options,
futures, and forward
contracts.
Trading gains and losses relating to trading
securities still held as at 31 December
2021 amount to EUR
-268 million (2020: EUR -690 million; 2019:
EUR -82 million).
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.
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Investment income
ING Bank Annual Report 2021
226
Other trading results include the results of trading
loans and funds entrusted.
Foreign exchange transactions results include
gains and losses from spot and forward
contracts,
options, futures, and translated foreign
currency assets and liabilities. The result
on currency trading is
included in foreign exchange transactions
results.
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 Bank’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 14 ‘Financial
liabilities at fair value through profit or
loss’ for
information on trading assets and trading
liabilities respectively.
‘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
37 ‘Derivatives and hedge accounting’ for information
on derivatives used for hedge accounting.
In general, the fair value movements are influenced
by changes in the market conditions, such
as stock
prices, credit spreads, interest rates and
currency exchange rates. The Covid-19 pandemic
is still
ongoing, but markets have recovered and
stabilised further during 2021 and volatility
has largely
returned to pre-pandemic levels.
Furthermore, derivatives trading results is
also impacted by fair value movements
arising from
changes in credit spreads (CVA and DVA), bid
offer spreads, model risk and incremental
cost of funding
on derivatives (FVA and CollVA).
Spreads tightened in 2021 compared to
2020 and the fair value
changes decreased.
In 2021, Derivatives trading results include
EUR 98 million CVA/DVA adjustments
on trading derivatives
(2020: EUR 17 million; 2019: EUR 39 million).
‘Valuation results on assets and liabilities
designated at fair value through profit or loss
(excluding
trading)’ include fair value changes on financial
assets and financial liabilities driven by changed
market conditions. Refer to Note 4 'Financial
assets at fair value through profit or loss'
and to Note 14
‘Financial liabilities at fair value through
profit or loss’.
In addition, ‘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
56 million
(2020: EUR 8 million; 2019: EUR -403 million).
Interest income from trading assets in 2021
amounted to EUR 13,737 million (2020:
EUR
13,412
million; 2019: 15,187 million). Interest
expense from trading liabilities in 2021
amounted to EUR 14,079
million (2020: EUR 13,052 million; 2019:
14,922 million).
23
Investment income
Investment income
in EUR million
2021
2020
2019
Dividend income
122
107
115
Realised gains/losses on disposal of debt instruments measured at FVOCI
45
44
46
Income from and fair value gains/losses on investment properties
-0
1
27
Investment income
167
152
188
In 2021, 2020 and 2019 dividend income mainly
consists of dividend received from ING’s
equity stake
in Bank of Beijing.
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Result on disposal of group companies
ING Bank Annual Report 2021
227
24
Result on disposal of group companies
Result on disposal of group companies
in EUR million
2021
2020
2019
ING Austria (Retail Banking activities)
-26
Makelaarsland
-3
Cel Data Services
-3
ING Lease Italy
-2
ING Mauritius
119
-29
-3
117
At 12 July 2021, ING announced that it has reached an agreement to transfer ING’s
Retail Banking
operations in Austria to bank99. Per 1 December 2021 ING completed the
transaction and realized a loss on
settlement of
EUR 26 million.
ING and the board of Makelaarsland agreed
during 2021 to continue Makelaarsland independently.
The negative result on disposal of group
companies from this management buyout
amounted to a loss
of approximately EUR 3 million.
In 2020 ING realized a EUR 3 million loss on
the sale of Cel Data Services N.V.
against net assets
disposed of EUR 4 million. Cel Data Services
N.V. is active in ATM services including cash loading
and ICT
managed services for ING’s Belgian retail
branches, other Belgian financial institutions
and retail shops.
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.
25
Net result on derecognition
of financial assets measured at amortised
cost
Net result on derecognition of financial assets measured at amortised cost
in EUR million
2021
2020
2019
Loans at amortised cost
1
4
13
Securities at amortised cost
-1
185
24
Net result on derecognition of financial assets measured at amortised cost
-0
189
38
In 2020, driven by exceptional market circumstances
in the first quarter, ING realised a profit
on the
sale of debt securities at amortised cost of EUR
186 million.
26
Other income
In 2021, Other income of EUR 230 million
(2020: EUR 12 million; 2019: EUR 213 million)
includes the
recognition of EUR 72 million relating to
a better than expected recovery of the
insolvency of a
financial institution in the Netherlands and
EUR 34 million proceeds of the agreement with
Raiffeisenbank due to the withdrawal from
the retail banking market in the Czech
Republic.
Furthermore, it includes the positive recovery
of defaulted receivables of EUR 25 million
(2020: EUR 27
million).
In 2020, Other income is impacted by positive
and negative non-recurring results, including
a loss of
EUR 58 million following a settlement with
the Australian Tax Authorities related to
former insurance
activities, that were fully indemnified by NN Group.
This was offset by a tax profit for the same
amount
resulting from the release of the provision for
uncertain tax positions in current tax liabilities.
In 2019, Other income also included the
recognition of EUR 79 million receivable
related to the
insolvency of a financial institution.
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Staff Expenses
ING Bank Annual Report 2021
228
27
Staff Expenses
Staff expenses
in EUR million
2021
2020
2019
Salaries
4,011
3,751
3,572
Pension costs and other staff-related benefit costs
408
395
366
Social security costs
563
538
530
Share-based compensation arrangements
28
23
39
External employees
699
881
974
Education
47
43
64
Other staff costs
182
186
208
5,938
5,817
5,753
Share-based compensation arrangements
include EUR 29 million (2020: EUR 17 million;
2019: EUR 38
million) relating to equity-settled share-based
payment arrangements and EUR 2 million
(2020: EUR 2
million; 2019: EUR 3 million) relating to
cash-settled share-based payment arrangements.
Number of employees
Netherlands
Rest of the world
Total
2021
2020
2019
2021
2020
2019
2021
2020
2019
Total average number
of internal employees at full
time equivalent basis
15,138
15,201
14,415
42,523
40,701
39,016
57,660
55,901
53,431
Remuneration of senior management, Management
Board Banking and Supervisory Board
Reference is made to Note 47 ‘Related parties’.
Stock option and share plans
ING Bank 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 Management Board Banking,
general managers and
other officers nominated by the Management
Board Banking), and to a considerable
number of
employees of ING Bank. The purpose of
the option and share schemes, apart from
promoting a lasting
growth of ING Bank, is to attract, retain and
motivate senior executives and staff.
In 2010, the Group Executive Board has
decided not to continue the option scheme
as from 2011.
These option schemes have run off during
the financial year 2020.
The obligations with regard to the existing
stock option plan and the share plans
is funded by newly
issued shares at the discretion of ING Group.
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 Bank 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
clawback 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 2021 relate
to the performance year 2020. In
2021,
123,750 share
awards (2020: 186,176; 2019: 2,837) were
granted to the Management Board Banking. To
senior
management and other employees
3,267,372 share awards (2020:
3,678,775; 2019:
2,167,817) were
granted.
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Other operating expenses
ING Bank Annual Report 2021
229
Changes in share awards
Share awards (in numbers)
Weighted average grant date
fair values (in euros)
2021
2020
2019
2021
2020
2019
Opening balance
3,876,206
3,855,035
5,852,986
7.25
11.14
11.62
Granted
3,391,122
3,864,951
2,170,654
9.69
5.12
10.04
Performance effect
11.12
Vested
-3,459,163
-3,690,340
-3,945,020
9.25
9.01
11.23
Forfeited
-135,506
-153,440
-223,585
7.61
8.55
11.39
Closing balance
3,672,659
3,876,206
3,855,035
7.60
7.25
11.14
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 volatilities
and the dividend yield of ING shares.
As at 31 December 2021, total unrecognised
compensation costs related to share awards
amount to
EUR 13 million (2020: EUR 10 million;
2019: EUR 15 million). These costs are expected
to be recognised
over a weighted average period of 1.7 years
(2020: 1.6 years; 2019: 1.4 years).
28
Other operating expenses
Other operating expenses
in EUR million
2021
2020
2019
Regulatory costs
1,265
1,105
1,021
Audit and non-audit services
34
29
30
IT related expenses
781
812
759
Advertising and public relations
305
335
391
External advisory fees
297
413
410
Office expenses
280
320
325
Travel and accommodation expenses
52
68
140
Contributions and subscriptions
112
109
108
Postal charges
38
38
46
Depreciation of property and equipment
573
578
551
Amortisation of intangible assets
261
251
237
(Reversals of) impairments of tangible assets
26
43
-3
(Reversals of) impairments of intangible assets
95
515
62
Addition to / (unused amounts reversed of) provision for reorganisations
214
149
6
Addition to / (unused amounts reversed of) other provisions
254
39
29
Other
669
541
477
5,257
5,344
4,590
Reference is made to Note 9 for (reversals
of) impairments of property and equipment
and Note 10 for
(reversals of) impairments of intangible assets.
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
2021, are contributions to DGS of EUR
435 million (2020: EUR 413 million; 2019: EUR
362 million) mainly
related to the Netherlands, Germany,
Belgium, and Poland and contributions
to the SRF and local
resolution funds of EUR 308 million (2020:
EUR 277 million; 2019: EUR 239 million). In
2021 local bank
taxes increased by EUR 107 million from
EUR 414 million in 2020 to EUR 522 million
(2019: EUR 420
million).
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Net cash flow from operating activities
ING Bank Annual Report 2021
230
Audit and non-audit services
Audit and non-audit services include fees
for services provided by the Bank’s auditors.
The increase of
audit fees in 2021
follow from the re-appointment of the
current auditor that also triggered a revision
of the audit fees.
Addition to / (unused amounts reversed of) provision for reorganisations
For further information reference is made
to Note 15 ‘Provisions’.
Addition to / (unused amounts reversed of) other provisions
For further information reference is made
to Note 15 ‘Provisions’ and Note 43
‘Legal proceedings’.
29
Net cash flow 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
2021
2020
2019
Cash flows from operating activities
Result before tax
6,774
3,810
6,831
Adjusted for:
- Depreciation and amortisation
834
829
789
-
Addition to loan loss provisions
516
2,675
1,120
-
Other non-cash items included in result before tax
413
1,259
64
Taxation paid
-1,871
-1,735
-2,369
Changes in:
–
Loans and advances to banks, not available on demand
262
10,032
-1,336
–
Deposits from banks, not payable on demand
8,438
43,044
-2,574
Net change in loans and advances to/ from banks, not available/
payable on demand
8,700
53,076
-3,909
–
Trading assets
-29
-2,095
606
–
Trading liabilities
-5,596
4,667
-3,173
Net change in Trading assets and Trading liabilities
-5,624
2,571
-2,567
Loans and advances to customers
-27,772
2,888
-16,696
Customer deposits
18,339
40,576
24,828
–
Non–trading derivatives
290
-1,420
1,047
–
Assets designated at fair value through profit or loss
-1,905
-1,371
-7
–
Assets mandatorily at fair value through profit or loss
1,650
-1,963
23,343
–
Other assets
-121
1,092
1,359
–
Other financial liabilities at fair value through profit or loss
-6,795
1,190
-12,211
–
Provisions and other liabilities
-1,298
-298
-2,068
Other
-8,179
-2,770
11,463
Net cash flow from/(used in) operating activities
-7,869
103,179
19,553
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30
Changes in liabilities arising from financing activities
ING Bank Annual Report 2021
231
30
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
in EUR million
2021
2020
2021
2020
2021
2020
2021
2020
Opening balance
55,573
93,721
15,897
16,515
1,339
1,507
72,809
111,742
Cashflows:
Additions
77,298
63,269
3,169
2,138
80,467
65,407
Redemptions / Disposals
-76,150
-99,212
-2,538
-2,608
-301
-273
-78,989
-102,093
Non cash changes:
Amortisation
-22
52
8
-14
14
18
56
Other
-120
-98
-27
-12
161
118
14
8
Changes in unrealised
revaluations
-962
198
-414
397
-1,376
595
Foreign exchange movement
1,827
-2,357
624
-519
6
-31
2,456
-2,907
Closing balance
57,443
55,573
16,719
15,897
1,220
1,339
75,382
72,809
31
Cash and cash equivalents
Cash and cash equivalents
in EUR million
2021
2020
2019
Treasury bills and other eligible bills
23
0
43
Deposits from banks/Loans and advances to banks
1,121
477
784
Cash and balances with central banks
106,520
111,087
53,202
Cash and cash equivalents at end of year
107,664
111,565
54,029
Treasury bills and other eligible bills included in cash and cash equivalents
in EUR million
2021
2020
2019
Treasury bills and other eligible bills included in securities at AC
23
43
23
0
43
Deposits from banks/Loans and advances to banks
in EUR million
2021
2020
2019
Included in cash and cash equivalents:
–
Deposits from banks
-7,059
-8,788
-8,519
–
Loans and advances to banks
8,180
9,265
9,303
1,121
477
784
Not included in cash and cash equivalents:
–
Deposits from banks
-78,033
-69,310
-26,307
–
Loans and advances to banks
15,411
16,098
25,830
-62,621
-53,212
-478
Total as included in the statement of financial position:
–
Deposits from banks
-85,092
-78,098
-34,826
–
Loans and advances to banks
23,591
25,363
35,133
-61,501
-52,734
307
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 40 ‘Transfer of financial assets,
assets pledged and
received as collateral’ for restrictions on
Cash and balances with central banks.
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32
Segments
ING Bank Annual Report 2021
232
Segment reporting
32
Segments
ING Bank’s segments are based on the internal
reporting structure by lines of business.
The Management Board Banking of ING Bank
(Chief Operating Decision Maker (CODM))
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 CODM.
Recognition and measurement of segment
results are in line with the accounting
policies as described
in Note 1 ‘Basis of preparation and significant
accounting policies’. The results for the
period for each
reportable segment are after intercompany
and intersegment eliminations and are
those reviewed by
the CODM to assess performance of the
segments. 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.
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 by line of business
Main source of income
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.
Specification of geographical split of the segments
Geographical split of the segments
Main countries
The Netherlands
Belgium
Including Luxembourg
Germany
Including Austria
Other Challengers
Australia, Czech Republic, France, Italy, Spain, Portugal, Other
Growth Markets
Poland, Romania, Turkey, Philippines and Asian stakes
Wholesale Banking Rest of World
UK, Americas, Asia and other countries in Central and Eastern Europe
Other
Corporate Line
ING Bank monitors and evaluates the performance
of ING Bank at a consolidated level and by
segment. The Management Board Banking
consider this to be relevant to an understanding
of the
Bank’s financial performance, because it allows
investors to understand the primary method
used by
management to evaluate the Bank’s operating
performance and make decisions about
allocating
resources.
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32
Segments
ING Bank Annual Report 2021
233
ING Bank reconciles the total segment results
to the total result using Corporate Line.
The Corporate
Line is a reflection of capital management
activities and certain income and expenses
that are not
allocated to the banking businesses, including
the recognition of value-added tax (VAT)
refunds in the
Netherlands (recorded under expenses). In
2021, income was supported by a EUR
143 million
conditional TLTRO III benefit and the recognition
of a EUR 72 million receivable related to
the insolvency
of a financial institution, while expenses included
EUR 87 million of regulatory costs due to
an
incidental 50% increase in the Dutch bank
tax as well as a significantly lower
VAT refund compared
with the previous year. In 2020, net interest
income on the Corporate Line sharply
declined, mainly due
to lower interest results from foreign
currency hedging due to lower interest rate
differentials. In 2019,
a EUR 119 million gain from the release of
a currency translation reserve following the
sale of ING’s
stake in Kotak Mahindra Bank was included,
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 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.
The information presented in this note is
in line with the information presented to the
Management
Board Banking of ING Bank.
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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32
Segments
ING Bank Annual Report 2021
234
Segments by line of business
12 month period
2021
2020
2019
in EUR million
Retail
Nether-
lands
Retail
Belgium
Retail
Ger-
many
1
Retail
Other
1
Whole-
sale
Banking
Corporat
e Line
Total
Retail
Nether-
lands
Retail
Belgium
Retail
Ger-
many
Retail
Other
Whole-
sale
Banking
Corporat
e Line
Total
Retail
Nether-
lands
Retail
Belgium
Retail
Ger-
many
Retail
Other
Whole-
sale
Banking
Corporat
e Line
Total
Income
– Net interest income
3,290
1,747
1,447
2,712
4,151
268
13,615
3,511
1,816
1,587
2,760
3,718
208
13,600
3,541
1,907
1,579
2,787
3,794
466
14,074
– Net fee and commission income
771
519
497
530
1,197
3
3,517
681
413
437
412
1,069
-1
3,011
674
374
268
423
1,135
-6
2,868
– Total investment and other income
201
209
65
361
568
-51
1,354
279
145
93
89
609
-180
1,034
290
161
138
298
369
95
1,352
Total income
4,262
2,475
2,009
3,602
5,916
221
18,485
4,471
2,373
2,117
3,261
5,396
27
17,645
4,505
2,442
1,985
3,509
5,298
556
18,295
Expenditure
– Operating expenses
2,403
1,667
1,174
2,452
2,926
574
11,195
2,236
1,737
1,110
2,469
3,218
390
11,160
2,210
1,609
1,080
2,210
2,937
298
10,343
– Addition to loan loss provisions
-76
225
49
202
117
516
157
514
57
593
1,351
3
2,675
91
186
-53
364
532
1,120
Total expenses
2,326
1,892
1,223
2,654
3,042
574
11,711
2,393
2,251
1,167
3,063
4,568
393
13,835
2,301
1,794
1,027
2,574
3,469
298
11,463
Result before taxation
1,936
583
786
949
2,874
-353
6,774
2,078
122
950
199
827
-366
3,810
2,204
647
957
935
1,830
258
6,831
Taxation
499
146
252
212
703
64
1,876
523
51
331
105
295
13
1,317
558
192
328
234
464
114
1,889
Non-controlling interests
4
98
26
128
-1
4
55
20
78
3
82
14
99
Net result IFRS
1,437
437
529
639
2,144
-417
4,770
1,556
71
615
39
512
-378
2,415
1,646
455
627
619
1,352
145
4,843
1 In the fourth quarter of 2021, ING exited from the retail banking markets in Austria and
the Czech Republic.
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32
Segments
ING Bank Annual Report 2021
235
Geographical split of the segments
12 month period
2021
2020
2019
in EUR million
Nether-
lands
Belgium
Ger-
many
1
Other
Challen
gers
1
Growth
markets
Whole-
sale
Banking
Rest of
World
Other
Total
Nether-
lands
Belgium
Ger-
many
Other
Challen
gers
Growth
markets
Whole-
sale
Banking
Rest of
World
Other
Total
Nether-
lands
Belgium
Ger-
many
Other
Challen
gers
Growth
markets
Whole-
sale
Banking
Rest of
World
Other
Total
Income
– Net interest income
4,068
2,109
1,943
1,889
1,532
1,805
269
13,615
4,178
2,116
2,090
1,781
1,578
1,654
204
13,600
4,213
2,233
2,122
1,808
1,610
1,633
457
14,074
– Net fee and
commission income
1,070
717
525
331
351
520
3
3,517
981
583
468
276
286
418
-1
3,011
994
533
315
283
304
446
-6
2,868
– Total investment and
other income
314
265
121
88
446
171
-51
1,354
398
196
127
27
215
243
-172
1,034
119
233
169
16
420
292
104
1,352
Total income
5,452
3,092
2,589
2,308
2,330
2,496
221
18,485
5,557
2,896
2,684
2,084
2,078
2,315
31
17,645
5,325
2,999
2,606
2,107
2,334
2,370
554
18,295
Expenditure
– Operating expenses
3,279
1,960
1,346
1,547
1,276
1,214
574
11,195
3,347
2,037
1,270
1,566
1,272
1,273
395
11,160
2,994
1,925
1,237
1,318
1,277
1,293
299
10,343
– Addition to loan loss
provisions
28
184
117
99
110
-21
516
421
589
267
298
412
684
3
2,675
146
268
-40
171
271
303
1,120
Total expenses
3,307
2,143
1,463
1,646
1,386
1,192
574
11,711
3,769
2,627
1,537
1,864
1,684
1,957
397
13,835
3,140
2,194
1,197
1,489
1,548
1,596
299
11,463
Result before taxation
2,145
948
1,125
662
944
1,303
-353
6,774
1,788
269
1,146
220
395
357
-366
3,810
2,185
805
1,409
618
785
774
255
6,831
Retail Banking
1,936
583
786
206
742
4,253
2,078
122
950
-27
225
3,348
2,204
647
957
307
628
4,744
Wholesale Banking
209
365
340
456
202
1,303
2,874
-290
147
197
247
169
357
827
-19
158
451
311
157
774
-3
1,830
Corporate Line
-353
-353
-366
-366
258
258
Result before taxation
2,145
948
1,125
662
944
1,303
-353
6,774
1,788
269
1,146
220
395
357
-366
3,810
2,185
805
1,409
618
785
774
255
6,831
Taxation
556
240
359
194
178
287
63
1,876
518
89
381
91
141
85
12
1,317
549
247
476
207
159
144
107
1,889
Non-controlling
interests
4
124
128
-1
4
75
78
3
96
99
Net result IFRS
1,589
708
762
468
641
1,016
-415
4,770
1,271
180
761
129
178
273
-378
2,415
1,637
558
929
411
530
630
148
4,843
1 In the fourth quarter of 2021, ING exited from the retail banking markets in Austria and
the Czech Republic.
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33
Information on geographical areas
ING Bank Annual Report 2021
236
33
Information on geographical
areas
ING Bank’s business lines operate in seven main
geographical areas: the Netherlands, Belgium,
Germany, Poland, 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 and do
not include countries
where ING only has representation offices.
The Netherlands is ING Bank’s country of
domicile.
In order to increase ING Bank’s tax transparency,
additional financial information on a per
country
basis has been included in this disclosure: Tax
paid represents all income tax paid to
and/or received
from tax authorities in the current year, irrespective
of the fiscal year to which these payments
or
refunds relate. Total assets by country does
not include intercompany balances
and reconciles to the
total assets in the consolidated statement
of financial position of ING Bank.
The table below provide additional information,
for the years 2021, 2020 and 2019 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
Tax paid
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
Netherlands
Netherlands
ING Bank N.V.
Wholesale / Retail
15,138
15,201
14,415
5,671
5,422
5,552
301,446
286,119
269,730
1,442
934
1,771
506
493
466
428
591
709
Belgium
Belgium
ING Belgi
ë
N.V.
Wholesale / Retail
6,965
7,397
7,694
2,719
2,581
2,721
130,687
133,843
122,546
808
156
735
204
61
236
174
66
258
Luxemburg
ING Luxembourg S.A.
Wholesale / Retail
856
855
841
338
300
322
20,452
15,335
16,634
161
120
153
41
30
37
20
24
17
Rest of Europe
Poland
1
ING Bank Slaski S.A
Wholesale / Retail
10,674
9,425
8,968
1,509
1,399
1,344
43,888
40,928
37,220
660
438
533
154
131
141
235
232
166
Germany
ING DiBa A.G.
Wholesale / Retail
5,521
5,059
4,639
2,387
2,545
2,484
159,805
162,935
147,924
1,012
1,065
1,374
338
364
465
493
409
460
Romania
1
Branch of ING Bank N.V.
Wholesale / Retail
3,319
3,049
2,575
495
456
457
9,635
8,526
7,424
273
141
221
41
20
34
21
24
34
Spain
Branch of ING Bank N.V.
Wholesale / Retail
1,380
1,228
1,233
743
679
706
32,559
29,899
26,118
212
104
249
57
37
72
59
52
90
Italy
Branch of ING Bank N.V.
Wholesale / Retail
1,099
1,025
959
335
337
269
13,983
13,747
15,726
73
44
-39
25
24
4
2
2
4
UK
Branch of ING Bank N.V.
Wholesale
698
709
692
636
546
594
50,734
64,676
61,088
277
97
214
73
15
52
50
32
40
France
2
Branch of ING Bank N.V.
Wholesale / Retail
764
737
659
271
266
302
12,381
11,570
12,053
-107
-43
63
-27
-10
33
-7
9
48
Russia
ING Bank (Eurasia) Z.A.O.
Wholesale
281
297
293
38
51
93
898
1,035
1,499
3
3
68
0
0
22
-7
-3
49
Czech Republic
3
Branch of ING Bank N.V.
Wholesale
285
355
339
121
83
94
2,894
3,851
4,486
54
-3
16
12
0
3
-2
4
5
Hungary
Branch of ING Bank N.V.
Wholesale
119
131
138
44
43
24
1,148
1,092
1,299
12
6
-7
3
2
2
2
1
2
Slovakia
1
Branch of ING Bank N.V.
Wholesale
983
878
703
15
18
14
352
385
587
3
7
2
0
3
0
2
1
-1
Ukraine
PJSC ING Bank Ukraine
Wholesale
96
108
111
22
26
43
409
335
481
11
16
31
2
3
9
2
3
6
Austria
3
Branch of ING DiBa A.G.
Wholesale
292
332
279
175
75
80
419
1,840
1,441
101
0
0
16
-5
1
6
-14
1
Bulgaria
Branch of ING Bank N.V.
Wholesale
61
65
68
14
13
12
420
406
358
2
2
2
0
0
0
0
0
0
Ireland
Branch of ING Bank N.V.
Wholesale
64
50
48
70
72
71
1,831
2,050
2,575
65
58
48
8
7
7
8
7
7
Portugal
Branch of ING Bank N.V.
Wholesale
11
13
12
15
16
18
675
790
899
9
11
14
3
7
4
3
4
5
Switzerland
Branch of ING Bank N.V.
Wholesale
259
256
257
241
187
234
11,081
7,939
8,577
148
88
126
21
13
-36
67
14
22
1 Includes significant amount of FTEs in relation to global services provided.
2 Public subsidies received, as defined in article 89 of the CRD IV, amounts to EUR
0.0 million (2020: EUR 0.3 million; 2019: EUR 0.3 million).
3 In the fourth quarter of 2021, ING exited from the retail banking markets in Austria and
the Czech Republic.
Contents
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Report of Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
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>
33
Information on geographical areas
ING Bank Annual Report 2021
237
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
Tax paid
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
North America
Canada
Payvision Canada Services
Ltd.
Wholesale
0
1
1
0
3
3
0
0
1
0
0
0
0
0
0
0
0
0
USA
ING Financial Holdings Corp.
Wholesale
563
600
626
936
720
813
55,582
48,205
45,521
779
39
366
182
16
118
148
38
130
Latin America
Brazil
Branch of ING Bank N.V.
Wholesale
63
89
89
13
30
43
288
1,813
2,921
1
3
27
5
19
6
8
4
7
Colombia
ING Capital Colombia S.A.S.
Dissolved
0
3
3
0
1
1
0
2
2
0
0
0
0
0
0
0
0
0
Mexico
ING Consulting, S.A. de C.V.
Wholesale
6
7
8
1
1
1
3
2
2
-1
-1
-2
0
0
0
0
0
0
Asia
China
Branch of ING Bank N.V.
Wholesale
79
90
89
26
26
35
1,654
1,598
2,031
0
-2
7
6
1
-1
-1
-5
0
Japan
Branch of ING Bank N.V.
Wholesale
30
32
33
25
29
31
2,256
3,104
5,109
4
-1
22
2
-1
8
3
2
10
Singapore
Branch of ING Bank N.V.
Wholesale
573
608
592
331
353
349
24,163
24,498
27,982
133
42
76
19
8
13
9
7
22
Macau
Payvision Macau Ltd.
In liquidation
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Hong Kong
Branch of ING Bank N.V.
Wholesale
105
122
128
79
92
96
6,691
7,030
7,350
5
-9
38
1
-1
7
-7
15
2
Philippines
1
Branch of ING Bank N.V.
Wholesale/ Retail
2,414
1,857
1,420
6
13
25
567
497
412
-33
-26
-11
-5
6
-5
1
2
2
South Korea
Branch of ING Bank N.V.
Wholesale
75
77
79
65
66
60
5,800
6,692
5,457
26
18
25
6
4
7
-2
10
3
Taiwan
Branch of ING Bank N.V.
Wholesale
33
34
34
26
36
26
2,963
3,160
2,873
-3
19
10
-1
4
0
0
1
3
Indonesia
PT ING Securities Indonesia
In liquidation
0
0
0
0
0
0
5
5
6
0
0
0
0
0
0
0
0
0
Malaysia
Branch of ING Bank N.V.
In liquidation
4
6
5
0
1
1
1
141
166
-1
-1
0
0
0
0
0
0
0
Sri Lanka
Branch of ING Business
Shared Services B.V.
Global services
0
0
0
0
0
0
Turkey
ING Bank A.S.
Wholesale / Retail
3,338
3,724
4,074
335
420
677
5,818
7,316
9,927
144
125
304
35
27
66
33
25
92
United Arab
Emirates
Branch of ING Bank N.V.
Wholesale
10
10
11
0
0
-1
1
1
0
-1
-2
-2
0
0
0
0
0
0
Australia
Australia
ING Bank (Australia) Ltd.
Wholesale / Retail
1,503
1,472
1,319
782
740
701
49,826
46,014
43,482
500
362
400
149
40
121
121
181
177
Other
Mauritius
ING Mauritius Investment I
In liquidation
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
Total
57,660
55,901
53,431
18,485
17,645
18,295
951,317
937,379
891,910
6,774
3,810
6,831
1,876
1,317
1,889
1,871
1,735
2,369
1 Includes significant amount of FTEs in relation to global services provided.
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34 Pensions and other post-employment benefits
ING Bank Annual Report 2021
238
2021
The higher tax charge of 35% in the Netherlands
(compared to the statutory rate of
25%) is mainly
caused by the non-deductible Dutch bank tax
(EUR 260 million) and the impairments
on deferred tax
assets regarding Payvision and Yolt (EUR 26
million tax).
The lower tax charge in Austria is caused by
previously not recognised tax losses
(EUR -10 million
tax).
The higher tax charge in Poland is mainly
caused by non-deductible regulatory-
and other costs.
2020
The higher tax charge of 53% in the Netherlands
(compared to the statutory rate of
25%) is mainly
caused by the non-deductible Dutch bank tax
(EUR 169 million) and the non-deductible
impairments
regarding goodwill (EUR 266 million)
and TMB (EUR 230 million).
The lower tax charge in Australia is caused by
a release of a tax provision after concluding
a
settlement with the Australian Tax Authorities
on an issue related to former Insurance
activities,
which issue was fully indemnified by NN Group.
The higher tax charges in Brazil and the
Philippines are mainly caused by the
de-recognition of tax
benefits for incurred tax losses due to expected
insufficient future taxable profits.
The higher tax charges in Poland and
Belgium are mainly caused by non-deductible
regulatory-
and
other costs.
2019
The relatively low tax charge in Switzerland
is caused by a deferred tax benefit
following a tax rate
reduction in 2019.
Additional notes to the Consolidated financial statements
34 Pensions and other post-employment benefits
Most group companies sponsor defined
contribution pension plans. The assets
of all ING Bank’s
defined contribution plans are held in independently
administered funds. Contributions are
generally
determined as a percentage of remuneration.
Contributions, including the defined contribution
plan
in the Netherlands, are principally determined
as a percentage of renumeration. 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 Bank 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 Bank provides other post-employment
benefits to certain former employees.
These are primarily
discounts on ING products.
Defined Contribution Plans
ING, as part of employee’s labour agreement,
sponsors a number of defined contribution
plans. ING’s
obligation is limited to contributions which
are agreed in advance and also includes
employee
contributions. The most significant plans
are in The Netherlands and Belgium.
The Employer
contribution are recognized as an expense
which amounted for 2021 EUR 369 million
(2020: EUR 356
million).
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34 Pensions and other post-employment benefits
ING Bank Annual Report 2021
239
Defined benefit retirement plans
Statement of financial position - Net defined benefit asset/liability
Plan assets and defined benefit obligation per country
Plan assets
Defined benefit
obligation
Funded Status
in EUR million
2021
2020
2021
2020
2021
2020
The Netherlands
427
469
578
643
-152
-174
United States
332
311
312
291
20
20
United Kingdom
1,968
1,896
1,236
1,199
732
696
Belgium
606
591
617
681
-10
-90
Other countries
338
316
372
393
-34
-77
Funded status (Net defined benefit asset/liability)
3,671
3,583
3,115
3,208
556
375
Presented as:
- Other assets
783
725
- Other liabilities
-227
-350
556
375
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
2021. 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:
Changes in fair value of plan assets
in EUR million
2021
2020
Opening balance
3,583
3,377
Interest income
37
50
Remeasurements: Return on plan assets excluding amounts included in interest income
2
246
Employer's contribution
26
170
Participants contributions
2
2
Benefits paid
-136
-128
Exchange rate differences
158
-134
Closing balance
3,671
3,583
Actual return on the plan assets
39
296
As at 31 December 2021 the defined benefit plans
did not hold any direct investments in ING
Bank
N.V. (2020: nil). During 2021 and 2020 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 funds have 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 Bank during 2022.
The overall funded status improved during
the year because of increased interest
rates, leading to
lower benefit obligations, and positive performance
of plan assets. Covid-19 still has an impact
on
most investment markets in 2021, the effect
on the fair value of ING Bank’s plan assets
is limited as a
large majority of our plan assets is invested
in liquid asset categories which mark to
market
frequently.
Changes in the present value of the defined
benefit obligation and other post-employment
benefits
for the period were as follows:
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34 Pensions and other post-employment benefits
ING Bank Annual Report 2021
240
Changes in defined benefit obligation and other post-employment benefits
Defined benefit
obligation
Other post-
employment
benefits
in EUR million
2021
2020
2021
2020
Opening balance
3,208
3,151
83
84
Current service cost
33
31
1
-2
Interest cost
31
44
2
2
Remeasurements: Actuarial gains and losses arising from changes in
demographic assumptions
-5
4
Remeasurements: Actuarial gains and losses arising from changes in
financial assumptions
-122
190
-16
7
Participants’ contributions
1
2
1
0
Benefits paid
-141
-132
-1
-1
Past service cost
0
2
0
Effect of curtailment or settlement
-0
0
-2
Exchange rate differences
109
-85
4
-8
Closing balance
3,115
3,208
72
83
Amounts recognised directly in Other
comprehensive income were as follows:
Changes in the net defined benefit assets/liability remeasurement reserve
in EUR million
2021
2020
Opening balance
-307
-336
Remeasurement of plan assets
2
246
Actuarial gains and losses arising from changes in demographic assumptions
5
-4
Actuarial gains and losses arising from changes in financial assumptions
122
-190
Taxation and Exchange rate differences
-34
-24
Total Other comprehensive income movement for the year
95
28
Closing balance
-212
-307
In 2021, EUR 2 million remeasurement
of plan assets that is recognised as a
gain in other
comprehensive income is driven by slightly
higher yields on investments.
The EUR 122 million actuarial gains arising from
changes in financial assumptions in the
calculation
of the defined benefit obligation are mainly
due to an increase in discount rates.
The accumulated amount of remeasurements
recognised directly in Other comprehensive
income is
EUR -262 million (EUR -212 million after tax)
as at 31 December 2021 (2020: EUR -343 million;
EUR -
307 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
Total
in EUR million
2021
2020
2019
2021
2020
2019
2021
2020
2019
Current service cost
33
31
28
1
-2
-1
34
29
27
Past service cost
0
2
-0
0
0
2
-0
Net Interest cost
-6
-6
-5
2
2
3
-4
-4
-3
Effect of curtailment or settlement
-0
0
0
-2
-2
0
0
Defined benefit plans
27
27
23
1
0
2
28
28
25
Defined contribution plans
369
356
340
Pension and other post employment
benefits
397
383
365
Other staff related benefits
11
12
2
Pension and other staff-related benefits
408
395
366
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 Bank 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
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35
Taxation
ING Bank Annual Report 2021
241
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 2021 was
1.5% (2020: 1.0%) 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 2.9% (2020: 2.7%).
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 (decrease) and EUR
549
million (increase), respectively.
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 supervisory requirements.
Plans in all
countries are designed to comply with
applicable local regulations governing
investments and
funding levels. ING Bank’s subsidiaries should
fund the cost of the entitlements
expected to be
earned on a yearly basis.
For 2022 the expected contributions to
defined benefit pension plans are EUR
33 million.
The benefit payments for defined benefit
and other post-employment benefits
expected to be made
by the plan between 2022-2026 are estimated
to be between EUR 113 million and EUR
136 million
per year. From 2027 to 2031 the total payments
made by the plan are expected to be EUR
743
million.
35
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
Bank is subject to taxation.
Changes in deferred tax
2021
Net liability (-)
Net asset (+)
opening
balance
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 (+)
ending
balance
Financial assets at FVOCI
-103
26
-1
1
7
-70
Investment properties
2
-3
-1
Financial assets and liabilities at FVPL
134
-39
20
-7
107
Depreciation
-10
5
-2
-7
Cash flow hedges
-360
233
1
-126
Pension and post-employment benefits
36
-54
-23
-8
-49
Other provisions
-5
28
-4
-0
19
Loans and advances
517
-2
-83
-1
-0
430
Unused tax losses carried forward
63
129
7
199
Other
-83
-83
18
1
-0
-147
190
120
30
15
-1
354
Presented in the statement of financial
position as:
–
Deferred tax liabilities
-584
-603
–
Deferred tax assets
773
957
190
354
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Taxation
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242
The above table shows netted deferred tax
amounts related to right-of-use assets
and lease
liabilities included in the row ‘Other’ a
deferred tax amount for right-of-use assets
of EUR 220 million
(2020: EUR 306 million) and a deferred tax amount
for lease liabilities of EUR 252 million (2020:
EUR
326 million).
The deferred tax on cash flow hedges relate
to floating rate lending with interest
rate swaps. Due to
an increase in the interest rate yield curve
in 2021 there was a negative revaluation through
other
comprehensive income and an increase of the
deferred tax asset of EUR 233 million.
Changes in deferred tax
2020
Net liability (-
)
Net asset (+)
opening
balance
Change
through
equity
Change
through
net result
Exchange
rate
difference
s
Changes in
the composi-
tion of the
group and
other
changes
Net liability (-
)
Net asset (+)
ending
balance
Financial assets at FVOCI
-99
7
-10
0
-103
Investment properties
-7
3
0
5
2
Financial assets and liabilities at FVPL
54
70
10
134
Depreciation
-19
6
2
-10
Cash flow hedges
-337
-23
0
-360
Pension and post-employment benefits
42
-8
-5
7
-0
36
Other provisions
6
-4
-7
0
-5
Loans and advances
490
-1
42
-15
0
517
Unused tax losses carried forward
61
7
-5
63
Other
-156
63
16
-1
-5
-83
Total
36
38
125
-9
0
190
Presented in the statement of financial
position as:
–
deferred tax liabilities
-695
-584
–
deferred tax assets
730
773
36
190
The above table shows netted deferred tax
amounts related to right-of-use assets
and lease
liabilities included in the row ‘Other’ a
deferred tax amount for right-of-use assets
of EUR 306 million
(2019: EUR 370 million) and a deferred tax amount
for lease liabilities of EUR 326 million (2019:
EUR
376 million).
Deferred tax in connection with unused tax losses carried forward
2021
2020
Total unused tax losses carried forward
2,165
1,675
Unused tax losses carried forward not recognised as a deferred tax asset
819
903
Unused tax losses carried forward recognised as a deferred tax asset
1,345
772
Average tax rate
22.3%
22.0%
Deferred tax asset
300
170
Total unused tax losses carried forward analysed by expiry terms
No deferred tax
asset recognised
Deferred tax
asset recognised
2021
2020
2021
2020
Within 1 year
1
More than 1 year but less than 5 years
3
4
642
57
More than 5 years but less than 10 years
9
92
8
More than 10 years but less than 20 years
Unlimited
808
806
704
707
819
903
1,345
772
The above mentioned deferred tax asset
of EUR 300 million (2020: EUR 170 million)
and the related
unused tax losses carried forward exclude
the deferred tax liability recognised in the
Netherlands
with respect to the recapture of tax losses originated
in the United Kingdom but previously
deducted
in the Netherlands for the amount of EUR
102 million (2020: EUR 107 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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Taxation
ING Bank Annual Report 2021
243
Breakdown of certain net deferred tax asset positions by jurisdiction
2021
2020
Italy
86
Poland
265
France
66
28
Philippines
7
China
12
Czech
2
Hong Kong
1
United States of America
1
354
114
The table above includes 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.
In 2021 ING Bank Slaski (Poland) incurred
a tax loss following the large value changes
of the cash flow
hedge derivatives which are settled net via
a central counter party. This tax loss can be
carried
forward for 5 years. Based on a taxable profit
forecast, ING considers it probable that
the future
taxable profits will compensate for this tax
loss carry forward position within 2 years.
Based on this a
deferred tax asset on unused tax losses
carried forward (EUR 117 million) is fully recognised
during
2021. The remaining deferred tax amount in
Poland of EUR 148 million relates
to temporary tax
differences on loans and advances and financial
assets at fair value through profit and loss.
Recognition is based on the fact that it is probable
that the entity will have taxable profits and/or
can
utilise tax planning opportunities before expiration
of the deferred tax assets. Changes in
circumstances in future periods may adversely
impact the assessment of the recoverability.
The
uncertainty of the recoverability is taken
into account in establishing the deferred
tax assets.
As at 31 December 2021 and 31 December
2020, ING Bank N.V. had no significant temporary
differences associated with the parent company’s
investments in subsidiaries as any economic
benefit from those investments will not
be taxable at parent company level.
Statement of profit or loss – Taxation
Taxation by type
Netherlands
Rest of the world
Total
in EUR million
2021
2020
2019
2021
2020
2019
2021
2020
2019
Current taxation
459
428
424
1,447
1,015
1,480
1,906
1,442
1,904
Deferred taxation
47
64
42
-78
-189
-57
-30
-125
-15
507
492
466
1,369
826
1,423
1,876
1,317
1,889
Reconciliation of the weighted average statutory income tax rate to ING Bank’s effective income tax rate
2021
2020
2019
Result before tax from continuing operations
6,774
3,810
6,831
Weighted average statutory tax rate
24.3%
25.6%
25.9%
Weighted average statutory tax amount
1,645
975
1,770
Permanent differences affecting current tax
Participation exemption
-68
-46
-45
Other income not subject to tax
-32
-5
-76
Expenses not deductible for tax purposes
201
320
168
Current tax from previously unrecognised amounts
51
17
48
State and local taxes
64
44
72
Adjustments to prior periods
-12
-16
14
Differences affecting deferred tax
Impact on deferred tax from change in tax rates
9
10
-64
Deferred tax benefit from previously unrecognised amounts
-18
-6
Write-off/reversal of deferred tax assets
37
24
2
Effective tax amount
1,876
1,317
1,889
Effective tax rate
27.7%
34.6%
27.7%
The weighted average statutory tax rate
in 2021 ( 24.3%)
is 1.3% lower than that of 2020.
The effective tax rate of
27.7% in 2021
is higher than the weighted average statutory
tax rate. This is
mainly caused by expenses non-deductible
for tax purposes like the non-deductible bank
tax and a
tax charge caused by the recapture of tax
losses originated in the United Kingdom
but previously
deducted in the Netherlands.
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35
Taxation
ING Bank Annual Report 2021
244
Included in the “Adjustments to prior periods”
in 2020 is a release of a tax provision of EUR
-68 million
after concluding on a settlement with the
Australian tax authorities with respect to
an issue related
to former insurance activities, which issue
was fully indemnified by NN Group.
From the remaining on
balance prior year tax adjustments of EUR
52 million, EUR 33 million can be attributed
to the
Netherlands, EUR 11 million to Germany
and EUR 8 million to several other countries.
The weighted average statutory tax rate
in 2020 was
slightly
lower compared to the rate of 25.9% in
2019.
The effective tax rate of 34.6% in 2020 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 like the
non-deductible bank tax and non-deductible
losses with respect to goodwill impairments
and
impairments on associates in the Netherlands
and in some other European countries.
The effective tax rate of
27.7% in 2019
was higher than the weighted average
statutory tax rate.
This was mainly caused by a high amount of
expenses non-deductible for tax purposes due
to non-
deductible bank tax in the Netherlands and regulatory
expenses non-deductible for tax purposes
in
some other European countries.
Equity – Other comprehensive income
Income tax related to components of other comprehensive income
in EUR million
2021
2020
2019
Unrealised revaluations financial assets at fair value through other comprehensive
income and other revaluations
14
-3
6
Realised gains/losses transferred to the statement of profit or loss
(reclassifications from equity to profit or loss)
12
10
12
Changes in cash flow hedge reserve
233
-23
-199
Remeasurement of the net defined benefit asset/liability
-54
-8
-14
Changes in fair value of own credit risk of financial liabilities at fair value through
profit or loss
-8
-1
7
Exchange rate differences and other
-77
63
7
Total income tax related to components of other comprehensive income
120
38
-181
Tax Contingency
The contingent liability (also disclosed in note
42 ‘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.
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36 Fair value of assets and liabilities
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36 Fair value of assets
and liabilities
a) 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.
b) Valuation Control framework
The valuation control framework covers
the product approval process (PARP), pricing,
independent
price verification (IPV), valuation adjustments,
and model use. Valuation processes
are governed by
various governance bodies, including Local
Parameter Committees, Global Price Testing
and
Impairment Committee, Market Data Committee
and Valuation Model Committee. All relevant
committees meet on a regular basis (monthly/quarterly),
where agenda covers the aforementioned
valuation controls.
The Global Price Testing and Impairment
Committee is responsible for the oversight
and the approval
of the outcome of impairments (other than
loan loss provisions) and valuation processes.
It oversees
the quality and coherence of valuation methodologies
and performance. The Valuation Model
Committee is responsible for the approval
of fair value pricing models and fair
and prudent valuation
adjustment models and the Local Parameter
Committee monitors the appropriateness
of (quoted)
pricing, any other relevant market info, as well
as the appropriateness of pricing models
themselves
related to the fair valued positions to which they
are applied. The Local Parameter Committee
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.
c) 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,
Model Risk
adjustments, Credit Valuation Adjustments
(CVA), Debit valuation Adjustments
(DVA), including DVA
on derivatives and own issued liabilities, Collateral
Valuation Adjustment (CollVA) and Funding
Valuation Adjustment (FVA)'.
For financial instruments measured by internal
models where one or more unobservable
market
inputs are significant for valuation, a
difference between the transaction price
and the theoretical
price resulting from the internal model
can occur. ING defers material Day One profit
or loss relating
to financial instruments classified as Level
3 and financial instruments with material
unobservable
inputs into CVA which are not necessarily
classified as Level 3. The Day One profit
or loss is amortised
over the life of the instrument or until the
observability improves. Both the impact
on the profit and
loss per year end 2021 and the Day One profit
or loss reserve in the balance sheet
as per 31
December 2021 are deemed to be immaterial.
The following table presents the models reserves
for financial assets and liabilities:
Valuation adjustment on financial assets and liabilities
as at 31 December
2021
2020
Bid/Offer
-143
-121
Model Risk
-11
-25
CVA
-159
-238
DVA
-66
-124
CollVA
-8
-16
FVA
-95
-111
Total Valuation Adjustments
-482
-634
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36 Fair value of assets and liabilities
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246
Bid-Offer Adjustment
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 a market quoted price is not
available, the price used is the fair value
that is most
representative within the bid-offer spread.
Model Risk Adjustment
Model risk adjustments addresses the risk
of possible financial losses resulting from the
use of a mis-
specified, misapplied, or incorrect implementation
of a model.
Credit Valuation Adjustment (CVA)
Credit Valuation Adjustment (CVA) is the
adjustment on the fair value of a derivative
trade to
account for the possibility that a counterparty
can go into default. In other words, it is
the market
value of counterparty credit risk. On the
contrary, Debit Valuation Adjustment (DVA)
reflects the
credit risk of ING for its counterparty. CVA
and DVA combinedly are regarded
as the Bilateral
Valuation Adjustment (BVA). The calculation
of CVA 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.
Debit Valuation Adjustment (DVA)
ING recognises two types of Debit Valuation
Adjustments, namely DVA on derivatives,
as
aforementioned and DVA on own issued financial
liabilities. The application of DVA on own issued
financial liabilities is for those financial liabilities
measured at fair value through profit
or loss, if the
credit risk component has not been included
in the prices. In this DVA calculation,
the default
probability of the institution are estimated
based on the ING Credit spread.
Collateral Valuation Adjustment (CollVA)
Collateral Valuation Adjustment 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.
Funding Valuation Adjustment (FVA)
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.
d) Fair value hierarchy
ING Bank 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 observability of the valuation inputs
from (unadjusted) quoted prices.
Highest priority is
retained
to (unadjusted) quoted prices in active
markets for identical assets or liabilities
and the
lowest priority to valuation techniques supported
by unobservable inputs.
Transfers into and transfers out of fair value
hierarchy levels are made on a quarterly
basis at the
end of the reporting period.
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.
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 Bank
establishes
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36 Fair value of assets and liabilities
ING Bank Annual Report 2021
247
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
are observable, such as interest rates and
yield curves observable at commonly
quoted intervals,
implied volatilities, and credit spreads.
Instruments, where inputs are unobservable
are 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.
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.
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 a significant part
of the overall valuation the valuation input
is
unobservable, or is determined by reference to
price quotes where the market is considered
inactive.
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.
Financial instruments at fair value
The fair values of the financial instruments
were determined as follows:
Methods applied in determining fair values of financial assets and liabilities (carried at fair value)
Level 1
Level 2
Level 3
Total
2021
2020
2021
2020
2021
2020
2021
2020
Financial Assets
Financial assets at fair value
through profit or loss
- Equity securities
17,599
7,902
2
2
134
138
17,735
8,041
- Debt securities
2,317
3,379
7,016
4,867
2,643
1,269
11,976
9,514
- Derivatives
6
2
21,154
30,623
140
197
21,299
30,821
- Loans and receivables
1
48,706
53,733
2,248
1,265
50,954
54,998
19,922
11,284
76,877
89,225
5,165
2,870
101,964
103,374
Financial assets at fair value
through other comprehensive
income
- Equity securities
2,232
1,688
225
176
2,457
1,862
- Debt securities
21,753
31,593
5,587
1,385
27,340
32,977
- Loans and receivables
1
838
1,056
838
1,056
23,984
33,282
5,587
1,385
1,063
1,231
30,635
35,895
Financial liabilities
Financial liabilities at fair value
through profit or loss
–
Debt securities
377
697
5,227
5,211
135
180
5,739
6,087
–
Deposits
2
43,582
48,558
2
43,582
48,561
–
Trading securities
955
700
120
70
0
0
1,075
768
–
Derivatives
63
56
20,388
27,094
195
217
20,646
27,365
1,395
1,455
69,317
80,933
330
398
71,041
82,782
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36 Fair value of assets and liabilities
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The following methods and assumptions were
used by ING Bank to estimate the fair value
of the
financial instruments:
Equity securities
Instrument description:
Equity securities include stocks
and shares, corporate investments
and
private equity investments.
Valuation:
If available, the fair values of publicly
traded equity securities and private
equity securities
are based on quoted market prices. In
absence of active markets, fair values are estimated
by
analysing the investee’s financial position,
result, risk profile, prospect, price, earnings
comparisons
and revenue multiples. Additionally, reference
is made to valuations of peer entities
where quoted
prices in active markets are available. 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 the fair values.
Fair value hierarchy:
The majority of equity securities
are publicly traded and quoted prices
are
readily and regularly available.
Hence, these securities are classified
as Level 1.
Equity securities
which are not traded in active markets mainly
include corporate investments,
fund investments and
other equity securities and are classified
as Level 3.
Debt securities
Instrument description:
Debt securities include government bonds,
financial institutions bonds and
Asset-backed securities (ABS).
Valuation:
Where available, fair values for debt securities
are generally based on quoted market
prices. Quoted market prices are obtained
from an exchange market, dealer, broker,
industry group,
pricing service, or regulatory service. The quoted
prices from non-exchange sources are reviewed
on
their tradability of market prices. If quoted prices
in an active market are not available, fair
value is
based on an analysis of available market
inputs, which includes consensus prices
obtained from one
or more pricing services. Furthermore, fair
values are determined by valuation techniques
discounting expected future cash flows using
a market interest rate curves, referenced
credit
spreads, maturity of the investment, and
estimated prepayment rates where applicable.
Fair value hierarchy:
Government bonds and financial institutions
bonds are generally traded in
active markets, where quoted prices are readily
and regularly available and are hence,
classified as
Level 1. The remaining positions are classified
as Level 2 or Level 3.
Asset backed securities for which
no active market is available and a wide
discrepancy in quoted prices exists, are
classified as Level 3.
Derivatives
Instrument description:
Derivatives contracts can either be exchange-traded
or over the counter
(OTC). Derivatives include interest rate derivatives,
FX derivatives, Credit derivatives, Equity
derivatives and commodity derivatives.
Valuation:
The fair value of exchange-traded
derivatives is determined using quoted
market prices in
an active market and are classified as Level
1 of the fair value hierarchy. For instruments
that are 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.
The valuation
techniques and inputs depend on the type
of derivatives
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 simulations. These
valuation
models calculate the present value of expected
future cash flows, based on ‘no-arbitrage’
principles.
The models are commonly used in the financial
industry and inputs to the validation
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. These inputs include 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 and reference
is made
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 and
Debit Valuation Adjustments to reflect the
credit risk of
ING for its counterparty. See sections CVA/DVA
in section c) Valuation Adjustments for
more details
regarding the calculation.
Fair value hierarchy:
The majority of the derivatives are priced
using observable inputs and are
classified as Level 2. Derivatives for which the
input cannot be implied from observable
market data
are classified as Level 3.
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Loans and receivables
Instrument description:
Loans and receivables are non-derivative
financial assets with fixed or
determinable payments that are not quoted
in an active market. Loans and
receivables carried at
fair value includes trading loans, being securities
lending and similar agreement comparable
to
collateralised lending, syndicated loans, loans
expected to be sold and receivables with
regards to
reverse repurchase transactions.
Valuation:
The fair value of loans and receivables
are generally based on quoted market prices.
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.
Fair value hierarchy:
Loans and receivables are predominantly
classified as Level 2. Loans and
receivables 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
are classified as
Level 3.
Financial liabilities at fair value through
profit and loss
Instrument description:
Financial liabilities at fair value through profit
and loss include debt
securities, debt instruments, primarily comprised
of structured notes, which are held
at fair value
under the fair value option. Besides that,
it includes derivative contracts and repurchase
agreements.
Valuation:
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.
Fair value hierarchy:
The majority of the derivatives are classified
as Level 2. Derivatives for which
the input cannot be derived from observable
market data are classified as Level
3.
e) Transfers between Level 1 and 2
As a consequence of a change in the levelling
methodology of INGs bond portfolio
in 2021, ING
recorded an EUR 2.6 billion and EUR 0.8 billion
transfer from Level 1 to Level 2 respectively
in debt
securities measured at fair value through
other comprehensive income and debt securities
measured
at fair value through profit or loss. No significant
transfers from Level 2 to Level
1 were recorded in
the reporting period 2021.
f) Level 3: Valuation techniques and inputs used
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 2021 of
EUR 6.2 billion
(31 December 2020: EUR 4.1 billion), an amount
of EUR 2.0 billion ( 32.5%) (31 December
2020: EUR
2.1 billion, being 52.3%) 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 2.9 billion (31 December
2020: EUR
0.9 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 1.3 billion (31 December
2020: EUR 1.1 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
2021 of EUR 0.3
billion (31 December 2020: EUR 0.4 billion),
an amount of EUR 0.1 billion (42.0%) (31
December 2020:
EUR 0.1 billion, being 34.6%) is based on
unadjusted quoted prices in inactive
markets. As ING does
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36 Fair value of assets and liabilities
ING Bank Annual Report 2021
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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
2020:
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 0.1 billion (31 December
2020: EUR 0.2 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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36 Fair value of assets and liabilities
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Valuation techniques and range of unobservable inputs (Level 3)
Assets
Liabilities
Valuation techniques
Significant unobservable inputs
Lower range
Upper range
In EUR million
2021
2020
2021
2020
2021
2020
2021
2020
At fair value through profit or loss
Debt securities
2,643
1,269
Price based
Price (%)
0%
0%
121%
107%
Equity securities
134
137
1
Price based
Price (price per share)
0
0
5,475
5,475
Loans and advances
1,598
1,090
2
Price based
Price (%)
0%
0%
100%
101%
Present value techniques
Credit spread (bps)
0
0
250
250
(Reverse) repo's
650
176
Present value techniques
Interest rate (%)
0%
3%
1%
4%
Structured notes
135
180
Price based
Price (%)
84%
74%
125%
109%
Option pricing model
Equity volatility (%)
13%
14%
30%
25%
Equity/Equity correlation
n.a.
0.6
n.a.
0.9
Equity/FX correlation
0
-0.7
0
0.3
Dividend yield (%)
3%
0%
4%
5%
Derivatives
–
Rates
5
2
35
38
Option pricing model
Interest rate volatility (bps)
43
12
82
70
Present value techniques
Reset spread (%)
2%
2%
2%
2%
–
FX
27
30
Present value techniques
FX volatility (%)
1%
n.a.
16%
n.a.
Option pricing model
FX volatility (bps)
n.a.
6
n.a.
10
Implied volatility (%)
1%
n.a.
22%
n.a.
–
Credit
75
168
94
154
Present value techniques
Credit spread (bps)
1
2
359
1,403
Jump rate (%)
n.a.
n.a.
n.a.
n.a.
Price based
Price (%)
0%
99%
100%
107%
–
Equity
30
24
27
20
Option pricing model
Equity volatility (%)
11%
5%
119%
64%
Equity/Equity correlation
0.5
0.5
0.8
0.9
Equity/FX correlation
-0.7
-0.6
0.1
0.1
Dividend yield (%)
0%
0%
18%
34%
Price based
Price (%)
0%
3%
0%
3%
–
Other
3
3
9
3
Option pricing model
Commodity volatility (%)
20%
18%
89%
55%
Com/Com correlation
n.a.
n.a.
n.a.
n.a.
Com/FX correlation
n.a.
-0.5
n.a.
-0.3
At fair value through other comprehensive income
–
Loans and advances
838
1,056
Present value techniques
Prepayment rate (%)
9%
9%
9%
9%
Price based
Price (%)
99%
99%
100%
99%
–
Equity
225
176
Present value techniques
Credit spread (bps)
2
2
2
2
Interest rate (%)
3%
3%
3%
3%
Price based
Price (%)
1%
n/a
1%
n/a
Price based
Other (EUR)
63
63
80
80
Total
6,228
4,101
330
398
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36 Fair value of assets and liabilities
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252
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 yield
above current market rates.
Credit spreads
Credit spread is the premium above a benchmark
interest rate 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.
Correlation
Correlation is a measure of dependence between
two underlying references which is relevant
for
valuing derivatives and other instruments
having more than one underlying reference.
High positive
correlation (close to 1) indicates strong positive
(statistical) relationship, where underliers
move,
everything else equal, into the same direction.
The same holds for a high negative
correlation.
Reset spread
Reset spreads are key inputs to mortgage
linked prepayment swaps valuation.
Reset spread is the
future spread at which mortgages will re-price
at interest rate reset dates.
Inflation rate
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.
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.
Jump rate
Jump rates simulate abrupt changes in valuation
models. The rate is an added component
to the
discount rate in the model to include
default risks.
Prepayment rate
Prepayment rate is a key input to mortgage
and loan valuation. Prepayment rate is the
estimated rate
at which mortgage borrowers will repay their
mortgages early, e.g. 5% per year. Prepayment
rate and
reset spread are key inputs to mortgage
linked prepayment swaps valuation
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36 Fair value of assets and liabilities
ING Bank Annual Report 2021
253
Level 3: Changes during the period
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
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Opening balance
882
174
1
8
1,191
1,381
796
1,244
1,231
1,961
4,101
4,768
Realised gain/loss
recognised in the statement of profit or loss during the period
1
22
–61
0
–1
32
–104
–80
–198
–12
–19
–37
–383
Revaluation recognised in other comprehensive income during the period
2
22
–46
22
–46
Purchase of assets
453
453
3
3
1,496
1,180
1,919
212
165
39
4,036
1,887
Sale of assets
–48
–73
–3
–8
–612
–973
–141
–270
–234
–419
–1,037
–1,743
Maturity/settlement
–14
–39
–1
–163
–83
–13
–57
–109
–175
–299
–354
Reclassifications
–5
330
–6
–105
–11
224
Transfers into Level 3
43
517
–1
6
1
–1
–1
42
523
Transfers out of Level 3
–517
–90
–1
0
–98
–528
–138
–615
–755
Exchange rate differences
0
20
–24
9
–4
29
–27
Changes in the composition of the group and other changes
0
5
–2
1
–2
6
Closing balance
822
882
1
1
1,862
1,191
2,480
796
1,063
1,231
6,228
4,101
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 50 million (2020: EUR 312 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’.
In 2020, the transfer into Level 3 assets
is mainly driven by debt securities that
are part of a structure
transferred into level 3 due to market illiquidity
which decreased observability for
an input. In 2021,
these instruments transferred out of Level
3 due to the valuation not being significantly
impacted by
unobservable inputs.
In 2021, transfers out of Level 3 of financial
assets designated at fair value mainly
relate to (long term)
reverse repurchase transactions that were
transferred out of Level 3 due to the valuation
not being
significantly impacted by unobservable inputs.
In 2020, transfers out of Level 3 is mainly related
to debt obligations due to the valuation
no longer
being significantly impacted by unobservable
inputs.
In 2020, reclassification relate to a re-review
of the general terms of a portfolio
of securitization loans,
the underlying pools of assets are exposed
to residual value risk. Consequently,
the portfolio of EUR 0.3
billion, which is classified at Level 3, was incorrectly
measured at amortised cost and therefore
reclassified to mandatorily fair value through
profit or loss. Furthermore, it relates to ING’s
investment
in Visa preference series C shares, reference
is made to Note 5 ‘Financial assets
at fair value through
other comprehensive income’.
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36 Fair value of assets and liabilities
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254
Changes in Level 3 Financial liabilities
Financial liabilities
designated as at fair
value through profit
or loss
Trading liabilities
Non-trading
derivatives
Total
2021
2020
2021
2020
2021
2020
2021
2020
Opening balance
180
195
39
110
180
184
398
490
Realised gain/loss recognised
in the statement of profit or
loss
during the period
1
101
-2
-0
20
13
-22
113
-4
Additions
58
55
3
19
52
662
113
736
Redemptions
-10
-116
-3
-45
-140
-90
-153
-250
Maturity/settlement
-44
-11
-52
-1
-83
-45
-146
Transfers into Level 3
48
170
8
233
267
282
445
Transfers out of Level 3
-173
-111
-3
-23
-203
-738
-378
-873
Closing balance
160
180
35
39
135
180
330
398
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 113 million (2020: EUR -4 million) of unrealised gains and losses recognised
in the statement of profit or
loss.
In 2020 and 2021, financial liabilities transfers
into and out of Level 3 mainly consist
of structures
notes, measured as designated at fair value
through profit or loss. The structured notes
are transferred
out of Level 3 as the valuation is no longer impacted
by significantly unobservable inputs.
In 2020, financial liabilities mainly (long term)
repurchase transactions were transferred
out of Level 3
mainly due to the valuation not being significantly
impacted by unobservable inputs.
g) 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.
In 2020 and 2021, unrealised gains and
losses that relate to ‘Financial assets
at fair value through
other comprehensive income’ 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.
h) Level 3: Sensitivity analysis of unobservable inputs
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.
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.
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 valuation uncertainty in the table below
is broken down by related risk class
rather than by
product. The possible impact of a change
of unobservable inputs in the fair value
o of financial
instruments where unobservable inputs are
significant to the valuation is as follows:
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36 Fair value of assets and liabilities
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255
Sensitivity analysis of Level 3 instruments
Positive fair value
movements from
using reasonable
possible alternatives
Negative fair value
movements from
using reasonable
possible alternatives
2021
2020
2021
2020
Equity (equity derivatives, structured notes)
3
33
-27
-14
Interest rates (Rates derivatives, FX derivatives)
15
20
-1
-1
Credit (Debt securities, Loans, structured notes, credit derivatives)
27
43
-2
-27
45
96
-30
–42
i) Financial instruments not measured at fair value
The following table presents the estimated
fair values of the financial instruments
not measured at fair
value in the statement of financial position. The
aggregation of the fair values presented
below does
not represent, and should not be construed
as representing, the underlying value of ING
Bank.
Methods applied in determining fair values of financial assets and liabilities (carried at amortised cost)
Carrying Amount
Carrying amount
approximates fair value
Level 1
Level 2
Level 3
Total fair value
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Financial Assets
Loans and advances to banks
23,591
25,363
1,674
2,164
1
0
6,610
7,763
15,349
15,611
23,634
25,538
Loans and advances to customers
1, 2
627,550
598,306
16,943
17,491
0
0
18,465
14,679
600,253
577,526
635,661
609,697
Securities at amortised cost
1
48,319
50,587
–0
–0
40,314
49,109
7,327
2,550
681
622
48,323
52,281
699,459
674,257
18,617
19,655
40,316
49,109
32,403
24,992
616,282
593,759
707,618
687,515
Financial liabilities
Deposits from banks
85,092
78,098
4,298
3,918
0
75,847
68,473
5,890
6,014
86,035
78,405
Customer deposits
657,831
643,138
586,151
580,525
61,158
48,206
11,861
15,704
659,171
644,435
Debt securities in issue
1
57,443
55,573
–0
15,320
28,213
27,718
20,382
14,756
6,449
57,794
55,044
Subordinated loans
1
16,719
15,897
0
–0
1,508
17,203
14,742
17,203
16,250
817,085
792,705
590,449
584,443
15,321
29,721
181,926
151,802
32,507
28,167
820,203
794,134
1 As a consequence of a change in the levelling methodology of INGs
bond portfolio ING recorded transfers from Level 1 to Level 2 in 2021.
2 The prior period has been updated to improve consistency and comparability of the fair
values of loans and advances to customers.
The following methods and assumptions were
used by ING Bank to estimate the fair
value of the
financial instruments not measured at fair
value .
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Derivatives and hedge accounting
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Loans and advances to banks
For short term receivables from banks carrying
amounts represent a reasonable estimate
of the fair
value. The fair value of long term receivables
from banks is estimated by discounting
expected future
cash flows using a discount rate based on
available market interest rates and appropriate
spreads that
reflects current credit risk.
Loans and advances to customers
For short term loans carrying amounts represent
a reasonable estimate of the fair value. The
fair value
of long term loans is estimated by discounting
expected future cash flows using a
discount rate that
reflects current credit risk, current interest
rates, and other current market conditions
where
applicable. The fair value of mortgage loans
is estimated by taking into account
prepayment
behaviour. Loans with similar characteristics
are aggregated for calculation purposes.
Deposits from banks
For short term payables to banks carrying
amounts represent a reasonable estimate
of the fair value.
The fair value of long term payables to banks
is estimated by discounting expected future
cash flows
using a discount rate based on available
market interest rates and appropriate
spreads that reflects
ING’s own credit risk.
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.
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.
37
Derivatives and hedge accounting
Use of derivatives
ING Bank uses derivatives for economic hedging
purposes to manage its asset and liability
portfolios
and structural risk positions. The primary
objective of ING Bank’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 Bank 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 accounting
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’.
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Derivatives and hedge accounting
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Impact of Covid-19
The impact of Covid-19 on timing or amount
of cash flows of our products that are
designated as
hedged items in hedge accounting programs
did not result in significant hedge ineffectiveness
during
the reporting period.
IBOR transition
Reference is made to the note Risk management/
IBOR Transition for information on how
ING is
managing the transition to alternative benchmark
rates and INGs progress in completing
the
transition.
At the reporting date, ING Bank assessed
the extent to which hedge relationships
are subject to
uncertainties driven by IBOR reform.
Except for EONIA and EUR LIBOR all IBOR’s
in scope of ING’s IBOR Transition program
are a component
of either the hedging instrument and/or
the hedged item where the interest rate
and/or foreign
currency risk are the designated hedged risk. The
hedged exposures are mainly loan portfolios,
issued
debt securities and purchased debt instruments.
ING Bank early adopted the amendments
to IAS 39 issued in September 2019
to these hedging
relationships directly affected by IBOR reform
(Phase 1). This excludes EURIBOR hedges
as EURIBOR is
Benchmarks Regulation compliant. Refer to section
1.6.4 of Note 1 ‘Basis of preparation and significant
accounting policies’ for more information
on the Phase 1 amendments.
In 2021 the amendments to IAS 39 issued in
August 2020 became effective for ING Bank (Phase
2).
Refer to sections 1.4.1 and 1.6.4 of Note
1 ‘Basis of preparation and significant
accounting policies’ for
more information on the Phase 2 amendments.
Phase 1 amendments to IFRS allow ING Bank
to apply a set of temporary exceptions
to continue hedge
accounting even when there is uncertainty
about contractual cash flows arising from
IBOR reform.
Phase 1 reliefs cease to apply when uncertainty
arising from IBOR Reform is no longer present
with
respect to the timing and amount of the
IBOR-based cash flows of the relevant
instruments.
ING Bank hedges are being amended,
where necessary, to incorporate the new
benchmark rates.
During 2021 ING transitioned significant portions
of its financial instruments (designated in hedge
accounting relationships) linked to benchmarks
ceasing in 2021. As a result, for these hedge
accounting relationships the applicable
Phase 1 reliefs ceased to apply and Phase
2 became applicable.
In the coming year, ING will shift the focus
to USD LIBOR contracts (USD LIBOR
tenors will continue to be
published until the end of June 2023).
As at 31 December 2021, USD LIBOR indexed
fair value and cash flow hedges are still
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 Bank assumes that the
USD LIBOR
based cash flows from the hedging instrument
and hedged item will remain unaffected.
The same assumption is used to assess the
likelihood of occurrence of the forecast
transactions that
are subject to cash flow hedges. The hedged
cash flows in cash flow hedges directly
impacted by the
IBOR reform still meet the highly probable requirement,
assuming the USD LIBOR benchmark on
which
the hedged cash flows are based is 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 that are used in the ING Bank's hedge
accounting relationships for which the
Phase 1
amendments to IAS39 were applied:
Notional amounts of Hedging instruments in EUR mln as at 31 December
Benchmark
2021
2020
USD LIBOR
41,473
41,020
GBP LIBOR
1,500
JPY LIBOR
410
CHF LIBOR
315
Approximately 72% (31 December 2020:
60%) of the above notional amounts
for USD LIBOR have a
maturity date beyond June 2023.
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.
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Derivatives and hedge accounting
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Fair value hedge accounting
ING Bank’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
Bank’s approach to manage market risk,
including interest rate risk, is discussed in ‘Risk
management –
Market risk’. ING Bank’s exposure to interest
rate risk is disclosed in paragraph
‘Interest rate risk in
banking book’.
ING Bank designates specific non-contractual
risk components of hedged items.
This is usually
determined by designating benchmark interest
rates such as EURIBOR. As a result
of the IBOR reform
ING designated new benchmark rates in
2021 such as SOFR, SONIA and TONAR.
Note that ING applies
the IBOR phase 2 amendments (refer to
section
1.6.4 of Note 1 ‘Basis of preparation and
accounting
policies’ for more information on the Phase
2 amendments) for new benchmarks for
which the
separately identifiable requirement cannot (yet)
be met.
By using derivative financial instruments
to hedge exposures to changes in interest
rates, ING Bank
also exposes itself to credit risk of the derivative
counterparty, which is not offset by the hedged
item.
ING Bank minimises counterparty credit risk
in derivative instruments by clearing
most of the
derivatives through Central Clearing Counterparties.
In addition ING Bank only enters into transactions
with high-quality counterparties and requires
posting collateral.
ING Bank applies fair value hedge accounting
on micro level in which one hedged
item is hedged with
one or multiple hedging instruments as well
as on macro level whereby a portfolio of
items is hedged
with multiple hedging instruments. For
these macro hedges of interest rate risk
ING Bank applies the
EU carve-out. The EU ‘carve-out’ for macro
hedging enables a group of derivatives
(or proportions) to
be viewed in combination and jointly designated
as the hedging instrument and removes
some of the
limitations in fair value hedge accounting
relating to hedging core deposits and
under-hedging
strategies. In retail operations, exposure
on retail funding (savings and current
accounts) and retail
lending (mortgages) is initially offset. The
remaining exposure is hedged in a portfolio
hedge, using the
EU carve-out, in which a portion of the retail
lending portfolio and core deposits are
designated as a
hedged item for hedge accounting purposes.
For portfolio hedges the fair value is projected
based on contractual terms and other
variables
including prepayment expectations. These
projected fair value of the portfolios form
the basis for
identifying the notional amount subject
to interest rate risk that is designated
under fair value hedge
accounting.
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 Bank, ING Bank 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 Bank considers whether the
critical terms of the hedged item and hedging
instrument
closely align when assessing the presence
of an economic relationship. ING Bank 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.
For the macro hedge on the mortgage portfolio
ING Bank follows a dynamic hedging strategy.
This
means that on monthly basis, based on the
new portfolio projection, the hedging
relationship is
renewed. From an operational point of
view, the existing hedging relationship is
adjusted based on the
new portfolio projection and additional
hedging instruments are added to the
hedging relationship.
ING Bank 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
2021
Liabilities
2021
Assets
2020
Liabilities
2020
As at 31 December
Hedging instrument on interest rate risk
– Interest rate swaps
6,629
5,940
7,349
5,417
– Other interest derivatives
87
83
50
110
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Derivatives and hedge accounting
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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 365
million (2020: EUR 486 million) respectively
‘Financial liabilities at fair value through
profit or loss – Non-
trading derivatives’ EUR 270 million (2020: EUR
444 million). The difference between the gross
carrying
value as presented in the table and the net
carrying value as presented in the statement
of financial
position is due to offsetting 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
0.20% (2020: 0.57%) for EUR and 3.83% (2020:
3.76%) 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 2021
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
-242
2,807
-3,150
-6,593
-4,428
-4,347
2,310
2,278
-11,363
– Other interest derivatives
-0
-102
-237
-286
153
119
243
1,026
917
As at 31 December 2020
Hedging instrument on
interest rate risk
- Interest rate swaps
-785
213
-652
5,771
5,207
5,269
2,720
2,915
20,658
– Other interest derivatives
-1
-68
-128
-364
-370
138
28
1,112
346
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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Derivatives and hedge accounting
ING Bank Annual Report 2021
260
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 2021
Interest rate risk
– Amounts due from banks
-0
– Debt securities at fair value through other comprehensive income
17,307
n/a
-798
– Loans at FVOCI
105
n/a
-2
– Loans and advances to customers
68,704
-923
-1,451
– Debt instruments at amortised cost
3,458
301
-165
– Debt securities in issue
22,553
945
962
– Subordinated loans
16,559
115
414
– Amounts due to banks
-0
– Customer deposits and other funds on deposit
40,924
385
1,152
– Discontinued hedges
3,774
73
Total
89,574
80,037
3,153
1,518
112
-86
26
As at 31 December 2020
Interest rate risk
– Amounts due from banks
– Debt securities at fair value through other comprehensive income
20,164
n/a
552
– Loans at FVOCI
335
n/a
2
– Loans and advances to customers
23,323
647
456
– Debt instruments at amortised cost
4,222
501
170
– Debt securities in issue
30,136
1,980
-196
– Subordinated loans
13,314
510
-397
– Amounts due to banks
-5
– Customer deposits and other funds on deposit
26,120
1,494
-766
– Discontinued hedges
4,241
99
Total
48,044
69,571
5,390
4,083
-183
246
62
The increase in the carrying amount of hedged
items in loans & advances to customers
is mainly
driven by volume growth and in customer
deposits by a new fair value hedge
programme on customer
deposits. Discontinued hedges mainly relate
to the transfer of derivatives from
UK based clearing
houses to EU based clearing houses related
to Brexit in 2020.
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);
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Derivatives and hedge accounting
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261
◾
differences in timing of cash flows of the
hedged item(s) and hedging instrument(s).
Additionally, for portfolio (macro) fair value
hedges of ING Bank’s fixed rate mortgage
portfolio,
ineffectiveness also arises from the disparity
between expected and actual prepayments
(prepayment
risk).
There were no other sources of significant
ineffectiveness in these hedging relationships.
Cash flow hedge accounting
ING Bank’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 Bank’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 Bank
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 Bank 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 Bank 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 Bank considers whether
the critical terms of
the hedged item and hedging instrument
closely align when assessing the presence of
an economic
relationship. ING Bank 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 Bank 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
2021
2021
2020
2020
As at 31 December
Hedging instrument on interest rate risk
– Interest rate swaps
-437
781
2,271
545
Hedging instrument on combined interest and FX rate risk
– Cross currency interest rate derivatives
73
285
774
21
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Derivatives and hedge accounting
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262
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
300 million
(2020: EUR
1,376 million) respectively ‘Financial liabilities
at fair value through profit or loss – Non-
trading derivatives’ EUR
485 million (2020: EUR
230 million). The difference between the gross
carrying value as presented in the table
and the net carrying value as presented
in the statement of
financial position is due to offsetting 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 -0.16% (2020: -0.15%) for EUR,
1.73% (2020: 1.74%) for PLN, 2.09% (2020:
2.31%) for
USD and 0.55% (2020: 0.82%) for AUD.
The average currency exchange rates
for cross currency swaps
used in cash flow hedge accounting is for EUR/USD
1.01 (2020: 0.95) and for EUR/AUD 1.61 (2020:
1.6).
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
2021
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
418
-1,075
-6,939
-5,470
-6,711
-5,825
-5,272
-18,107
-48,982
Hedging
instrument on
combined interest
and FX rate risk
– Cross currency
interest rate
derivatives
-256
-1,048
-1,760
-3,831
-2,528
-2,580
181
-56
-11,878
As at 31 December
2020
Hedging
instrument on
interest rate risk
– Interest rate
swaps
-248
-92
-2,061
-4,896
-1,832
-5,772
-3,466
-19,537
-37,904
Hedging
instrument on
combined interest
and FX rate risk
– Cross currency
interest rate
derivatives
-160
-1,666
-2,828
-2,446
-3,493
-1,324
194
-210
-11,934
The following table shows the cash flow
hedge accounting impact on profit or
loss and comprehensive
income:
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Derivatives and hedge accounting
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263
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
1
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 2021
Interest rate risk on;
– Floating rate lending
2,937
-1,132
-454
– Floating rate borrowing
-915
366
143
– Other
165
-122
15
– Discontinued hedges
674
-306
Total interest rate risk
2,188
-214
-603
-1,825
-2
Combined interest and FX rate risk on;
– Floating rate lending
-90
-19
-153
– Floating rate borrowing
-2
-16
9
– Other
-0
-1
-1
– Discontinued hedges
-13
-90
Total combined interest and Fx
-92
-49
-235
250
3
Total cash flow hedge
2,096
-262
-838
-1,574
1
As at 31 December 2020
Interest rate risk on;
– Floating rate lending
-784
1,310
-97
– Floating rate borrowing
136
-306
33
– Other
-107
36
19
– Discontinued hedges
1,037
-236
Total interest rate risk
-755
2,077
-281
830
-6
Combined interest and FX rate risk on;
– Floating rate lending
-26
-35
-256
– Floating rate borrowing
29
-42
-10
– Other
-0
-0
-3
– Discontinued hedges
-26
Total combined interest and Fx
3
-78
-295
263
1
Total cash flow hedge
-753
1,999
-576
1,093
-5
1
The carrying amount is the gross amount, excluding tax adjustments.
The decrease in the carrying amount of the
cash flow hedge reserve is driven by increased
interest
rates.
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Derivatives and hedge accounting
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264
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.
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 the presentation
currency of ING Bank. The risk arises from the
fluctuation in
spot exchange rates between the functional
currency of the subsidiaries and ING Bank’s
presentation
currency, which causes the amount of the net
investment to vary in the consolidated
financial
statements of ING Bank. This risk may have
a significant impact on ING Bank’s financial
statements.
ING Bank’s policy is to hedge these exposures
only when not doing so it is expected to have
a
significant impact on the regulatory capital
ratios of ING Bank and its subsidiaries.
ING Bank’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 Bank 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 Bank 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
2021
2021
2020
2020
As at 31 December
– FX forwards and Cross currency swaps
18
88
69
98
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 18
million (2020: EUR 69 million) respectively ‘Financial
liabilities at fair value through profit or loss
– Non
trading derivatives’ EUR 88 million (2020:
EUR
98 million).
For ING Bank’s main currencies the average
exchange rates used in net investment
hedge accounting
for 2021 are EUR/USD 1.18 (2020: 1.14), EUR/PLN
4.58 (2020: 4.45), EUR/AUD 1.58 (2020:
1.65) and
EUR/THB 37.84 (2020: 35.71).
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 2021
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
cross currency
swaps
-4,462
-461
-590
-5,514
– Other FX
derivatives
As at 31
December 2020
– FX forwards and
Cross currency
swaps
-3,825
-375
-580
-4,780
– Other FX
derivatives
-8
-8
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Assets by contractual maturity
ING Bank Annual Report 2021
265
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 2021
Change in
value used for
calculating
hedge
ineffectiveness
for the period
Carrying
amount net
investment
hedge reserve
at the end of
the reporting
period
1
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
72
330
-72
-1
Discontinued hedges
-59
As at 31 December 2020
Investment in foreign operations
-122
553
-11
121
1
Discontinued hedges
-210
1
The carrying amount is the gross amount, excluding tax adjustments.
38
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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Assets by contractual maturity
ING Bank Annual Report 2021
266
Assets by contractual maturity
2021
Less than 1 month
1
1-3 months
3-12 months
1-5 years
Over 5 years
Maturity not
applicable
Total
Cash and balances with central banks
106,520
106,520
Loans and advances to banks
15,162
2,204
3,921
1,937
367
23,591
Financial assets at fair value through profit or loss
–
Trading assets
21,055
3,859
8,735
7,922
9,818
51,389
–
Non-trading derivatives
240
171
217
421
488
1,536
–
Mandatorily at fair value through profit or loss
20,462
12,063
7,487
1,741
770
161
42,684
–
Designated as at fair value through profit or loss
96
120
520
2,510
3,109
6,355
Financial assets at fair value through other comprehensive income
–
Equity securities
2,457
2,457
–
Debt securities
593
518
1,926
11,182
13,121
27,340
–
Loans and advances
14
11
173
214
427
838
Securities at amortised cost
1,108
1,217
4,509
24,413
17,072
48,319
Loans and advances to customers
52,311
26,414
53,616
188,222
306,988
627,550
Other assets
2
3,823
362
1,505
841
1,482
4,725
12,738
Total assets
221,382
46,940
82,608
239,401
353,642
7,343
951,317
2020
Cash and balances with central banks
111,087
111,087
Loans and advances to banks
15,785
2,796
3,419
3,093
270
25,363
Financial assets at fair value through profit or loss
–
Trading assets
12,100
6,567
9,206
10,206
13,281
51,361
–
Non-trading derivatives
495
446
644
1,252
746
3,583
–
Mandatorily at fair value through profit or loss
26,854
11,376
3,472
1,153
1,222
228
44,305
–
Designated as at fair value through profit or loss
248
26
631
657
2,564
4,126
Financial assets at fair value through other comprehensive income
–
Equity securities
1,862
1,862
–
Debt securities
841
985
5,175
11,576
14,400
32,977
–
Loans and advances
32
34
73
407
509
1,056
Securities at amortised cost
2,104
2,444
3,943
24,298
17,798
50,587
Loans and advances to customers
50,340
19,788
48,263
180,335
299,581
598,306
Other assets
2
3,791
312
1,124
1,113
1,283
5,142
12,766
Total assets
223,677
44,775
75,950
234,092
351,653
7,232
937,379
1 Includes assets on demand.
2 Includes other financial assets such as assets held for sale, current and deferred tax
assets as presented in the consolidated statement of the financial position.
Additionally, non-financial assets are included in that position where maturities are not applicable as
property and equipment and investments in associates and joint ventures. Due to their nature
non-financial assets consist mainly of assets expected to be recovered after more than 12 months.
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Liabilities and off-balance sheet commitments by maturity
ING Bank Annual Report 2021
267
39
Liabilities and off-balance sheet commitments by maturity
The tables below include all liabilities and off-balance
sheet commitments by maturity based
on
contractual, undiscounted cash flows. These
balances are included in the maturity analysis
as follows:
Perpetual liabilities are included in the column
‘Maturity not applicable’.
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.
Undiscounted future coupon interest on financial
liabilities payable is included in a separate
line and in the relevant maturity bucket.
Non-financial liabilities are included based
on a breakdown of the amounts per
statement of
financial position, per expected maturity.
Loans and other credit-related commitments
are classified on the basis of the earliest
date
they can be drawn down.
ING Bank’s expected cash flows on some financial
liabilities vary significantly from contractual
cash
flows. Principal differences are in demand
deposits from customers that are
expected to remain stable
or increase and in unrecognised loan commitments
that are not all expected to be drawn down
immediately. Reference is made to the
liquidity risk paragraph in ‘Risk Management
– Funding and
liquidity risk’ for a description on how liquidity
risk is managed.
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Liabilities and off-balance sheet commitments by maturity
ING Bank Annual Report 2021
268
Liabilities and off-balance sheet commitments by maturity
2021
Less than 1 month
1
1–3 months
3–12 months
1–5 years
Over 5 years
Maturity not
applicable
Adjustment
2
Total
Deposits from banks
10,477
1,062
1,387
71,413
1,719
-967
85,092
Customer deposits
597,906
14,989
6,849
17,814
19,718
557
657,831
Financial liabilities at fair value through profit or loss
–
Other trading liabilities
6,965
397
322
462
438
4
8,588
–
Trading derivatives
1,689
1,608
3,674
8,295
5,731
-2,472
18,525
–
Non-trading derivatives
546
245
422
900
571
-564
2,120
–
Designated at fair value through profit or loss
24,862
10,224
771
1,850
3,719
20
362
41,808
Debt securities in issue
2,766
15,826
15,459
9,667
12,581
1,145
57,443
Subordinated loans
716
8,948
6,822
233
16,719
Lease liabilities
18
40
159
571
454
-23
1,220
Financial liabilities
645,229
44,391
29,042
111,688
53,880
6,843
-1,725
889,346
Other liabilities
3
8,810
487
2,500
591
934
13,321
Total liabilities
654,039
44,877
31,541
112,279
54,813
6,843
-1,725
902,668
Coupon interest due on financial liabilities
195
407
1,010
2,602
2,727
387
7,328
Contingent liabilities in respect of
–
Discounted bills
–
Guarantees
25,911
550
26,461
–
Irrevocable letters of credit
16,851
16,851
–
other
1
2
5
8
Irrevocable facilities
143,891
1
13
184
78
144,167
186,653
1
15
189
628
187,486
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 fair value hedge adjustments,
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 and off-balance sheet commitments by maturity
ING Bank Annual Report 2021
269
Liabilities and off-balance sheet commitments by maturity
2020
Less than 1 month
1
1–3 month
3–12 months
1–5 years
Over 5 years
Maturity not
applicable
Adjustment
2
Total
Deposits from banks
11,080
537
772
64,147
1,722
-161
78,098
Customer deposits
589,230
9,781
8,744
16,745
16,915
1,724
643,138
Financial liabilities at fair value through profit or loss
–
Other trading liabilities
4,940
1,197
204
268
323
39
6,972
–
Trading derivatives
2,179
2,297
4,250
9,589
7,794
-373
25,737
–
Non-trading derivatives
283
178
204
468
454
41
1,629
–
Designated at fair value through profit or loss
32,540
8,506
1,330
2,180
3,245
11
634
48,445
Debt securities in issue
5,144
8,428
13,441
14,159
12,151
2,249
55,573
Subordinated loans
661
8,815
5,751
670
15,897
Lease liabilities
17
42
166
611
520
-18
1,339
Financial liabilities
645,414
30,967
29,112
108,827
51,940
5,762
4,805
876,827
Other liabilities
3
6,830
568
2,650
1,006
803
11,856
Total liabilities
652,244
31,535
31,762
109,833
52,742
5,762
4,805
888,683
Coupon interest due on financial liabilities
227
493
1,168
3,776
3,216
297
9,178
Contingent liabilities in respect of
–
Discounted bills
–
Guarantees
22,836
550
23,386
–
Irrevocable letters of credit
14,016
14,016
–
other
50
47
97
Irrevocable facilities
4
124,739
37
141
74
124,991
161,642
37
188
624
162,491
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 fair value hedge adjustments, 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 The prior period has been updated to improve consistency and comparability of the amounts
per maturity of irrevocable facilities.
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40
Transfer of financial assets, assets pledged and received as collateral
ING Bank Annual Report 2021
270
40
Transfer
of financial assets, assets pledged and received
as collateral
Financial assets pledged as collateral
The financial assets pledged as collateral
consist primarily of Loans and advances to
customers
pledged to secure Debt securities in issue,
deposits from the Dutch Central Bank and
other banks, as
well as debt securities used in securities lending
or sale and repurchase transactions.
They serve to
secure margin accounts and are used for
other purposes required by law. Pledges
are generally
conducted under terms that are usual
and customary for collateralised transactions
including
standard sale and repurchase agreements,
securities lending and borrowing
and derivatives
margining. The financial assets pledged are
as follows:
Financial assets pledged as collateral
2021
2020
Banks
–
Cash and balances with central banks
465
1,377
–
Loans and advances to banks
3,310
3,833
Financial assets at fair value through profit or loss
15,334
14,772
Financial assets at fair value through OCI
2,320
2,377
Securities at amortised cost
4,468
7,023
Loans and advances to customers
118,868
115,194
Other assets
796
761
145,560
145,338
In addition, in some jurisdictions ING Bank
N.V. has an obligation to maintain
a reserve with central
banks. As at 31 December 2021, the minimum
mandatory reserve deposits with
various central banks
amount to EUR 10,625 million (2020: EUR
10,573 million).
Loans and advances to customers that have
been pledged as collateral for debt securities
in issue and
for liquidity purposes amount to EUR 118,868
million (2020: EUR 115,194 million).
Financial assets received as collateral
The financial assets received as collateral
that can be sold or repledged in absence
of default by the
owner of the collateral consists of securities
obtained through reverse repurchase transactions
and
securities borrowing transactions.
These transactions are generally conducted
under standard market terms for
most repurchase
transactions and the recipient of the collateral
has unrestricted right to sell or
repledge it, provided that
the collateral (or equivalent collateral)
is returned to the counterparty at term.
Financial assets received as collateral
2021
2020
Total received collateral available for sale or repledge at fair value
–
equity securities
27,553
20,018
–
debt securities
67,696
79,670
of which sold or repledged at fair value
–
equity securities
23,330
16,365
–
debt securities
50,366
60,384
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.
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Offsetting financial assets and liabilities
ING Bank Annual Report 2021
271
Transfer of financial assets not qualifying for derecognition
Securities lending
Sale and repurchase
Equity
Debt
Equity
Debt
2021
2020
2021
2020
2021
2020
2021
2020
Transferred assets at carrying amount
Financial assets at fair value through profit or
loss
3,109
3,151
4,384
2,078
5,863
8,619
Financial assets at fair value through other
comprehensive income
150
56
527
2,120
Loans and advances to customers
4,386
2,381
2
Securities at amortised cost
280
470
992
6,281
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
4,130
2,018
7,538
5,994
2
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 has been updated to improve consistency and comparability.
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.
Transferred financial assets that are derecognised
in their entirety are mentioned in note
46
‘Structured Entities’.
41
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
netting criteria (legal right to offset
and intention to net
settle or to realise the asset and settle the
liability simultaneously) and amounts
presented gross in
the statement of financial position but subject
to enforceable master netting arrangements
or similar
arrangements.
At ING Bank amounts that are offset mainly
relate to derivatives transactions,
sale and repurchase
agreements,
securities lending agreements and
cash pooling arrangements. A significant
portion of
offsetting is applied to OTC derivatives which
are cleared through central clearing parties.
Related amounts not set off in the statement
of financial position include transactions
where:
◾
The counterparty has an offsetting exposure
and a master netting or similar arrangement
is in
place with a right to set off only in the event
of default, insolvency or bankruptcy,
or the
offsetting criteria are otherwise not satisfied,
and
◾
In the case of derivatives and securities lending
or sale and repurchase agreements, cash
and
non-cash collateral has been received or pledged
to cover net exposure in the event of
a
default or other predetermined events.
The effect of over-collateralisation is
excluded.
The net amounts resulting after setoff are
not intended to represent ING’s actual
exposure to
counterparty risk, as risk management employs
a number of credit risk mitigation strategies
in
addition to netting and collateral arrangements.
Reference is made to the Risk Management
section on
Credit risk.
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41
Offsetting financial assets and liabilities
ING Bank Annual Report 2021
272
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
2021
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
Amounts not
subject to
enforceable
netting
arrangements
Statement of
financial position
total ¹
Financial
instruments
Cash and financial
instruments
received as
collateral
Statement of financial position
line item
Financial instrument
Loans and advances to banks
2
Reverse repurchase, securities
borrowing and similar agreements
1,930
1,930
1,923
7
1,473
3,403
Cash pools
1
–1
0
0
0
–0
1,931
–1
1,930
0
1,923
7
1,473
3,403
Financial assets at fair value through profit or
loss
Trading and Non-trading
Reverse repurchase, securities
borrowing and similar agreements
43,822
–11,564
32,258
168
31,848
243
15,590
47,848
Derivatives
52,724
–38,431
14,293
9,005
3,108
2,180
7,006
21,299
96,546
–49,995
46,552
9,172
34,956
2,423
22,596
69,148
Loans and advances to customers
3
Reverse repurchase, securities
borrowing and similar agreements
71
71
71
–0
71
Cash pools
196,328
–194,522
1,806
19
1,417
369
1,806
196,400
–194,522
1,878
19
1,489
369
1,878
Other items where offsetting is applied in the
statement of financial position
4
3,692
–3,470
222
–0
222
222
Total financial assets
298,569
–247,987
50,581
9,191
38,368
3,022
24,069
74,650
1
‘The statement of financial position total’ is the sum of ‘Net amounts of financial assets
presented in the statement of financial position’ and ’Amounts not subject to enforceable
master netting arrangements’.
2
At 31 December 2021,
the total amount of ‘Loans and advances to banks’ excluding repurchase agreements
is EUR 20,188 million which is not subject to offsetting.
3
At 31 December 2021, the total amount of ‘Loans and advances to customers’
excluding repurchase agreements is EUR 627,063 million of which EUR 1,806 million is subject
to offsetting.
4
Other items mainly include amounts to be settled with Central Clearing Counterparties regarding
securities and derivatives transactions and is included in ‘Other Assets – Amounts to be settled’
for EUR 2,424 million in the statement of financial position of which
EUR 222 million is subject to offsetting as at 31 December 2021.
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41
Offsetting financial assets and liabilities
ING Bank Annual Report 2021
273
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
2020
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
Amounts not
subject to
enforceable
netting
arrangements
Statement of
financial position
total ¹
Financial
instruments
Cash and financial
instruments
received as
collateral
Statement of financial position line item
Financial instrument
Loans and advances to banks
2
Reverse repurchase, securities
borrowing and similar agreements
1,911
0
1,911
0
1,907
4
2,958
4,869
Cash pools
2
–2
0
0
0
–0
0
1,913
–2
1,911
0
1,907
4
2,958
4,869
Financial assets at fair value through profit or
loss
Trading and non-trading
Reverse repurchase, securities
borrowing and similar agreements
48,487
–14,823
33,664
245
33,343
77
19,018
52,682
Derivatives
73,142
–52,561
20,581
12,520
5,350
2,710
10,240
30,821
121,629
–67,384
54,245
12,765
38,693
2,787
29,258
83,503
Loans and advances to customers
3
Reverse repurchase, securities
borrowing and similar agreements
2,845
–2,359
486
486
138
624
Cash pools
168,461
–165,815
2,646
1,729
628
289
2,646
171,306
–168,174
3,132
1,729
1,113
289
138
3,270
Other items where offsetting is applied in the
statement of financial position
4
8,558
–7,752
806
10
796
806
Total financial assets
303,406
–243,312
60,095
14,505
41,714
3,876
32,354
92,449
1 ‘The statement of financial position total’ is the sum of ‘Net amounts of financial assets
presented in the statement of financial position’ and ’Amounts not subject to enforceable
master netting arrangements’.
2
At 31 December 2020, the total amount of ‘Loans and advances to banks’ excluding repurchase
agreements is EUR 20,494 million which is not subject to offsetting.
3
At 31 December 2020, the total amount of ‘Loans and advances to customers’
excluding repurchase agreements is EUR 597,682 million of which EUR 2,646 million is subject
to offsetting.
4
Other items mainly include amounts to be settled with Central Clearing Counterparties regarding
securities and derivatives transactions and is included in ‘Other Assets – Amounts to be settled’
for EUR 2,215 million in the statement of financial position of which
EUR 806 million is subject to offsetting as at 31 December 2020.
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41
Offsetting financial assets and liabilities
ING Bank Annual Report 2021
274
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
Related amounts not offset in the
statement of financial position
Amounts not
subject to
enforceable
netting
arrangements
Statement of
financial position
total
¹
2021
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
2
Repurchase, securities lending
and similar agreements
433
0
433
0
426
7
3,705
4,138
Cash pools
3
-1
2
0
0
2
0
2
436
-1
435
0
426
9
3,705
4,140
Customer deposits
3
Repurchase, securities lending
and similar agreements
0
0
0
0
0
0
0
Cash pools
207,930
-194,522
13,408
19
0
13,389
0
13,408
207,930
-194,522
13,408
19
0
13,389
0
13,408
Financial liabilities at fair value through profit or loss
Trading and Non-trading
Repurchase, securities lending
and similar agreements
43,883
-11,564
32,319
168
32,056
96
9,416
41,735
Derivatives
53,778
-39,053
14,725
9,006
4,326
1,393
5,920
20,646
97,661
-50,617
47,044
9,173
36,382
1,489
15,337
62,381
Other items where offsetting is applied in the
statement of financial position
4
3,098
-2,848
250
-1
0
252
0
250
Total financial liabilities
309,125
-247,987
61,138
9,191
36,808
15,139
19,041
80,179
1
‘The statement of financial position total’ is the sum of ‘Net amounts of financial liabilities presented
in the statement of financial position’ and ’Amounts not subject to enforceable
master netting arrangements’.
2
At 31 December 2021, the total amount of ‘Deposits from banks’ excluding repurchase
agreements is EUR 80,954 million of which EUR 2 million is subject to offsetting.
3
At 31 December 2021, the total amount of ‘Customers deposits’ excluding repurchase
agreements is EUR 657,831 million of which
EUR 13,408 million is subject to offsetting.
4
Other items mainly include amounts to be settled with Central Clearing Counterparties regarding
securities and derivatives transactions and is included in ‘Other Liabilities – Amounts to be
settled’ for EUR 5,082 million in the statement of financial position of
which EUR 250 million is subject to offsetting as at 31 December 2021.
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Offsetting financial assets and liabilities
ING Bank Annual Report 2021
275
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
Related amounts not offset in the
statement of financial position
Amounts not
subject to
enforceable
netting
arrangements
Statement of
financial
position total
¹
2020
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
1
Net amount
Statement of financial position line item
Financial instrument
Deposits from banks
2
Repurchase, securities lending
and similar agreements
167
167
166
1
1,804
1,971
Cash pools
3
-2
2
2
2
170
-2
169
166
3
1,804
1,973
Customer deposits
3
Repurchase, securities lending
and similar agreements
2,354
-2,354
Cash pools
184,490
-165,815
18,675
1,702
16,973
18,675
186,844
-168,169
18,675
1,702
16,973
18,675
Financial liabilities at fair value through profit or
loss
Trading and Non-trading
Repurchase, securities lending
and similar agreements
53,520
-14,827
38,693
245
38,447
8,271
46,964
Derivatives
73,215
-52,626
20,589
12,521
6,742
1,326
6,777
27,366
126,735
-67,453
59,282
12,766
45,189
1,326
15,048
74,330
Other items where offsetting is applied in the
statement of financial position
4
8,552
-7,687
865
36
829
865
Total financial liabilities
322,303
-243,312
78,991
14,505
45,356
19,131
16,852
95,843
1
‘The statement of financial position total’ is the sum of ‘Net amounts of financial liabilities presented
in the statement of financial position’ and ’Amounts not subject to enforceable
master netting arrangements’.
2
At 31 December 2020, the total amount of ‘Deposits from banks’ excluding repurchase
agreements is EUR 76,127 million of which EUR 2 million is subject to offsetting.
3
At 31 December 2020, the total amount of ‘Customers deposits’ excluding repurchase
agreements is EUR 643,138 million of which EUR
18,675 million is subject to offsetting.
4
Other items mainly include amounts to be settled with Central Clearing Counterparties regarding
securities and derivatives transactions and is included in ‘Other Liabilities – Amounts to be
settled’ for EUR
4,877 million in the statement of financial position of
which EUR
865 million is subject to offsetting as at 31 December 2020.
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42
Contingent liabilities and commitments
ING Bank Annual Report 2021
276
42
Contingent liabilities and commitments
In the normal course of business, ING Bank
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
2021
2020
Contingent liabilities in respect of
–
Guarantees
26,461
23,386
–
Irrevocable letters of credit
16,851
14,016
–
other
8
97
43,319
37,500
Irrevocable facilities
144,167
124,991
187,486
162,491
Guarantees relate both to credit and non-credit
substitute guarantees. Credit substitute
guarantees
are guarantees given by ING Bank 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.
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 Bank’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.
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 Bank’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 other public sector entities
under the regulatory requirements.
Irrevocable facilities
also include commitments made to purchase
securities to be issued by governments
and private
issuers.
43
Legal proceedings
ING Bank 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.
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43
Legal proceedings
ING Bank Annual Report 2021
277
Settlement agreement:
On 4 September 2018, ING announced that
it had entered into a settlement
agreement with the Dutch Public Prosecution
Service relating to previously disclosed investigations
regarding various requirements for client
on-boarding and the prevention of money
laundering and
corrupt practices. 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.
Certain parties filed requests with the Court
of
Appeal in The Netherlands to reconsider
the prosecutor’s decision to enter into
the settlement
agreement with ING and not to prosecute ING
or (former) ING employees. In December
2020, the Court
of Appeal issued its final ruling. In this ruling
the prosecutors' decision to enter
into the settlement
agreement with ING was upheld, making the
settlement final. However, in a separate
ruling, the Court
ordered the prosecution of ING’s former
CEO.
Findings regarding AML processes:
As previously disclosed, after its September
2018 settlement 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.
In January 2022, a Luxembourg investigating
judge informed ING Luxembourg that he
intends to
instruct the relevant prosecutor to prepare
a criminal indictment regarding alleged shortcomings
in
AML process at ING Luxembourg. Although
this matter remains at an early procedural
stage and it is
currently not possible to determine how this
matter will be resolved or the timing of
any such
resolution, ING does not expect a financial outcome
of this matter to have a material effect.
ING continues to take steps to enhance
its management of compliance risks
and embed stronger
awareness across the whole organisation.
These steps are part of the global KYC programme
and set of
initiatives, which includes enhancing KYC files
and working on various structural improvements
in
compliance policies, tooling, monitoring,
governance, knowledge and behaviour.
Tax cases:
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 the
Issuer
believes that it has adequately provided for
all its tax positions, the ultimate resolution
of these audits,
investigations and procedures is uncertain
and may result in liabilities which are materially
different
from the amounts recognised.
SIBOR – SOR litigation
: In July 2016, investors in derivatives
tied to the Singapore Interbank Offer
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 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 March 2021, the
Second
Circuit court vacated the District Court’s ruling.
The case was remanded to the District
Court to
reconsider the amended complaint that
would add ING Bank N.V. back to the
case. In April 2021, the
defendants filed a petition for rehearing
with the Second Circuit court. In May
2021, the Second Circuit
court denied the defendants’ petition. In
August 2021, plaintiffs and ING executed
a binding settlement
term sheet. Accordingly, plaintiffs and ING
jointly asked the Court to stay all litigation
proceedings and
deadlines applicable to plaintiffs and ING pending
drafting, execution and presentment for
approval of
a formal class settlement agreement. ING
has taken a provision for the settlement
amount.
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Consolidated financial statements
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>
43
Legal proceedings
ING Bank Annual Report 2021
278
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:
ING is involved in several legal proceedings
in the Netherlands with
respect to interest rate derivatives that were
sold to clients in connection with
floating interest rate
loans in order to hedge the interest rate risk
of the loans. These proceedings are based
on several legal
grounds, depending on the facts and circumstances
of each specific case, inter alia alleged breach
of
duty of care, insufficient information provided
to the clients on the product and its
risks and other
elements related to the interest rate derivatives
that were sold to clients. In some cases,
the court has
ruled in favour of the claimants and awarded
damages, annulled the interest rate derivative
or ordered
repayment of certain amounts to the claimants.
The total amounts that need to be repaid or
compensated in some cases still need to
be determined. ING may decide to appeal
against adverse
rulings. Although the outcome of the pending
litigation and similar cases that may be brought
in the
future is uncertain, it is possible that the
courts may ultimately rule in favour
of the claimants in some
or all of such cases. Where appropriate a provision
has been taken. The aggregate financial
impact of
the current and future litigation could become
material.
Interest surcharges claims:
ING received complaints and was involved
in litigation with certain
individuals in the Netherlands regarding increases
in interest surcharges with respect to several
credit
products, including but not limited to commercial
property. 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 surcharge
based upon the essential obligations in
the contract. In
a relevant case the Dutch Supreme Court
ruled in favor of another Dutch bank, addressing
the question
whether or not a bank is allowed to increase
interest surcharges unilaterally.
The Supreme Court ruled
affirmative. ING will continue to deal with all
claims individually.
Mortgage expenses claims:
ING Spain has received claims and is involved
in procedures with
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.
Since 2018, the Spanish Supreme Court and
the European Court of Justice have issued
rulings setting
out which party should bear notary, registration,
agency, and stamp duty costs. In January
2021, the
Spanish Supreme Court ruled that valuation
costs of mortgages, signed prior to 16 June
2019, the date
the new mortgage law entered into force, should
be borne by the bank. Media attention for
the statute
of limitations applicable to the right to claim
reimbursement of costs resulted in
an increased number
of claims at the beginning of 2021. In June
2021, the Supreme Court published a press
release
informing of its decision to ask the European
Court of Justice for a preliminary ruling regarding
the
criteria that should be applied to determine
the date from which the action for
claiming the
reimbursement of mortgage expenses is
considered to be expired. ING Spain has
also been included,
together with other Spanish banks, in three
class actions filed by customer associations.
In one of the
class actions an agreement was reached with
the association. In another class action
ING filed an
appeal asking the Spanish Court of Appeal
to determine that the ruling of the
court of first instance is
only applicable to the consumers that were
part of the case. A provision has been
established in the
past and has been adjusted where appropriate.
Imtech claim:
In January 2018, ING Bank received a
claim from Stichting ImtechClaim.nl and 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.
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44
Consolidated companies and businesses acquired and divested
ING Bank Annual Report 2021
279
Mexican Government Bond litigation
: A class action complaint was filed
adding ING Bank N.V., ING
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. 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. In 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. ING subsequently entered into
a tolling
agreement, which expired in December 2021.
The defendants named in the amended
complaint have
now settled that litigation.
Claims regarding mortgage loans in Swiss franc
in Poland:
ING Poland is a defendant in several
lawsuits with retail customers who took out
mortgage loans indexed to the Swiss franc.
Such
customers have alleged that the mortgage
loan contract contains abusive clauses.
One element that
the court is expected to consider in determining
whether such contracts contain abusive
clauses is
whether the rules to determine the exchange
rate used for the conversion of the loan
from Polish zloty
to Swiss franc are unambiguous and verifiable.
In December 2020, the Polish Financial
Supervision
Authority (PFSA) proposed that lenders offer
borrowers voluntary out-of-court settlements
on foreign-
currency mortgage disputes, with mortgages
indexed to Swiss franc serving as a reference
point. In
February 2021, ING Poland announced its support
for this initiative and in October 2021
began offering
the settlements to the borrowers following the
PFSA’s proposal. ING has recorded a portfolio
provision
with respect to the claims and the PFSA proposal.
The Polish Supreme Court was expected
to provide
further clarity on this topic in a ruling scheduled
for November 2021, however the
court’s session on
this matter was postponed and the date
of the next session has not yet been
announced.
Certain Consumer Credit Products:
In October 2021, ING announced that it
would offer compensation
to certain of its Dutch retail customers in
connection with certain revolving consumer
loans with
variable interest rates that allegedly did not
sufficiently follow market rates. This
announcement was
made in response to a number of rulings by
the Dutch Institute for Financial Disputes
(Kifid) regarding
similar products at other banks. ING currently
expects that any such compensation will be
paid before
the end of 2022. ING has recognized
a provision of €180 million in 2021 for
compensation and costs in
connection with this matter. On 22 December
2021 ING announced that it has reached
an agreement
with the Dutch Consumers’ Association (Consumentenbond)
on the compensation methodology for
revolving credits.
44
Consolidated companies and businesses
acquired and divested
Acquisitions
There were no significant acquisitions in 2021
or 2020.
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.
Divestments
On 18 February 2021 ING announced the
intention to withdraw from the retail banking
market in the
Czech Republic.
The decision to discontinue Czech Retail
Banking entails the closure of retail customer
accounts /mutual funds and the sale of
assets comprising the related government
bond portfolio. ING’s
retail customers in the Czech Republic have
received a welcome offer from Raiffeisenbank
Czech
Republic. ING’s departure from the Czech
Retail banking market resulted in EUR
2.5 billion saving
accounts being transferred to Raiffeisenbank
and the government bond portfolio with
a carrying
amount of EUR 0.5 billion being sold in the second
quarter of 2021.
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44
Consolidated companies and businesses acquired and divested
ING Bank Annual Report 2021
280
At 12 July 2021, ING announced that it has
reached an agreement to transfer ING’s
Retail Banking
operations in Austria to bank99. Under the terms
of the agreement, approximately EUR
1.7 billion of
savings deposits and approximately EUR
1.0 billion of mortgages,
approximately EUR 0.4 billion other
personal lending and approximately EUR
0.4 billion loans to banks of ING Austria have
been transferred
to Bank99. Per 1 December 2021 completed
the transaction and realized a loss on disposal
of EUR 26
million. ING Austria was included in the segment
Retail Challengers & Growth Markets.
In 2021, ING and the board of Makelaarsland
agreed
to continue Makelaarsland independently.
The
new board will take over all clients and employees,
and services to clients will continue unchanged.
The
negative result on disposal of group companies
from this management buyout amounted
to
approximately EUR 3 million.
On 28 October 2021 ING announced that its
subsidiary Payvision will start phasing
out its services as a
payment service provider and acquirer.
After a thorough evaluation of all options
in the context of the
rapidly evolving and increasingly competitive
and capital intensive e-commerce merchant
market, ING
has concluded that it is not feasible to
achieve its ambitions with Payvision. The
aim is to complete the
phase-out process by the second quarter of
2022.
In 2021, Payvision recognised an impairment
loss of intangible assets of EUR 44 million, mainly
with
respect to Brand, IT and Customer relationships
and an impairment loss of the deferred
tax asset of
EUR 14 million.
In December 2021 ING announced that it will
leave the retail banking market in France.
Reference is
made to Note 49 'Subsequent events' for
further details of the events after 31 December
2021 but
before these financial statements were
authorised for issue.
In 2020 there were no significant 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 24 ‘Result on the
disposal of group companies’.
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45
Principal subsidiaries, investments in associates and joint ventures
ING Bank Annual Report 2021
281
Most significant companies disposed in 2021
in EUR million
Makelaarsland
BV & Above BV
ING Austria
Retail Banking
Total divested
Sales Proceeds
Sales proceeds
29
29
Non-cash proceeds
Cash proceeds
29
29
Cash outflow / inflow on disposal
29
29
Assets
Cash assets
3
3
Loans and advances to customers
0
1,404
1,404
Amounts due from banks
378
378
Miscalleneous other assets
0
8
8
Liabilities
Customer deposits and other funds on deposit
1,725
1,725
Miscallaneous other liabilities
1
8
9
Net assets
3
56
58
% disposed
100%
100%
Net assets disposed
3
56
58
Result on disposal
-3
-26
-29
45
Principal subsidiaries, investments
in associates and joint ventures
For the majority of ING’s principal subsidiaries,
ING Bank 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 Bank 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;
◾
Participation in the policymaking process;
and
◾
Interchange of managerial personnel.
The principal subsidiaries, investments in
associates and joint ventures of ING
Bank 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
2021
2020
Subsidiary
Statutory place of
Incorporation
Country of operation
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
TMBThanachart Bank Public Company Ltd
2
Bangkok
Thailand
23%
23%
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 33 ‘Information on geographical areas.
2 Reference is made to Note 8 Investments in Associates and Joint Ventures.
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46
Structured entities
ING Bank Annual Report 2021
282
46
Structured entities
ING Bank’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 Bank’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
Bank 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 Bank enters into liquidity management
securitisation programmes in order
to obtain funding and
improve liquidity. Within the programme ING
Bank sells ING originated assets to a structured
entity.
The underlying exposures include residential
mortgages and SME loans in the
Netherlands, Belgium,
Spain, Italy, Australia and Germany.
The structured entity issues securitised
notes (traditional securitisations) which
are eligible collateral
for central bank liquidity purposes. In most
programmes ING Bank acts as investor
of the securitised
notes. ING Bank 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
Bank as collateral in the money market for
secured borrowings.
ING Bank originated various securitisations,
as at 31 December 2021, these consisted
of approximately
EUR 74 billion (2020: EUR 66 billion) of senior
and subordinated notes, of which approximately
EUR 1
billion (2020: EUR 2 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 Bank’s
Consolidated statement of financial position
and profit or loss.
In 2021, there are no non-controlling interests
as part of the securitisation structured
entities that are
significant to ING Bank. ING Bank for the majority
of the securitisation vehicles provides
the funding for
the entity except for EUR 1 billion (2020: EUR
2 billion).
In addition ING Bank originated various securitisations
for liquidity management optimisation
purposes. As at 31 December 2021, these
consisted of approximately EUR 1 billion
(2020: EUR 2 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
Bank’s consolidated
statement of financial position and profit or
loss.
2. Consolidated ING originated Covered bond programme (CBC)
ING Bank 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 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 Bank.
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46
Structured entities
ING Bank Annual Report 2021
283
Covered bond programme
Fair value pledged
mortgage loans
2021
2020
Dutch Covered Bond Companies
16,586
20,157
16,586
20,157
In addition, subsidiaries of ING in Germany,
Belgium and Australia also issued covered bonds
with
pledged mortgages loans of approximately
EUR 23 billion (2020: EUR 21 billion)
in total.
For the covered bond programme, third-party
investors in securities issued by the structured
entity
have recourse to the assets of the entity
and to the assets of ING Bank.
3. Consolidated ING sponsored Securitisation programme (Mont Blanc)
In the normal course of business, ING Bank
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 Bank
facilitates these transactions by
acting as administrative
agent, swap counterparty and liquidity provider
to Mont Blanc Capital Corp. ING
Bank 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 Bank 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
2,581 million (2020: EUR 2,793 million). The
drawn liquidity amount is nil as at 31 December
2021 (2020: 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 Bank
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 special purpose vehicle (SPV). The transaction
resulted in full derecognition of the financial
assets
from ING’s statement of financial position.
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
2021 amounted to EUR -34 million (2020:
EUR -34 million); fair
value changes on this swap recognised
in the statement of profit or loss in 2021 were
EUR 0 million
(2020: EUR 11 million). Service fee income
recognised, for the role as administrative
agent, in the
statement of profit or loss in 2021 amounted
to EUR 1 million (2020: EUR 1 million). The
cumulative
income recognised in profit or loss since
derecognition amounts to EUR 17 million (2020:
EUR 16
million).
5. Other structured entities
In the normal course of business, ING Bank
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 Bank, as ING facilitates these transactions
as
administrative agent by providing structuring,
accounting, funding, lending, and operation
services.
ING Bank offers various investment fund products
to its clients. ING Bank does not invest
in these
investment funds for its own account nor
acts as the fund manager.
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47
Related parties
ING Bank Annual Report 2021
284
47
Related parties
In the normal course of business, ING Bank
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 Bank 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
34
‘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.
ING Bank forms part of ING Group and also enters
into transactions with ING Group. These transactions
vary from financing activities to regular purchase
and sales transactions. Disclosed in the
table below,
are the transactions with ING Groep N.V.
Parent Company
Transactions with ING Groep N.V.
2021
2020
Assets
55
134
Liabilities
56,349
45,625
Income received
15
9
Expenses paid
1,158
1,122
Liabilities to ING Groep N.V. mainly comprise
long-term funding.
Associates and joint ventures
Transactions with ING Bank’s main associates and joint ventures
Associates
Joint ventures
2021
2020
2021
2020
Assets
115
100
0
Liabilities
417
239
3
1
Off-balance sheet commitments
24
10
–
Income received
42
14
Assets, liabilities, commitments, and income
related to Associates and joint ventures
result from
transactions which are executed as part
of the normal Banking business.
Key management personnel compensation
The Executive Board of ING Groep N.V., the
Management Board Banking and
the Supervisory Board are
considered Key Management personnel of ING
Group. In 2021 and 2020, the three members
of the
Executive Board of ING Groep N.V. were also members
of the Management Board Banking.
Transactions with key management personnel,
including their compensation are included
in the tables
below.
Contents
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Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
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47
Related parties
ING Bank Annual Report 2021
285
Key management personnel compensation (Executive Board and Management Board Banking)
2021
in EUR thousands
Executive Board
of ING Groep
N.V.
3
Management
Board Banking
1
Total
Fixed Compensation
–
Base salary
3,836
5,024
8,860
–
Collective fixed allowances
2
954
1,214
2,168
–
Pension costs
64
116
180
–
Severance benefits
4
1,075
1,075
Variable compensation
–
Upfront cash
664
664
–
Upfront shares
265
691
956
–
Deferred cash
997
997
–
Deferred shares
398
1,036
1,434
–
Other emoluments
5
274
959
1,233
Total compensation
5,791
11,776
17,567
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 110,111.
3 In 2020 one member of the Executive Board left ING during the year. The table
includes compensation earned in the capacity
as board member.
4 One member of the Management Board Banking left ING at the end of the
year. In line with applicable regulation a severance
payment was granted.
5 Other emoluments include reimbursement of costs
related to home/work commute,
costs relating to
tax and financial
planning services,
costs associated with
a company car and for expats, the costs
associated with housing and schooling and
costs related to reimbursement of Directors and Officers indemnity.
Key management personnel compensation (Executive Board and Management Board Banking)
Executive
Board of ING
Groep N.V.
3
Management
Board
Banking
1,4
Total
2020
in EUR thousands
Fixed Compensation
–
Base salary
3,609
4,170
7,779
–
Collective fixed allowances
2
898
1,009
1,907
–
Pension costs
58
93
151
–
Severance benefits
667
667
Variable compensation
–
Upfront cash
305
305
–
Upfront shares
305
305
–
Deferred cash
457
457
–
Deferred shares
457
457
–
Other emoluments
5,6
298
814
1,112
Total compensation
4,863
8,277
13,140
1 Excluding members of the Management Board Banking 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 110,111.
3 In 2020 one member of the Executive Board left ING during the year. The table
includes compensation earned in the capacity
as Executive Board member.
4 One member of the Management Board Banking left ING at the end of the
year. In line with applicable regulation a severance
payment was granted.
5 Other emoluments include reimbursement
of costs related to home/work
commute, costs
relating to tax
and financial
planning services,
costs associated with
a company car and for expats and
the costs associated
with housing and schooling
6 Prior year numbers have been updated by excluding costs related to reimbursement of
Directors and Officers indemnity to
improve consistency and comparability.
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 recognised
in Staff expenses in 2021 relating
to the fixed expenses of
2021 and the vesting of variable remuneration
of earlier performance years, is
EUR 13 million in 2021
(2020: EUR 12 million).
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48
Capital management
ING Bank Annual Report 2021
286
The table below shows the total of fixed remuneration,
expense allowances and attendance fees
for
the Supervisory Board in 2021 and 2020.
Key management personnel compensation (Supervisory Board)
in EUR thousands
2021
2020
Total compensation
994
1,042
Balances outstanding with key management
personnel were as follows:
Loans and advances to key management personnel
Amount outstanding
31 December
Weighted average
interest rate
Repayments
in EUR thousands
2021
2020
2021
2020
2021
2020
Executive Board members
Management Board Banking
2,392
350
1.7%
2.6%
40
Supervisory Board members
Total
2,392
350
40
The loans and advances mentioned in the table
above (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
unfavourable features. Loans and advances
to members of the Executive Board and Management
Board Banking 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 at 31 December 2021 Deposits outstanding
from key management personnel amounted
to EUR 6.1
million (31 December 2020: EUR 12.5 million).
Total interest paid in 2021 on these
deposits amounted
to EUR nil (2020:
EUR 14 thousand).
Number of ING Groep N.V. shares and stock options to key management personnel
ING Groep N.V. shares
in numbers
2021
2020
Executive Board members
91,853
88,741
Management Board Banking
237,525
254,052
Supervisory Board members
5,295
5,295
Total number of shares and stock options
334,673
348,088
48
Capital management
Objectives
Group Treasury (“GT”) 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 Balance Sheet & 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 Bank 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 plus
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 plus subordinated
Tier 2 liabilities and regulatory adjustments.
Total capital divided by risk-weighted
assets equals the Total capital ratio.
◾
Leverage ratio – is defined as Tier 1 capital
divided by the leverage exposure.
Contents
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Corporate governance
Consolidated financial statements
Parent company financial statements
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>
48
Capital management
ING Bank Annual Report 2021
287
Capital developments
ING Bank’s capital ratios at the end of the
year improved compared to 2020 primarily
due to the partial
addition of the 2021 net profit to CET1 capital
and lower regulatory adjustments. This
was only partly
offset by higher risk-weighted assets that
were mainly driven by model impacts, reflecting
the ongoing
redevelopment of internal models and EBA
guidelines. ING Bank continues to maintain
a strong and
high quality capital level.
ING Bank N.V. has a CET1 ratio of 14.3% at
31 December 2021, versus an overall CET1 requirement
(including buffer requirements) of 7.03%. The
Tier 1 ratio (including grandfathered securities)
increased
from 15.9% to 16.5% compared to last year.
The Banks’s total capital ratio (including
grandfathered
securities) increased to 19.5%.
ING Bank has paid EUR 3,125 million of
dividend to ING Group in relation to the
2021 profit.
ING Bank capital position according to CRR II / CRD V
in EUR million
2021
2020
Shareholders’ equity
1
47,914
47,675
- Interim profits not included in CET1 capital
2
-934
-1,207
- Other adjustments
-2,130
-3,534
Regulatory adjustments
-3,064
-4,741
Available common equity Tier 1 capital
44,850
42,934
Additional Tier 1 securities
3
6,792
5,648
Regulatory adjustments additional Tier 1
78
68
Available Tier 1 capital
51,720
48,650
Supplementary capital Tier 2 bonds
4
9,341
9,359
Regulatory adjustments Tier 2
21
23
Available Total capital
61,081
58,032
Risk weighted assets
312,616
306,016
Common equity Tier 1 ratio
14.35%
14.03%
Tier 1 ratio
16.54%
15.90%
Total capital ratio
19.54%
18.96%
1) Shareholders' equity is determined in accordance with IFRS-EU.
2) The interim profits not included in CET1 capital as per 31 December 2021 were EUR 934
million and fully relate to the result
of the fourth quarter of 2021.
3) All AT1 securities outstanding at 31 December 2021 are CRR-compliant (2020: EUR 994 million
was subject to CRR/CRD IV
grandfathering rules).
4) Including EUR 9,188 million which is CRR-compliant (2020: EUR 9,206 million), and EUR
153 million to be replaced as capital
recognition is subject to CRR grandfathering rules (2020: EUR 153 million).
In accordance with the applicable regulation,
credit and operational risk models used
in the capital
ratios calculations are not audited.
Processes for managing capital
GT Balance Sheet & Capital Management
ensures adherence to ING’s solvency risk
appetite statements
by planning and executing capital management
transactions. The ongoing assessment
and monitoring
of capital adequacy is embedded in the capital
planning process as part of 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.
Risk appetite statements are at the foundation
of the
capital plan and are cascaded to the different
businesses in line with ING’s risk management
framework. Contingency capital measures
and early warning indicators are in place
in conjunction with
ING’s contingency and recovery plan to
support the strategy in times of stress.
Adverse planning and stress testing, which
reflect the outcome of the annual risk assessment,
are
integral components of ING’s risk and capital
management framework. It allows
to (i) identify and
assess potential vulnerabilities in ING’s
businesses, business model, portfolios
or operating
environment; (ii) understand the sensitivities
of the core assumptions used in
ING’s strategic and
capital plan; and (iii) improve decision-making
and business steering through balancing
risk and return
following a forward looking and prudent management
approach.
Contents
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Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
49
Subsequent events
ING Bank Annual Report 2021
288
Regulatory requirements
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 and the ECB for supervisory purposes.
In 2010,
the Basel Committee issued new solvency and
liquidity requirements that superseded Basel
II,
implemented in the EU via CRR / CRD. In accordance
with the CRR the minimum Pillar 1 capital
requirements applicable to ING Bank are: a
CET1 ratio of 4.5%, a Tier 1 ratio of 6% and
a Total capital
ratio of 8% of risk-weighted assets.
The overall CET1 requirement (including buffer
requirements) for ING Bank N.V. at a consolidated
level
was 7.03% in 2021. This requirement is the
sum of a 4.5% Pillar I requirement, a
2.5% Capital
Conservation Buffer (CCB) and a 0.03% Countercyclical
Buffer (CCyB) (based on December 2021
positions).
Ratings
ING Bank’s key credit ratings and outlook are shown
in the table below. 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.
Main credit ratings of ING Bank N.V. at 31 December 2021
S&P
Moody’s
Fitch
GBB-Rating
ING Bank N.V.
Issuer rating
Long-term
A+
A1
AA-
A+
Short-term
A-1
P-1
F1+
n/a
Outlook
Stable
Stable
Stable
Indeterminate
Senior unsecured rating
A+
A1
AA-
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.
49
Subsequent events
ING has been active in the French retail banking
market since 2000 as an online bank.
In December
2021 ING announced that it will leave the retail
banking market in France in order to sharpen
the focus
of its business portfolio. At February 1,
2022 ING and Societe Generale announced
that a Memorandum
of Understanding was signed on 31 January between
ING and Boursorama (subsidiary of Societe
Generale) to offer banking solutions to
ING’s retail customers in France. The intention
of both parties is
to reach a definitive agreement in April 2022
at the latest.
The exact scope of the definitive agreement
remains to be specified and would
concern daily banking
(current accounts and cards), savings
and investment products (assurance vie
& brokerage). The ING
France retail lending portfolio (mortgages
and consumer loans) will not be part of the agreement.
Mortgages will continue to be managed
by ING. Maintaining consumer loans
at ING is under
consideration.
ING continues its Wholesale Banking activities
in France, with a focus on strengthening our
position and
the ambition to be the go-to-bank for sustainable
finance.
The Russian invasion of Ukraine and rapidly
escalating events in late February and
early March 2022 is
a significant tragedy for the people and is causing
disruption to business and economic activity in
the
region and worldwide. This qualifies as a non-adjusting
subsequent event. At this moment it is
not
possible to provide an estimate of the financial
impact of this crisis on ING (including
direct impact on
ING exposures to Russian and Ukrainian markets
as well as wider impacts for ING). For further
details
on Russian and Ukrainian exposures of ING
Group reference is made to ‘Risk Management
– Top and
emerging risks’.
Contents
Introduction
Strategy and
performance
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
ING Bank Annual Report 2021
289
Authorisation of Consolidated Financial Statements
Amsterdam, 7 March 2022
The Supervisory Board
G.J. (Hans) Wijers, chairman
A.M.G. (Mike) Rees, vice-chairman
J. (Juan) Colomb
á
s
M. (Mariana) Gheorghe
M. (Margarete) Haase
L.J. (Lodewijk) Hijmans van den Bergh
H.A.H. (Herman) Hulst
H.H.J.G. (Harold) Naus
H.W.P.M.A. (Herna) Verhagen
The Management Board Banking
S.J.A. (Steven) van Rijswijk, CEO and chairman
T. (Tanate) Phutrakul, CFO
L. (Ljiljana)
Č
ortan, CRO
P. (Pinar) Abay, head of Market Leaders
A.J.M. (Andrew) Bester, head of Wholesale
Banking
A. (Aris) Bogdaneris, head of Challengers
& Growth Markets and head of Retail
Banking
R.H.E. (Ron) van Kemenade, chief technology
officer
M.A. (Marnix) van Stiphout, chief operations
officer and chief transformation officer
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
ING Bank Annual Report 2021
290
Parent company statement of financial position
as at 31 December before appropriation of result
in EUR million
2021
2020
in EUR million
2021
2020
Assets
Liabilities
Cash and balances with central banks
2
57,958
57,668
Deposits from banks
13
91,247
99,926
Short-dated government paper
3
205
2,990
Customer deposits
14
363,162
327,665
Loans and advances to banks
4
74,040
74,109
Debt securities in issue
49,117
55,421
Loans and advances to customers
5
350,202
326,656
Other liabilities
15
39,161
49,546
Debt securities
6
43,315
41,456
General provisions
16
1,246
876
Equity securities
7
10,079
6,142
Subordinated loans
17
16,949
16,155
Investments in group companies
8
31,342
32,056
Total liabilities
560,882
549,589
Investments in associates and joint ventures
9
1,354
1,332
Intangible assets
10
632
755
Equity
18
Equipment
11
901
1,062
Share capital
525
525
Other assets
12
38,769
53,037
Share premium
16,542
16,542
Revaluation reserves
1,617
2,150
Legal and statutory reserves
-548
185
Other reserves
25,199
25,953
Unappropriated result
4,579
2,321
Total equity
47,914
47,675
Total assets
608,796
597,263
Total liabilities and equity
608,796
597,263
References relate to the accompanying notes.
These form an integral part of the Parent
company financial statements.
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
ING Bank Annual Report 2021
291
Parent company statement of profit or loss
for the years ended 31 December
in EUR million
2021
2020
Interest income
11,930
12,704
Interest expense
–5,585
–6,453
Net interest income
19
6,345
6,251
Investment income and results from participating interests
20
3,239
1,649
Commission income
2,248
1,984
Commission expense
–502
–523
Net commission income
21
1,746
1,461
Results from financial transactions
22
472
857
Other income
85
–102
Total income
11,887
10,116
Staff expenses
23
3,224
3,230
Depreciation, amortisation and impairments
24
408
817
Other expenses
25
2,523
2,012
Addition to loan loss provisions
261
1,050
Total expenses
6,416
7,108
Result before tax
5,471
3,008
Taxation
26
701
593
Result after tax
4,770
2,415
References relate to the accompanying notes.
These form an integral part of the Parent
company
financial statements.
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
ING Bank Annual Report 2021
292
Parent company statement of changes in equity
in EUR million
Share
capital
Share
premium
Revaluation
reserves
Legal and
statutory
reserves
Other reserves
Unappropriated
results
Total
Balance as at 31 December 2020
525
16,542
2,150
185
25,953
2,321
47,675
Realised and unrealised revaluations equity and debt instruments and other revaluations
–7
–61
–6
–74
Realised gains/losses transferred to the statement of profit or loss
–22
–14
–36
Changes in cash flow hedge reserve
–538
–1,065
–1,603
Unrealised revaluations property in own use
1
–14
11
–2
Remeasurement of the net defined benefit asset/liability
–4
99
95
Exchange rate differences and other
37
153
190
Total amount recognised directly in equity
–532
–903
5
–1,430
Net result
191
4,579
4,770
–532
–712
5
4,579
3,339
Transfer from unappropriated results
2,321
–2,321
Dividends
–1,207
–1,918
–3,125
Employee stock options and share plans
28
28
Changes in the composition of the group and other changes
–21
18
–3
Balance as at 31 December 2021
525
16,542
1,617
–548
27,117
2,661
47,914
Changes in individual components are presented
in Note 18 ‘Equity’.
Contents
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Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
ING Bank Annual Report 2021
293
Parent company statement of changes in equity - continued
in EUR million
Share
capital
Share
premium
Revaluation
reserves
Legal and
statutory
reserves
Other reserves
Unappropriated
results
Total
Balance as at 31 December 2019
525
16,542
2,467
1,532
21,194
4,663
46,924
Realised and unrealised revaluations equity and debt instruments and other revaluations
-337
-32
62
-306
Realised gains/losses transferred to the statement of profit or loss
-16
-17
-33
Changes in cash flow hedge reserve
32
210
242
Unrealised revaluations property in own use
-3
-30
26
-7
Remeasurement of the net defined benefit asset/liability
9
19
28
Exchange rate differences and other
-3
-1,557
-16
-1,576
Total amount recognised directly in equity
-318
-1,405
71
-1,651
Net result
94
2,321
2,415
-318
-1,311
71
2,321
764
Transfer from unappropriated results
4,663
-4,663
Dividends
-43
-43
Employee stock options and share plans
23
23
Changes in the composition of the group and other changes
-37
44
7
Balance as at 31 December 2020
525
16,542
2,150
185
25,953
2,321
47,675
Changes in individual components are presented
in Note 18 ‘Equity’.
Contents
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Strategy and
performance
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
1
Basis of presentation
ING Bank Annual Report 2021
294
Notes to the parent company financial statements
1
Basis of presentation
ING Bank N.V. is registered at
Bijlmerdreef 106, 1102 CT Amsterdam, the Netherlands
(Commercial
Register of Amsterdam under number 33031431).
The Parent company financial statements
of ING Bank N.V. are prepared in accordance
with the
financial reporting requirements included in
Part 9 of Book 2, of the Dutch Civil Code. In
accordance
with subsection 8 of section 362, Book
2 of the Dutch Civil Code, the recognition and
measurement
principles applied in these Parent company
financial statements are the same as those
applied in the
ING Bank Consolidated financial statements,
reference is made to Note 1 ‘Accounting
policies’ of the
Consolidated financial statements.
Investments in group companies are
accounted in the Parent
company accounts according to the equity
method. In addition to the notes to these
financial
statements, further information is included
in the notes to the consolidated financial
statements.
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.
The parent company financial statements
are presented in euros, rounded to the nearest
million,
unless stated otherwise. Amounts may not
add up due to rounding.
Parent company equity and related reserves
The total amount of
equity in the
Parent company financial
statements equals
Shareholders’ equity (parent)
in the Consolidated
financial statements. Certain
components
within equity are different,
as a result of
the following presentation
differences between the
parent company accounts
and consolidated accounts:
●
Unrealised revaluations including those related
to cash flow hedges within consolidated
group
companies, presented in Other reserves
- Revaluation reserve in the consolidated
accounts, are
presented in the Share of associates and
joint ventures reserve in the parent
company accounts;
●
Foreign currency translation on consolidated
group companies, presented in Other reserves
-
Currency translation reserve in the consolidated
accounts, is presented in the Share of associates
and joint ventures reserve in the parent company
accounts;
●
Revaluations on investment property and
certain participations recognised in income
and
consequently presented in Retained earnings
in the consolidated
accounts, is presented in
the
Share of associates and
joint ventures reserve in
the parent company
accounts.
A legal reserve is carried at an amount equal
to the share in the results of associates
and joint
ventures since their first inclusion at net
asset value less the amount of profit
distributions to which
rights have accrued in the interim. Profit
distributions which can be repatriated to the
Netherlands
without restriction are likewise deducted from
the Share of associates and joint ventures
reserve.
Presentation parent company assets and
liabilities
The presentation of assets and liabilities in
the parent company financial statements
differs from the
presentation in the consolidated financial statements.
In below tables a reconciliation is included
between the presentation in the parent company
versus consolidated financial statements.
Contents
Introduction
Strategy and
performance
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
1
Basis of presentation
ING Bank Annual Report 2021
295
Presentation Parent company financial statements versus Consolidated financial statements, Assets
Parent company financial statements
Assets as at 31 December 2021
Cash and
balances with
central banks
Short-dated
government
paper
Loans and
advances to
banks
Loans and
advances to
customers
Debt securities
Equity
securities
Investments in
associates and
joint ventures
Intangible
assets
Equipment
Other assets
Total
Included in Consolidated statement of financial position:
Cash and balances with central banks
57,958
57,958
Loans and advances to banks
54,315
54,315
Financial assets at fair value through profit or loss
–
Trading assets
22
612
8,009
5,092
7,678
29,580
50,993
–
Non-trading derivatives
4,458
4,458
–
Designated as at fair value through profit or loss
313
129
2,758
3,201
–
Mandatorily at fair value through profit or loss
18,800
12,694
772
31
32,297
Financial assets at fair value through other comprehensive income
6
12,307
2,369
14,682
Securities at amortised cost
178
22,385
22,563
Loans and advances to customers
329,370
329,370
Investments in associates and joint ventures
1,354
1,354
Property and equipment
879
879
Intangible assets
632
632
Current tax assets
234
234
Deferred tax assets
364
364
Other assets
21
4,133
4,155
Total assets
57,958
205
74,040
350,202
43,315
10,079
1,354
632
901
38,769
577,454
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1
Basis of presentation
ING Bank Annual Report 2021
296
Presentation Parent company financial statements versus Consolidated financial statements, Liabilities
Parent company financial statements
Liabilities as at 31 December 2021
Deposits from
banks
Customer
deposits
Debt securities in
issue
Other liabilities
General
provisions
Subordinated
loans
Total
Included in Consolidated statement of financial position:
Deposits from banks
82,469
82,469
Customer deposits
342,965
342,965
Financial liabilities at fair value through profit or loss
–
Trading liabilities
1,406
6,031
27,470
34,908
–
Non-trading derivatives
5,323
5,323
–
Designated as at fair value through profit or loss
7,372
14,166
5,381
230
27,149
Current tax liabilities
112
112
Deferred tax liabilities
553
553
Provisions
685
685
Other liabilities
6,255
8
6,263
Debt securities in issue
43,736
43,736
Subordinated loans
16,719
16,719
Total liabilities
91,247
363,162
49,117
39,161
1,246
16,949
560,882
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2
Cash and balances with central banks
ING Bank Annual Report 2021
297
Notes to the Parent company statement of financial position
2
Cash and balances with central
banks
Amounts held at central banks amount to
EUR 57,143 million (2020: EUR 56,809 million).
In 2021, the
movement in Cash and balances with
central banks reflects ING’s active liquidity management.
3
Short-dated government paper
Short-dated government paper includes
Dutch and international government
paper amounting to
EUR 205 million (2020: EUR 2,990 million) for
the company.
4
Loans and advances to banks
2021
2020
Non-subordinated receivables from:
Group companies
33,583
32,087
Third parties
38,280
39,777
71,864
71,864
Subordinated receivables from:
Group companies
2,176
2,245
74,040
74,109
As at 31 December 2021, Loans and advances
to banks includes receivables with regard
to securities,
which have been acquired in reverse repurchase
transactions amounting to EUR
33,057 million
(2020: EUR 34,131 million).
5
Loans and advances to customers
Loans and advances to customers
2021
2020
Non-subordinated receivables from:
ING Groep N.V.
42
130
Group companies
43,904
37,080
Third parties
304,856
288,046
348,802
325,256
Subordinated receivables from:
Group companies
1,400
1,400
350,202
326,656
As at 31 December 2021, receivables included
in Loans and advances to customers
that are part of
the trading portfolio amount to EUR 8,009 million
(2020: EUR 8,392 million).
Loans and advances to customers includes receivables
with regard to securities which have been
acquired in reverse repurchase transactions
amounting to EUR 19,645 million (2020:
EUR 18,343
million) for the company.
6
Debt securities
Debt securities by issuer
2021
2020
Public sector
31,395
29,440
Other
11,920
12,016
43,315
41,456
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7
Equity securities
ING Bank Annual Report 2021
298
Debt securities analysed by listing
2021
2020
Listed
30,593
35,506
Unlisted
12,721
5,950
43,315
41,456
The above table includes the following non subordinated debt securities:
2021
2020
Non-subordinated debt securities issued by:
Third parties
42,594
40,699
42,594
40,699
Changes in debt securities
1
2021
2020
Opening balance
34,672
32,405
Additions
14,907
17,565
Amortisation
–142
–126
Changes in unrealised revaluations
–497
586
Disposals and redemptions
–15,046
–14,674
Exchange rate differences
781
–675
Other changes
18
–408
Closing balance
34,693
34,672
1
Excluding fair value through profit or loss portfolio.
7
Equity securities
Equity securities analysed by listing
2021
2020
Listed
9,910
6,042
Unlisted
169
100
10,079
6,142
Changes in equity securities
1
2021
2020
Opening balance
1,782
2,215
Additions
513
9
Changes in unrealised revaluations
–98
–288
Disposals
–12
–10
Exchange rate differences
192
–51
Other changes
–8
–93
Closing balance
2,369
1,782
1
Excluding fair value through profit or loss portfolio.
The cost or purchase price of the shares in
the trading portfolio approximates
their fair value. As at
31 December 2021 the cost or purchase
price of shares excluding trading portfolio
is EUR 1,260
million lower (2020:
EUR 1,168 million lower) than the carrying
amount.
8
Investments in group companies
Investments in group companies
2021
2020
Interest
held (%)
Statement of financial
position
value
Interest
held (%)
Statement of financial
position
value
ING Belgi
ë
N.V.
100
10,001
100
10,263
ING Holding Deutschland GMBH
100
9,274
100
9,247
ING Bank (Australia) Limited
100
3,730
100
3,243
ING Financial Holdings Corporation
100
2,634
100
1,880
ING Bank Slaski S.A.
75
2,188
75
3,045
ING Bank A.S.
100
726
100
1,066
Bank Mendes Gans N.V.
100
737
100
630
ING Real Estate B.V.
100
227
100
441
ING Australia Holdings Limited
100
10
100
212
ING Corporate Investments B.V.
100
252
100
198
Other (including financing companies)
1,562
1,832
31,342
32,056
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9
Investments in associates and joint ventures
ING Bank Annual Report 2021
299
As at 31 December 2021, Investments in group
companies includes credit institutions
of EUR 17,829
million (2020: EUR 18,766 million).
As at 31 December 2021 listed investments
in group companies amount to EUR
2,188 million (2020:
EUR 3,045 million).
Changes in investments in group companies
2021
2020
Opening balance
32,056
33,310
Repayment of capital injection
–155
–
Revaluations
–1,038
194
Results from group companies
3,029
1,710
Dividends received
–2,232
–1,417
Capital contribution
–137
45
Mergers and liquidations
–7
–904
Exchange rate differences
–191
–876
Other changes
15
–5
Closing balance
31,342
32,056
In 2020 ING Bank N.V. merged with ING International
(Belgium) B.V.
9
Investments in associates and joint
ventures
Investments in associates and joint ventures
2021
2020
Interest
held (%)
Statement of financial
position value
Interest
held (%)
Statement of financial
position value
TMBThanachart Bank Public Company
23
1,208
23
1,202
Other
147
130
1,354
1,332
Changes in investments in associates and joint ventures
2021
2020
Opening balance
1,332
1,646
Additions
30
15
Share of results
70
61
Dividends received
–28
–8
Disposals
–10
–0
Impairments
–3
–237
Revaluations
1
1
Exchange rate differences
–31
–142
Other changes
–7
–4
Closing balance
1,354
1,332
10
Intangible assets
Changes in intangible assets
Goodwill
Software
Other
Total
2021
2020
2021
2020
2021
2020
2021
2020
Opening balance
184
513
569
660
2
2
755
1,175
Additions
122
218
122
218
Amortisation
-166
-155
-166
-156
Impairments
-266
-16
-145
-16
-411
Exchange rate differences
-61
-63
-1
-62
-64
Other changes
-2
-8
-2
-8
Closing balance
122
184
508
569
2
2
632
755
Goodwill is tested for impairment annually,
in 2021 no impairments were recognised.
Goodwill
impairment tests performed in the second quarter
of 2020 resulted in the recognition of goodwill
impairments mainly in relation to the cash-generating
unit (CGU) Wholesale Banking of EUR
260
million.
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11
Equipment
ING Bank Annual Report 2021
300
11
Equipment
Changes in equipment
2021
2020
Opening balance
1,062
1,130
Additions
89
165
Depreciation
–213
–222
Disposals
–4
–13
Impairments
–15
–29
Reversal of impairments
2
2
Exchange rate differences
9
–14
Other changes
–28
45
Closing balance
901
1,062
Gross carrying amount as at 31 December
2,220
2,363
Accumulated depreciation as at 31 December
–1,319
–1,300
Net carrying value
901
1,062
12
Other assets
Other assets
2021
2020
Derivatives
34,038
47,790
Deferred tax assets
364
247
Income tax receivables
234
416
Accrued interests and rents
41
39
Other accrued assets
420
420
Pension asset
717
682
Other receivables
2,957
3,444
38,769
53,037
Derivatives includes transactions with group
companies of EUR 16,954 million (2020:
EUR 22,577
million).
Other receivables includes EUR 1,479 million
(2020: EUR 1,806 million) related to transactions
still to
be settled at balance sheet date. As at 31 December
2021, an amount of EUR 844 million (2020:
EUR
813 million) is expected to be settled after
more than one year from the balance
sheet date.
13
Deposits from banks
Deposits from banks
2021
2020
Group companies
26,227
32,443
Third parties
65,021
67,483
91,247
99,926
14
Customer deposits
Customer deposits by group companies and third parties
2021
2020
ING Groep N.V.
40,467
32,421
Group companies
18,666
12,373
Third parties
304,029
282,871
363,162
327,665
Customer deposits from ING Groep N.V. includes
EUR 34,303 million (2020: EUR 25,376
million) Senior
non-preferred debt.
Customer deposits by type
2021
2020
Savings accounts
124,901
129,920
Credit balances on customer accounts
144,018
127,260
Corporate deposits
45,379
30,063
Other
48,864
40,422
363,162
327,665
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15
Other liabilities
ING Bank Annual Report 2021
301
15
Other liabilities
Other liabilities
2021
2020
Derivatives
31,948
42,454
Trading liabilities
845
625
Accrued interest
7
5
Costs payable
1,274
1,079
Income tax payable
112
65
Other taxation and social security contribution
64
56
Other amounts payable
4,910
5,261
39,161
49,546
Derivatives includes transactions with group
companies of EUR 14,499 million (2020:
EUR 19,236
million).
Other amounts payable includes EUR 2,940
million (2020: EUR 3,218 million) related
to transactions
still to be settled at balance sheet date. As
at 31 December 2021,
an amount of EUR 530 million
(2020: EUR 601 million) is expected to be settled
after more than one year from the balance
sheet
date.
16
General provisions
General provisions
2021
2020
Deferred tax liabilities
553
532
Pension liabilities and other staff-related liabilities
8
19
Reorganisations and relocations
308
173
Other
377
153
1,246
876
As at 31 December 2021, an amount of EUR
616 million (2020: EUR 587 million) is
expected to be
settled after more than one year from the
balance sheet date.
17
Subordinated loans
Subordinated loans by group companies and third parties
2021
2020
Group companies
15,955
13,273
Third parties
993
2,882
16,949
16,155
Subordinated loans by type
2021
2020
Capital debentures
1,935
3,459
Private loans
15,014
12,696
16,949
16,155
The subordinated loans rank subordinated
to the other liabilities in a winding-up of
ING Bank
.
18
Equity
Equity
2021
2020
Share capital
525
525
Share premium
16,542
16,542
Revaluation reserves
1,617
2,150
Legal and statutory reserves
–548
185
Other reserves
27,117
25,953
Unappropriated result
2,661
2,321
Total equity
47,914
47,675
Share capital
Ordinary shares (par value EUR 1.13)
Number x 1,000
Amount
2021
2020
2021
2020
Authorised share capital
1,600,000
1,600,000
1,808
1,808
Unissued share capital
1,134,965
1,134,965
1,283
1,283
Issued share capital
465,035
465,035
525
525
No changes occurred in the issued share
capital and share premium in 2021 and
2020.
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18
Equity
ING Bank Annual Report 2021
302
Changes in revaluation reserves
2021
Property in own use
reserve
Equity securities at
fair value through
other comprehensive
income
Debt instruments at
fair value through
other comprehensive
income
Cash flow hedge
reserve
Net defined benefit
assets/- liability
remeasurement
reserve
Credit liability
Total
Opening balance
21
1,168
58
830
189
–117
2,150
Unrealised revaluations
1
95
–99
37
34
Realised gains/losses transferred to the statement of profit or loss
–23
–23
Realised revaluations reclassified to retained earnings
–3
–3
Changes in cash flow hedge reserve
–538
–538
Change in net defined benefit assets/liability
–4
–4
Closing balance
22
1,260
–63
292
186
–80
1,617
2020
Opening balance
24
1,560
19
798
180
–114
2,467
Unrealised revaluations
–3
–390
56
–19
–357
Realised gains/losses transferred to the statement of profit or loss
–16
–16
Realised revaluations reclassified to retained earnings
–2
16
15
Changes in cash flow hedge reserve
32
32
Change in net defined benefit assets/liability
9
9
Closing balance
21
1,168
58
830
189
–117
2,150
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18
Equity
ING Bank Annual Report 2021
303
Changes in legal and statutory reserves
2021
Share of associates
and joint ventures
reserves
Currency translation
reserve
Statutory reserves
Capitalised software
Total
Opening balance
1,398
–3,631
1,912
505
185
Result for the year
191
191
Unrealised revaluations available-for-sale investments and other
–57
–57
Realised gains/losses transferred to the statement of profit or loss
–18
–18
Changes in cash flow hedge reserve
–1,065
–1,065
Unrealised revaluation property in own use
–14
–14
Changes in net defined benefit asset/liability remeasurement reserve
99
99
Exchange rate differences and other
10
143
153
Changes in composition of the group and other changes
32
–53
–21
Closing balance
385
–3,488
2,103
452
–548
2020
Opening balance
1,220
–2,085
1,818
579
1,532
Result for the year
94
94
Unrealised revaluations available-for-sale investments and other
–29
–29
Realised gains/losses transferred to the statement of profit or loss
–17
–17
Changes in cash flow hedge reserve
210
210
Unrealised revaluation property in own use
–4
–4
Changes in net defined benefit asset/liability remeasurement reserve
19
19
Exchange rate differences and other
–11
–1,546
–1,557
Changes in composition of the group and other changes
8
–74
–65
Closing balance
1,398
–3,631
1,912
505
185
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Equity
ING Bank Annual Report 2021
304
The Share of associates and joint ventures
reserve includes the following components:
Reserve for non-
distributable retained earnings of associates
of EUR 862 million (2020: EUR 829 million),
Revaluation
reserve of associates and joint ventures EUR
-83 million (2020: EUR 1,071 million), Currency
translation
reserve of EUR 5 million (2020: EUR -5 million)
and Net defined benefit asset/liability remeasurement
reserve of EUR -398 million (2020: EUR -497 million).
The Statutory reserves include non-distributable
reserves of EUR 2,103 million (2020:
EUR 1,912 million)
related to the former Stichting Regio
Bank and the former Stichting Vakbondspaarbank
SPN that
cannot be freely distributed in accordance
with the article 23.1 of the articles
of association.
Changes in the value of hedging instruments
that are designated as net investment hedges,
are
included in the line Exchange rate differences
and other.
Changes in other reserves, retained earnings
2021
2020
Opening balance
25,953
21,194
Transfer from unappropriated result
2,321
4,663
Dividends
–1,207
–43
Employee stock options and share plans
28
23
Changes in the composition of the group and other changes
23
115
Closing balance
27,117
25,953
The reserve for cash flow hedges is included
in the Share of associates and joint ventures
reserve on a
net basis. The Revaluation reserve, Share of
associates and joint ventures reserve and
Currency
translation reserve cannot be freely distributed.
Retained earnings can be freely
distributed, except for
an amount equal to the negative balance
in each of the components of the Revaluation
reserve , Share
of associates and joint ventures reserve
and the Currency translation reserve.
Unrealised gains and
losses on derivatives, other than those used
in cash flow hedges, are presented in the
statement of
profit or loss and are therefore part of Retained
earnings and are not included in Share
of associates
and joint ventures reserve.
The total amount of non-distributable reserves,
in accordance with the financial reporting
requirements per Part 9 of Book 2 of the Dutch
Civil Code, is EUR 8,205 million (2020: EUR
9,829 million).
Reference is made to Note 19 ‘Equity’
and Note 48 ‘Capital management’
in the ING Bank Consolidated
financial statements for additional information,
including restrictions with respect to
dividend and
repayment of capital.
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Net interest income
ING Bank Annual Report 2021
305
Notes to the Parent company statement of profit or loss
19
Net interest income
Net interest income
2021
2020
2021
2020
Interest income on loans
6,865
7,976
Interest expense on deposits from banks
50
93
Interest income on impaired loans
59
65
Interest expense on customer deposits
1,300
1,193
Negative interest on liabilities
1,211
582
Interest expense on debt securities
489
878
Total interest income on loans
8,135
8,623
Interest expense on subordinated loans
573
613
Interest expense on securities at fair value through profit or loss
274
377
Interest income on financial assets at fair value through OCI
101
159
Interest expense on non-trading derivatives (no hedge accounting)
1,846
1,099
Interest income on financial assets at amortised cost
210
234
Interest expense on non-trading derivatives (hedge accounting)
453
1,814
Interest income on securities at fair value through profit or loss
299
433
Other interest expense
37
75
Interest income on non-trading derivatives (no hedge accounting)
2,037
1,074
Negative interest on assets
563
312
Interest income on non-trading derivatives (hedge accounting)
1,129
2,139
Interest expense
5,585
6,453
Other interest income
19
43
Interest income
11,930
12,704
Net interest income
6,345
6,251
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20
Investment income and results from participating interests
ING Bank Annual Report 2021
306
20
Investment income and results
from participating interests
Investment income and results from participating interests
2021
2020
Results from shares and other non-fixed income securities
142
115
Results from group companies
3,029
1,710
Results from associates, joint ventures and other participations
70
61
Impairment of associates and joint ventures
–3
–237
3,239
1,649
21
Net commissionincome
Fee and commission income
2021
2020
Payment services
928
749
Securities business
284
298
Insurance and other broking
120
305
Portfolio Management fees
259
128
Lending business
279
26
Financial guarantees and other commitments
284
113
Other
93
365
2,248
1,984
Fee and commission expenses
2021
2020
Payment services
252
266
Securities business
99
63
Distribution of products (Externally)
76
52
Other
75
142
502
523
ING Bank changed the presentation of net fee
and commission income as of 2021 to
better align with
internal management and monitoring.
Comparative figures for 2020 have been updated
accordingly.
The reclassifications do not affect the total
amount of Net Fee and Commission Income.
22
Results from financial transactions
Results from financial transactions
2021
2020
Results from securities trading portfolio
787
–515
Results from currency trading portfolio
101
101
Results from non-trading derivatives
68
264
Other
–484
820
473
671
In 2021, Other includes EUR –419 million (2020:
EUR 290 million) related to fair value changes
on
trading derivatives.
23
Staffexpenses
Staff expenses
2021
2020
Salaries
2,124
1,978
Social security costs
243
235
Pension costs and other staff related benefit costs
305
292
Other management fees
552
725
3,224
3,230
Remuneration of Senior management, Management board and Supervisory board
Reference is made to
Note 47 ‘Related
parties’ in the ING
Bank Consolidated
financial
statements.
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Depreciation, amortisation and impairments
ING Bank Annual Report 2021
307
24
Depreciation,
amortisation and impairments
Depreciation and amortization
2021
2020
Depreciation of equipment
213
222
Amortisation of software and other intangible assets
166
156
Impairments and reversal of impairments
29
439
408
817
2020 Impairments includes impairment of
goodwill (EUR 266 million), software
(EUR 145 million) and
equipment (EUR 28 million).
25
Otherexpenses
Other expenses
2021
2020
Computer costs
481
527
Office expenses
104
130
Travel and accommodation expenses
9
22
Advertising and public relations
134
152
External advisory fees
244
307
Regulatory costs
707
591
Addition/(releases) of provision for reorganisations and relocations
220
86
Other
623
196
2,523
2,012
26
Taxation
2021
2020
Current taxation
682
501
Deferred taxation
20
92
701
593
Reconciliation of the weighted average statutory income tax rate to ING Bank’s effective income tax rate
2021
2020
Result before tax from continuing operations
5,471
3,008
Weighted average statutory tax rate
23.7%
23.8%
Weighted average statutory tax amount
1,296
716
Permanent differences affecting current tax
Participation exemption
-809
-470
Other income not subject to tax
0
17
Expenses not deductible for tax purposes
135
232
Current tax from previously unrecognised amounts
61
17
State and local taxes
32
17
Adjustments to prior periods
-17
37
Differences affecting deferred tax
Impact on deferred tax from change in tax rates
10
10
Deferred tax from previously unrecognised amounts
-18
-6
Write-off/reversal of deferred tax assets
11
24
Effective tax amount
701
593
Effective tax rate
12.8%
19.7%
For more information on the reconciliation
of the weighted average statutory income
tax rate to ING
Bank’s effective income tax rate reference
is made to
Note 35 ‘Taxation’ in
the ING Bank
C
onsolidated financial statements.
Contents
Introduction
Strategy and
performance
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
27
Maturity of certain assets and liabilities
ING Bank Annual Report 2021
308
27
Maturity of certain assets and liabilities
Analysis of certain assets and liabilities by maturity
2021
Less than
1 month
1–3
months
3–12
months
1–5
years
Over 5
years
Maturity
not
applicable
Total
Assets
Loans and advances to banks
14,514
2,733
7,823
21,412
7,668
19,890
74,040
Loans and advances to customers
38,244
18,995
29,066
85,614
155,917
22,367
350,202
Liabilities
Deposits from banks
24,817
1,088
3,012
52,539
929
8,862
91,247
Customer deposits
279,257
15,129
8,342
18,808
20,483
21,142
363,162
Debt securities in issue
2,490
8,200
9,518
3,769
8,026
17,116
49,117
Subordinated loans
716
15,770
463
16,949
Analysis of certain assets and liabilities by maturity
2020
Less than
1 month
1–3
months
3–12
months
1–5
years
Over 5
years
Maturity
not
applicable
Total
Assets
Loans and advances to banks
15,545
3,708
6,677
21,124
6,464
20,591
74,109
Loans and advances to customers
35,161
12,787
24,272
79,858
155,679
18,898
326,656
Liabilities
Deposits from banks
30,190
457
1,997
50,112
1,303
15,868
99,926
Customer deposits
264,391
5,535
5,143
16,521
17,513
18,561
327,665
Debt securities in issue
4,948
7,075
8,836
9,036
7,440
18,085
55,421
Subordinated loans
661
14,567
927
16,155
28
Assets not freelydisposable
Assets not freely disposable
2021
2020
Equity and debt instruments
14,026
19,054
Lending
81,926
78,218
Banks
9,236
9,691
Other assets
733
700
105,921
107,663
The table includes assets
relating to securities lending
as well as sale
and repurchase
transactions
29
Contingent liabilities and other commitments
Contingent liabilities by type
2021
2020
Guarantees
40,221
28,635
Irrevocable letters of credit
14,295
12,139
Other
–
15
Contingent debts
54,517
40,788
Irrevocable facilities
75,606
62,482
130,123
103,270
Contingent debts
2021
2020
Group companies
23,260
14,282
Third parties
31,257
26,506
54,517
40,788
Irrevocable facilities
2021
2020
Group companies
3
3
Third parties
75,603
62,479
75,606
62,482
Contents
Introduction
Strategy and
performance
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
30
Other
ING Bank Annual Report 2021
309
30
Other
Guarantees
ING Bank has issued 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 (‘Einlagensicherundsfonds’ 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.
ING Bank N.V. has issued statements of
liabilities in connection with Section 403
Book 2 of the Dutch
Civil Code (‘403 statements’) and issued third
party guarantees (and third party
letters of
comfort/awareness) in a limited number of
cases. Third party guarantees are used when
ING Bank N.V.
is requested to issue a guarantee to a third
party creditor of one of its subsidiaries
in order to
guarantee the (financial) performance
of this subsidiary. 403 statements
have been issued for the
following Dutch subsidiaries:
◾
B.V. Deelnemings-
en Financieringsmaatschappij 'Nova Zembla'
◾
B.V. Maatschappij van Onroerende Goederen
'Het Middenstandshuis'
◾
Bank Mendes Gans N.V.
◾
BMG monumenten B.V.
◾
Cofiton B.V.
◾
Entero B.V.
◾
ING Bank Personeel B.V.
◾
ING Business Shared Services B.V.
◾
ING Commercial Finance B.V.
◾
ING Corporate Investments B.V.
◾
ING Corporate Investments Mezzanine
Fonds B.V.
◾
ING Corporate Investments Participaties
B.V.
◾
ING Corporate Investments Structured Finance
B.V.
◾
ING Groenbank N.V.
◾
ING Lease (Nederland) B.V.
◾
ING Sustainable Investments B.V.
◾
ING Vastgoed Ontwikkeling B.V.
◾
Nationale-Nederlanden Hypotheekbedrijf
N.V.
◾
Nationale-Nederlanden Intervest II B.V.
◾
WestlandUtrecht Verzekeringen B.V.
Claim agreements
In the ordinary course of business we have
entered into a number of agreements whereby
we are
provided indemnifications related to sale
of our past businesses and agreements
whereby we made
detailed arrangements regarding allocation
and handling of claims.
Fiscal unity
ING Bank N.V. forms a fiscal unity with
ING Groep N.V.
and several Dutch banking entities for
corporation tax purposes. ING Bank N.V.
and ING Groep N.V. and its banking subsidiaries
that form part
of the fiscal unity are jointly and severally
liable for taxation payable by the fiscal
unity. Settlements of
corporate income tax paid or received are
executed by ING Bank N.V.
31
Proposed appropriation
of results
For 2021, it is proposed that the result, insofar
at the disposal of the General Meeting, will
be
appropriated as follows. The total dividend
of EUR 2,852 million was paid in May
2021 (EUR 502 million),
August 2021 (EUR 731 million), November
2021 (EUR 685 million) and in February 2022
(EUR 934
million) as an interim dividend.
Proposed appropriation of result
2021
Net result
4,770
- Addition to reserves pursuant to Article 24 of the Articles of Association
191
- Proposed to be added to the Other Reserves pursuant to Article 24 of the Articles of Association
1,727
- Available for dividend distribution
2,852
Contents
Introduction
Strategy and
performance
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
32
Subsequent events
ING Bank Annual Report 2021
310
32
Subsequent events
ING has been active in the French retail banking
market since 2000 as an online bank.
In December
2021 ING announced that it will leave the retail
banking market in France in order to sharpen
the focus
of its business portfolio. At February 1,
2022 ING and Societe Generale announced
that a Memorandum
of Understanding was signed on 31 January between
ING and Boursorama (subsidiary of Societe
Generale) to offer banking solutions to
ING’s retail customers in France. The intention
of both parties is
to reach a definitive agreement in April 2022
at the latest.
The exact scope of the definitive agreement
remains to be specified and would
concern daily banking
(current accounts and cards), savings
and investment products (assurance vie
& brokerage). The ING
France retail lending portfolio (mortgages
and consumer loans) will not be part of the agreement.
Mortgages will continue to be managed
by ING. Maintaining consumer loans
at ING is under
consideration.
ING continues its Wholesale Banking activities
in France, with a focus on strengthening our position
and
the ambition to be the go-to-bank for sustainable
finance.
The Russian invasion of Ukraine and rapidly
escalating events in late February and
early March 2022 is
a significant tragedy for the people and is causing
disruption to business and economic activity
in the
region and worldwide. This qualifies as a non-adjusting
subsequent event. At this moment it is
not
possible to provide an estimate of the financial
impact of this crisis on ING (including
direct impact on
ING exposures to Russian and Ukrainian markets
as well as wider impacts for ING). For further
details
on Russian and Ukrainian exposures of ING
Group reference is made to ‘Risk Management
– Top and
emerging risks’.
Contents
Introduction
Strategy and
performance
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Authorisation of Parent company financial statements
ING Bank Annual Report 2021
311
Authorisation of Parent company financial statements
Amsterdam, 7 March 2022
The Supervisory Board
G.J. (Hans) Wijers, chairman
A.M.G. (Mike) Rees, vice-chairman
J. (Juan) Colomb
á
s
M. (Mariana) Gheorghe
M. (Margarete) Haase
L.J. (Lodewijk)
Hijmans van den Bergh
H.A.H. (Herman) Hulst
H.H.J.G. (Harold) Naus
H.W.P.M.A. (Herna) Verhagen
The Management Board Banking
S.J.A. (Steven) van Rijswijk, CEO and chairman
T. (Tanate) Phutrakul, CFO
L. (Ljiljana)
Č
ortan, CRO
P. (Pinar) Abay, head of Market Leaders
A.J.M. (Andrew) Bester, head of Wholesale
Banking
A. (Aris) Bogdaneris, head of Challengers
& Growth Markets and head of Retail
Banking
R.H.E. (Ron) van Kemenade, chief technology
officer
M.A. (Marnix) van Stiphout, chief operations
officer and chief transformation officer
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Independent auditor’s report
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands
under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee.
2105153/22W00180682AVN
312
To:
the General Meeting of Shareholders and the Supervisory
Board of ING Bank N.V.
Report on the audit of the financial statements 2021 included
in the annual report
Our opinion
In our opinion:
—
the accompanying consolidated financial statements give a true and fair view of the financial position of ING Bank
N.V. as at 31 December 2021 and of its result and its cash flows for the year then ended, in accordance with
International Financial Reporting
Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2
of the Dutch Civil Code;
—
the accompanying parent company financial statements give a true and fair view of the financial position of ING Bank
N.V. as at 31 December 2021 and of its result for the year then ended in accordance with Part 9 of Book 2 of the
Dutch Civil Code.
What we have audited
We have audited the financial statements 2021 of ING Bank N.V. (the ‘Company’
or ‘ING Bank’) based in Amsterdam.
The financial statements include the consolidated financial statements and the parent company financial statements.
The consolidated financial statements comprise:
1
the consolidated statement of financial position as at 31 December 2021;
2
the following consolidated statements for 2021: the statement of profit or loss, the statements of comprehensive
income, changes in equity and cash flows; and
3
the notes comprising a summary of the significant accounting policies and other explanatory information.
The parent company financial statements comprise:
1
the parent company statement of financial position as at 31 December 2021;
2
the parent company statement of profit or loss and statement of changes in equity for 2021; and
3
the notes comprising a summary of the significant accounting policies and other explanatory information.
Basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities
under those standards are further described in the ‘Our responsibilities for the audit of the financial statements’ section of
our report.
We are independent of ING Bank in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij
assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence)
and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening
gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).
Our audit procedures were determined in the context of our audit of the financial statements as a whole. Our observations
in respect of going concern, fraud and non-compliance with laws and regulations, climate and the key audit matters
should be viewed in that context and not as separate opinions or conclusions
.
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion
.
Audit approach
Summary
Materiality
—
Group materiality of EUR 250 million (2020: EUR 250 million).
—
3.7% of profit before taxation from continuing operations (2020: 5.7% of normalised profit before taxation from
continuing operations).
Group audit
—
81% of profit before taxation from continuing operations covered by audit procedures performed by component
auditors (2020: 83%).
—
93% of total assets covered by audit procedures performed by component auditors (2020: 92%).
Going concern, Fraud & Non-compliance with laws and regulations and Climate risk
—
Going concern: no significant going concern risks identified.
—
Fraud & Non-compliance with laws and regulations: in our audit we incorporate the risk of management override of
controls, the risk of management override over the collective loan loss provisioning and the assessment of the risk
of material misstatements of the financial statements due to non-compliance with laws and regulations.
—
Climate change risk: management’s response to possible future effects of climate change and their anticipated
outcomes have been disclosed in the Report of the Management Board and the Risk Disclosures in the annual
report. We have considered the impact of climate change risks on our identification and assessment of risks of
material misstatement in the financial statements.
Key audit matters
—
Assessment of Expected Credit Losses on loans and advances to customers and loans and advances to banks.
—
Risk of inappropriate access or changes to IT systems.
Opinion
Unqualified
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Independent auditor’s report
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands
under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee.
2105153/22W00180682AVN
313
Materiality
Based on our professional judgement we determined the materiality for the financial statements as a whole at EUR 250
million (2020: EUR 250 million) which represents 3.7% of profit before taxation from continuing operations (2020: 5.7% of
normalised profit before tax from continuing operations). The prior year materiality was determined with reference to
normalised profit before tax from continuing operations and excluded the goodwill impairment and impairment of
associates and joint ventures. These items did not occur in 2021 and thus no normalisation of profit before tax was
necessary.
We consider profit before tax from continuing operations as the most appropriate benchmark based on our assessment of
the general information needs of the users of the financial statements and given the fact that ING Bank is a profit-oriented
entity. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for
the users of the financial statements for qualitative reasons.
We agreed with the Audit Committee of the Supervisory Board that misstatements identified during our audit in excess of
EUR 12.5 million (2020: EUR 12.5 million), would be reported to them, as well as smaller misstatements that in our view
must be reported on qualitative grounds
.
Scope of the group audit
ING Bank is at the head of a group of components. The financial information of this group is included in the consolidated
financial statements of ING Bank.
ING Bank is structured along 6 segments: Retail Netherlands, Retail Belgium, Retail Germany, Retail Other,
Wholesale
Banking and Corporate Line Banking, each comprising of multiple legal entities and/or covering different countries.
Because we are ultimately responsible for the audit opinion, we are responsible for directing, supervising and performing
the group audit. In this respect, we have determined the nature and extent of audit procedures to be carried out for group
entities or so-called components.
Our group audit is mainly focused on significant components. These components are either individually financially
significant due to their relative size in the group or because we identified a significant risk of material misstatement for
one or more account balances of these entities. In addition, we included certain other non-significant components in the
scope of our group audit in order to arrive at a sufficient coverage over all significant account balances.
This resulted in a full or specific scope audit for 43 components globally, in total covering 17 countries, and in a coverage
of 81% of profit before tax from continuing operations and 93% of total assets. For the remaining 19% of profit before tax
from continuing operations and the remaining 7% of total assets audit procedures were performed at the group level
including analytical procedures in order to corroborate that our scoping remained appropriate throughout the audit. This
coverage is in line with our 2020 audit.
The consolidation of components in the group, the disclosures in the financial statements and certain accounting topics
that are performed at a group level were further covered by the group audit team. Procedures performed by the group
audit team included, but were not limited to, substantive procedures with respect to equity, certain elements of the
expected credit loss provisioning process and goodwill.
All components in scope for group reporting are audited by KPMG member firms. We sent detailed audit instructions to all
component auditors, covering significant areas such as the relevant identified risks of material misstatement at a group
level and further set out the information that is required to be reported to the group audit team.
In view of Covid-19 related restrictions on the movement of people across borders, and also within significantly affected
countries, we have considered the impact on the audit approach to evaluate the component auditor’s communications
and the adequacy of the work performed by them. Due to the aforementioned restrictions, visiting components was not
practicable in the current environment. As a result, we have requested those component auditors to provide us with
access to audit workpapers in order to perform these evaluations, subject to local laws and regulations. In addition, due to
the inability to arrange in-person meetings with such component auditors, we have continued to use alternative methods
of communication, including written instructions, the exchange of emails and virtual meetings.
We performed file reviews for The Netherlands, Belgium, Germany, Romania, Spain, Turkey,
Switzerland, Poland,
France and South Korea. The Covid-19 travel restrictions required us to perform the file reviews remotely. For all
components in scope of the group audit, we held conference calls and/or had remote meetings with the audit teams of
these components. During these meetings and calls, the planning, risk assessment, procedures performed, findings and
observations reported to the group auditor were discussed in detail and any further work deemed necessary by the group
audit team was then performed.
The group audit team set component materiality levels which ranged from EUR 20 million to EUR 95 million, based on the
mix of relative size and financial statement risk profile of the components within the group in order to reduce the
aggregation risk to an acceptable level.
By combining the results of the aforementioned procedures performed by component auditors with additional procedures
performed at a group level, we have been able to obtain sufficient and appropriate audit evidence about ING Bank’s
financial information and were thus able to give an opinion on ING Bank’s financial statements.
The audit coverage as stated in the summary section can further be specified as follows:
Profit before tax from continuing operations
81%
19%
Covered by audit procedures performed
by component auditors
Covered by audit procedures performed
at group level by the group audit team
Total assets
93%
7%
Covered by audit procedures performed
by component auditors
Covered by audit procedures performed
at group level by the group audit team
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Independent auditor’s report
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands
under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee.
2105153/22W00180682AVN
314
Audit response to going concern – no significant
going concern risks identified
The Management board has performed its going concern assessment and has not identified any significant going concern
risks. Our main procedures to assess the Management board’s assessment were:
—
we considered whether the Management board’s assessment of the going concern risks includes all relevant
information of which we are aware as a result of our audit;
—
we analysed the company’s financial position as at year-end and compared it to the previous financial year in terms
of indicators that could identify significant going concern risks;
—
we inspected regulatory correspondence to obtain an understanding of the Company’s capital position, that
underpins management’s assessment of the going concern assumption for financial reporting.
The outcome of our risk assessment procedures did not give reason to perform additional audit procedures on the
Management board’s going concern assessment.
Audit response to the risk of fraud and non-compliance
with laws and regulations
General
In
chapter
‘Risk
management
–
Compliance
risk’
of
the
Annual
Report
and
note
42
of
the
financial
statements,
the
Management board describes its procedures and assessment in respect of the risk of fraud and non-compliance with laws
and
regulations.
In
the
Supervisory
Board
report
the
assessment
by
the
Risk
Committee
in
respect
of
these
topics
is
described.
As part of our audit,
we have gained insights
into the Company and
its business environment and assessed
the Company’s
risk management in relation
to fraud and non-compliance.
In addition, we
performed procedures to
obtain an understanding
of the legal
and regulatory frameworks
that are applicable to
the Company.
The potential effect
of the identified
laws and
regulations on the financial statements varies considerably.
The Company is subject to many laws and regulations where the consequences of non-compliance could have an indirect
material effect on amounts recognised or disclosures provided in the financial
statements, or both, for instance through the
imposition of fines or litigation. We identified the following areas as
those most likely to have such an indirect effect on the
financial statements:
—
anti-money laundering and terrorist financing law;
—
data protection law;
—
fraud, corruption and anti-bribery law;
—
prudential and supervision regulations from European Central Bank and Dutch Central Bank;
—
sanctions law.
Together
with our forensic specialists,
we evaluated the fraud
and non-compliance risk
factors to consider
whether those
factors indicate a risk of material misstatement in the financial statements.
As part of our audit procedures, we:
—
assessed
the
Company’s
code
of
conduct,
whistleblowing
procedures,
incidents
register
and
its
procedures
to
investigate indications of possible fraud and non-compliance;
—
performed relevant inquiries with management, those charged with
governance and other relevant functions, including
General Legal Counsel, the Head of Compliance and the Head of Internal Audit;
—
inspected internal reports from Compliance and Internal Audit for indications of possible fraud and non-compliance;
—
evaluated correspondence with relevant supervisory authorities and regulators as well as legal confirmation letters;
—
considered
the
outcome
of
our
other
audit
procedures
and evaluated
whether
any
findings
or
misstatements
were
indicative of fraud or non-compliance;
—
considered the effect of actual, suspected or identified risk of non-compliance as part of our procedures on the related
financial statement items.
With respect to
the bank-wide Know
Your Customer enhancement program (the
‘KYC enhancement program’)
as disclosed
in
the
Management
board
report
in
order
to
improve
governance,
systems
and
tools
around
client
due
diligence
and
transaction monitoring, we inquired senior management, General legal counsel, Head of Compliance and Head of Internal
Audit.
We inspected the progress reports in relation to the
KYC enhancement program and we evaluated and discussed internal
audit reports in relation to compliance. We
instructed local auditors of selected components to assess
client due diligence
and transaction monitoring at local level.
We observe that the required KYC enhancement program receives and will need ongoing attention from management, the
Audit Committee and the Supervisory Board.
Revenue recognition (a presumed fraud risk)
We assessed the presumed
fraud risk on revenue recognition
to be irrelevant, because the
accounting of interest income
and commission
income is
based on
automatically generated
accruals based
on static
data taken
from the
loan source
system and therefore concerns routine transactions not subject to management judgement.
Our procedures to address the identified risks
of fraud or non-compliance with laws and
regulations did not result in a key
audit matter.
Based on the above and in accordance with the auditing standards, we identified the following fraud risks that are relevant
to our audit and we responded as follows:
Management override of controls (a presumed fraud
risk)
Risk:
Management is by definition in a unique position to perpetrate fraud because of management’s ability to manipulate
financial records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating
effectively, such as reporting fictitious journal entries. Although the level of risk of management override of controls may
vary from entity to entity, the risk nevertheless is present at all entities, including at ING Bank level. A fraud risk is by
nature considered a significant audit risk.
Response:
—
We evaluated the
design and
the implementation
and, where
considered appropriate,
tested the
operating effectiveness
of
internal
controls
that
mitigate
fraud
and
non-compliance
risks,
such
as
processes
related
to
journal
entries
and
estimates related to loan loss provisions.
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Independent auditor’s report
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands
under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee.
2105153/22W00180682AVN
315
—
We performed a
data analysis of high-risk
journal entries and evaluated
key estimates and judgments
for bias by the
Company’s management. Where we identified instances
of unexpected journal entries or other risks through our data
analytics, we
performed additional
audit procedures
to address
each identified
risk, including
testing of
transactions
back to source information.
—
We incorporated elements of unpredictability in our
audit by including South Korea in scope of
the group audit and by
adapting our audit methodology resulting for example in other sample sizes for substantive testing.
Management override of collective loan loss provisioning
(ECL)
With respect to the
risk of fraud in
relation to management override
of Expected Credit Loss
provision results, we refer
to
the Key Audit
Matter ‘Assessment of
Expected Credit Losses
on loans and
advances to customers
and loans and
advances
banks’.
We
communicated
our
risk
assessment,
audit
responses
and
results
to
management
and
the
Audit
Committee
of
the
Supervisory Board.
Other than disclosed in the annual report (‘Risk management – Compliance risk’) and note 42 of the financial statements
our audit procedures did not reveal indications and/or reasonable suspicion of fraud and non-compliance that could have
a material effect on amounts recognised or disclosures provided in the financial statements.
Audit response to climate change risk
The Management
board is
responsible for
preparing the
financial statements
in accordance
with the
applicable financial
reporting framework, including
considering whether the
implications from climate
change risks and
commitments have been
appropriately
accounted
for
and
disclosed.
In
the
Supervisory
Board
report
the
involvement
of
the
Audit
Committee
in
overseeing the financial statement process is reflected.
The Management board
is responsible for
the analysis of
the impact of
climate change risks
on the Company’s
business
and operations going forward and on the financial statements. Reference is made to the Report of the Management Board
and the Risk Disclosures in the Annual Report.
The evaluation of the effectiveness of management’s strategy against internal or external goals set is not in scope of our
audit of the financial statements. As part of our audit, we consider potential effects of climate change risks on the
accounts and disclosures, including estimates and judgements in the financial statements to determine whether the
financial statements are free from material misstatement.
We performed the following procedures in this respect:
—
We assessed the minutes of the Climate Change Committee.
—
We obtained an understanding of the current governance structure and the integration of climate-related risks in
credit risk policies and procedures.
—
We obtained an understanding of the process to identify climate-related risks and the heatmap developed by ING to
assess the financial materiality of climate-related risks on ING.
—
We held inquires with staff involved with the integration of climate-related risks into credit risk policies and
procedures and the development of the climate-related heatmaps.
Our key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements. We have communicated the key audit matters to the
Audit Committee of the Supervisory Board.
The
key audit matters
are not a comprehensive reflection of all matters discussed.
Compared to last year the key audit matter with respect to the assessment of goodwill impairment is not included, as this
specifically related to the financial year 2020 and the impact of the Covid-19 pandemic.
Assessment of Expected Credit Losses on loans and advances to customers and loans and advances to
banks
Description
As discussed in the Credit Risk section on pages 65-107 and in Note 3 and Note 7 in the financial statements, the loans
and advances to customers amount to EUR 628
billion and loans and advances to banks amount to EUR 24 billion as at
31 December 2021. These loans and advances are measured at amortised cost, less expected credit losses (‘ECL’) of
EUR 5.3 billion.
Management estimated ECL using three components: probability of default (‘PD’), loss given default (‘LGD’) and
exposure at default (‘EAD’). Management applied forward looking economic scenarios with associated weights.
Relevant macroeconomic factors include the gross domestic product (‘GDP’), house price index (‘HPI’) and
unemployment rate. The recent economic conditions are outside the bounds of historical experience used to develop
ECL model methodologies and result in greater uncertainties to estimate ECLs. These uncertainties are addressed by
judgemental overlays by management.
Our response
We identified the assessment of ECL on loans and advances to customers and loans and advances to banks as a key
audit matter because of the significant and complex auditor judgement and specialised skills and knowledge required to
evaluate the following elements of the overall ECL estimate:
—
the judgements used to develop PD, LGD and EAD, including model or manual determined expected future recovery
cash flow assessments of individual loan provisions for impaired loans;
—
the recalibration of existing IFRS 9 credit risk models and redevelopment of IFRS 9 credit risk models to reflect the
new definition of default applied in credit risk management of the bank and the update of data history;
—
use of forward-looking macroeconomic forecasts in the ECL, including GDP,
HPI and unemployment rate;
—
the consistent identification and application of criteria for significant increase in credit risk (‘SICR’);
—
calculation of management overlays to the modelled ECL due to the increased uncertainty in the forecast of future
economic conditions. These management overlays included specific sectorial wholesale and retail lending overlays
and overlays to residential mortgages; and
—
the disclosures regarding management’s application of IFRS 9 explaining the key judgements and material inputs to
the IFRS 9 ECL results.
The following are the primary procedures we performed to address this key audit matter:
—
we evaluated the design and tested the operating effectiveness of certain internal controls related to the ECL process
for loans and advances to customers and banks. This included controls related to the assumptions (including PD,
LGD, EAD and macroeconomic forecasts), review of model outputs, the application of the new definition of default,
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Independent auditor’s report
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands
under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee.
2105153/22W00180682AVN
316
the update of data history, governance and monitoring of the ECL, reconciliations, determination of credit risk ratings,
the estimated future recovery cash flows of individual loan provisions and management overlays to the modelled
ECL;
—
we involved credit risk professionals with specialised skills and knowledge who assisted in evaluating the
assumptions to determine the PD, LGD, and EAD parameters in models used by the Company to determine the
collective provisions including the evaluation of the recalibrated and redeveloped credit risk models. In addition,
assessing management overlays recorded to the ECL, including sectorial wholesale and retail lending overlays and
overlays to residential mortgages. This included reperforming back testing of certain models to evaluate current
model performance. We considered the impact these overlays have on model calculations and results when reaching
our conclusions;
—
we involved economic professionals with specialised skills and knowledge, who assisted in assessing the Company’s
methodology to determine the macroeconomic forecasts used in the ECL. We tested the reasonableness of
management’s forecasts against other external benchmarks and our own internal forecasts;
—
we involved corporate finance professionals with specialised skills and knowledge, who assisted in examining the
methodologies, cash flows and collateral values used in expected future recovery cash flow assessments of
individual loan provisions for impaired loans. We challenged management’s use of recovery scenarios and expected
cash flows considering industry trends and comparable benchmarks, recalculated recovery amounts and performed
reconciliations;
—
we evaluated the identification of SICR in loans by challenging the scope of management’s criteria used in staging
assessments, consistent application of the thresholds applied within each criterion, and the ability of staging criteria
to identify SICR prior to loans being credit impaired; and
—
we assessed whether the credit risk management disclosures appropriately disclose and address the uncertainties
which exists when determining the ECL.
Our observation
Based on our procedures performed, we found management’s overall assessment relating to the valuation of loans and
advances to customers and banks within an acceptable range and adequately disclosed in Note 3 and Note 7 of the
financial statements.
Risk of in appropriate access or changes to Information Technology (IT) systems
Description
ING Bank is highly dependent on its IT environment for the continuity of its operations. Inappropriate access or changes
to an application or supporting infrastructure could compromise the continuity of ING Bank’s operations and the reliability
of financial data. IT general controls including cybersecurity controls, are an important cornerstone of the ING Bank
internal control framework.
The IT environment of ING Bank evolves over time. One of these changes relates to the implementation of automation to
support control execution related to user access management and change management.
Our response
Our audit approach depends to a large extent on the effectiveness of automated controls and, therefore, procedures are
designed to test among others access and change management controls over IT systems. Given the complex IT technical
nature of this part of the audit, IT auditors and cyber specialists are an integral part of our audit team.
As part of our risk assessment and design of the IT audit approach we:
—
examined the framework of governance over ING Bank’s IT organisations, the IT general (including cybersecurity
controls) and applications controls;
—
assessed the reliability and continuity of the IT environment where relevant for the scope of our audit of the financial
statements;
—
took into account regulatory correspondence related to IT;
—
determined which controls are required prior to using automation for control execution, in response to the
implementation of automation to support control execution related to user access management and change
management;
—
held corroborative inquiries with the personnel at the Security Operations Center and with the Bank’s Chief
Information Security Officer (CISO).
We performed testing of operating effectiveness of user access and change management controls. We performed test
procedures to respond to specific risks such as data migrations to the ING Private Cloud and vendor management related
to outsourced IT processes.
We identified areas for improvement in the control execution relating to Information used in the control, interface testing
and the use of automation to support control execution. Management has put efforts to remediate identified control
deficiencies. For those control deficiencies that were not remediated, we tested compensating controls that addressed the
same risk or tested mitigating controls that lowered the risk of the deficiency and performed additional substantive testing.
Cyber security incidents that were reported during 2021 were handled by management in accordance with ING Bank’s
framework and resolved without significant impact to ING assets.
Our observation
The combination of the tests of controls and substantive tests performed, provided sufficient evidence to enable us to rely
on the adequate and continued operation of the IT systems for the purposes of our audit of the financial statements.
We refer to the disclosure on Risk Management on pages 137 and 138.
Report on the other information included in the Annual
Report
In addition to the financial statements and our auditor’s report thereon, the Annual Report contains other information.
Based on the following procedures performed, we conclude that the other information:
—
is consistent with the financial statements and does not contain material misstatements; and
—
contains the information as required by Part 9 of Book 2 of the Dutch Civil Code for the management report and other
information.
We have read the other information. Based on our knowledge and understanding obtained through our audit of the
financial statements or otherwise, we have considered whether the other information contains material misstatements.
By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the
Dutch Standard 720. The scope of the procedures performed is less than the scope of those performed in our audit of the
financial statements.
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Independent auditor’s report
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands
under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee.
2105153/22W00180682AVN
317
The Management board is responsible for the preparation of the other information, including the information as required
by Part 9 of Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements and
ESEF
Engagement
We were engaged by General Meeting of Shareholders as auditor of ING Bank on 11 May 2015, as of the audit for the
year 2016 and have operated as statutory auditor ever since that financial year. We have been reappointed by the
General Meeting of Shareholders on 23 April 2019 to continue to serve ING Bank as its external auditor for the financial
years 2020-2023.
No prohibited non-audit services
We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific
requirements regarding statutory audits of public-interest entities
.
Services rendered
For the period to which our statutory audit relates, in addition to this audit, we have provided the following services to the
Company and its controlled undertakings:
—
Agreed-upon procedures and assurance engagements for the benefit of external stakeholders, largely driven by
regulatory requirements.
European Single Electronic Format (ESEF)
ING Bank has prepared its 2021 Annual Report in ESEF. The requirements for this format are set out in the Commission
Delegated Regulation (EU) 2019/815 with regard to regulatory technical standards on the specification of a single
electronic reporting format (these requirements are hereinafter referred to as: the RTS on ESEF).
In our opinion, the Annual Report prepared in the XHTML format, including the partially tagged consolidated financial
statements as included in the reporting package by ING Bank, has been prepared in all material respects in accordance
with the RTS on ESEF.
Management is responsible for preparing the Annual Report including the financial statements in accordance with the
RTS on ESEF,
whereby management combines the various components into a single reporting package. Our
responsibility is to obtain reasonable assurance for our opinion whether the Annual Report in this reporting package, is in
accordance with the RTS on ESEF.
Our procedures taking into consideration Alert 43 of NBA (the Netherlands Institute of Chartered Accountants), included
amongst others:
—
obtaining an understanding of the entity's financial reporting process, including the preparation of the reporting
package;
—
obtaining the reporting package and performing validations to determine whether the reporting package containing
the Inline XBRL instance document and the XBRL extension taxonomy files have been prepared in accordance with
the technical specifications as included in the RTS on ESEF;
—
examining the information related to the consolidated financial statements in the reporting package to determine
whether all required tagging’s have been applied and whether these are in accordance with the RTS on ESEF.
Description of responsibilities regarding the financial statements
Responsibilities of the Management board and the
Supervisory Board for the financial statements
The Management board is responsible for the preparation and fair presentation of the financial statements in accordance
with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Management board is responsible for such
internal control as the Management board determines is necessary to enable the preparation of the financial statements
that are free from material misstatement, whether due to fraud or error. In that respect the Management board, under
supervision of the Supervisory Board, is responsible for the prevention and detection of fraud and non-compliance with
laws and regulations, including determining measures to resolve the consequences of it and to prevent recurrence.
As part of the preparation of the financial statements, the Management board is responsible for assessing the Company’s
ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Management board
should prepare the financial statements using the going concern basis of accounting unless the Management board either
intends to liquidate the Company or to cease operations or has no realistic alternative but to do so. The Management
board should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a
going concern in the financial statements.
The Supervisory Board is responsible for overseeing the Company’s financial reporting process.
Our responsibilities for the audit of the financial statements
Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate
audit evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all
material errors and fraud during our audit.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified
misstatements on our opinion.
A further description of our responsibilities for the audit of the financial statements is included in the appendix of this
auditor's report. This description forms part of our auditor’s report.
Amstelveen, 7 March 2022
KPMG Accountants N.V.
P.A.M
de Wit RA
Appendix:
Description of our responsibilities for the audit of the financial statements
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Independent auditor’s report
KPMG Accountants N.V., a Dutch limited liability company registered with the trade register in the Netherlands
under number 33263683, is a member firm of the global organization of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee.
2105153/22W00180682AVN
318
Appendix
Description of our responsibilities for the audit of the
financial statements
We have exercised professional judgement and have maintained professional scepticism throughout the audit, in
accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included
among others:
—
identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error,
designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than the risk resulting from error, as fraud may involve collusion, forgery,
intentional omissions,
misrepresentations, or the override of internal control;
—
obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control;
—
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by the Management board;
—
concluding on the appropriateness of the Management board’s use of the going concern basis of accounting, and
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company
to cease to continue as a going concern;
—
evaluating the overall presentation, structure and content of the financial statements, including the disclosures; and
—
evaluating whether the financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
We are solely responsible for the opinion and therefore responsible to obtain sufficient and appropriate audit evidence
regarding the financial information of the entities or business activities within the bank to express an opinion on the
financial statements. In this respect we are also responsible for directing, supervising and performing the group audit.
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant findings in internal control that we identify during our audit. In this
respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on
specific requirements regarding statutory audits of public-interest entities. The information included in this additional
report is consistent with our audit opinion in this auditor’s report.
We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.
From the matters communicated with the Supervisory Board, we determine the key audit matters: those matters that were
of most significance in the audit of the financial statements. We describe these matters in our auditor’s report unless law
or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating
the matter is in the public interest.
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Articles of Association
ING Bank Annual Report 2021
319
Articles of
Association
– Appropriation
of results
Appropriation of results
The result is appropriated pursuant to Article
24 of the Articles of Association of ING
Bank N.V., the
relevant stipulations of which state that the result
shall firstly be appropriated to the Stichting
Regio
Bank Reserve, respectively the Reserve Stichting
Vakbondsspaarbank SPN or charged
to that reserves
in proportion to the ratio between the Stichting
Regio Bank Reserve, respectively the
Reserve
Stichting Vakbondsspaarbank SPN and the
company's equity at the end of the relevant
financial year
and that the remainder shall be at the disposal
of the General Meeting.
Contents
Introduction
Report of
Management Board
Risk management
Corporate governance
Consolidated financial statements
Parent company financial statements
Other information
>
Disclaimer
ING Bank Annual Report 2021
320
Disclaimer
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:
(1) changes in
general economic conditions, in particular economic
conditions in ING’s core markets, including
changes affecting currency exchange rates
and the regional and global economic impact
of the
invasion of Russia into Ukraine and related international
response measures (2) effects of the
Covid-19
pandemic and related response measures,
including lockdowns and travel restrictions,
on economic
conditions in countries in which ING operates,
on ING’s business and operations and on
ING’s
employees, customers and counterparties (3)
changes affecting interest rate levels (4)
any default of a
major market participant and related market
disruption (5) changes in performance of financial
markets, including in Europe and developing
markets (6) fiscal uncertainty in Europe
and the United
States (7) discontinuation of or changes
in ‘benchmark’ indices (8) inflation and
deflation in our
principal markets (9) changes in conditions in
the credit and capital markets generally,
including
changes in borrower and counterparty creditworthiness
(10) failures of banks falling under the scope
of
state compensation schemes (11) non-compliance
with or changes in laws and regulations, including
those financial services and tax laws,
and the interpretation and application
thereof (12) geopolitical
risks, political instabilities and policies and actions
of governmental and regulatory authorities,
including in connection with the invasion
of Russia into Ukraine and related international
response
measures
(13) legal and regulatory risks in certain
countries with less developed legal and regulatory
frameworks (14) prudential supervision
and regulations, including in relation
to stress tests and
regulatory restrictions on dividends and
distributions (also among members of
the group) (15)
regulatory consequences of the United
Kingdom’s withdrawal from the European Union,
including
authorizations and equivalence decisions (16)
ING’s ability to meet minimum capital
and other
prudential regulatory requirements (17)
changes in regulation of US commodities
and derivatives
businesses of ING and its customers (18) application
of bank recovery and resolution regimes, including
write-down and conversion powers in relation
to our securities (19) outcome of current
and future
litigation, enforcement proceedings, investigations
or other regulatory actions, including
claims by
customers or stakeholders who feel misled
or treated unfairly, and other conduct
issues (20) changes
in tax laws and regulations and risks of non-compliance
or investigation in connection with tax laws,
including FATCA (21) operational and IT risks,
such as system disruptions or failures,
breaches of
security, cyber-attacks, human error,
changes in operational practices or inadequate
controls including
in respect of third parties with which we do
business (22) risks and challenges related
to cybercrime
including the effects of cyberattacks and
changes in legislation and regulation related
to cybersecurity
and data privacy (23) changes in general
competitive factors, including ability to
increase or maintain
market share (24) inability to protect our
intellectual property and infringement
claims by third parties
(25) inability of counterparties to meet financial
obligations or ability to enforce rights
against such
counterparties (26) changes in credit ratings
(27) business, operational, regulatory,
reputation and
other risks and challenges in connection with
climate change (28) inability to attract and
retain key
personnel (29) future liabilities under defined
benefit retirement plans (30) failure to manage
business
risks, including in connection with use
of models, use of derivatives, or maintaining
appropriate policies
and guidelines (31) changes in capital
and credit markets, including interbank
funding, as well as
customer deposits, which provide the liquidity
and capital required to fund our
operations, and (32) the
other risks and uncertainties detailed in the
most recent annual report of ING Bank
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.
This document is the PDF version of the
2021 Annual Report of ING made available
on ing.com. Another
version of this document has been prepared
in the European single electronic reporting
format (ESEF)
and such ESEF reporting package is also
available on ing.com. In the event of any
discrepancies
between this PDF version and the ESEF reporting
package, the ESEF reporting package governs.
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.