ING Direct 2004 Annual Report Download - page 164

162 ING Group Annual Report 2004
To quantify foreign-exchange risk, the same Value-at-Risk (VAR) approach is used as for the trading activities. The sharp decline
of the VAR during 2004 is mainly caused by a reduction of the net USD position. This was caused by an increase of USD
denominated risk weighted assets which led to rebalancing of the hedge position, taking into account the effect of translation
results on the Tier-1 ratio.
CONSOLIDATED FX VAR NON-TRADING BOOKS ING BANK
Low High Average Year-end Low High Average Year-end
2004 2003
FX VAR3.5 15.8 8.6 3.5 7.0 14.9 10.2 14.9
The chart graph below provides an overview of the development of the FX VAR during 2003 and 2004.
Liquidity risk Liquidity risk is the risk that ING Bank or one of its subsidiaries cannot meet its financial liabilities when they
come due, at reasonable costs and in a timely manner. Within ING Bank, ALCO Bank bears overall responsibility for the liquidity
risk strategy. ALCO Bank has delegated day-to-day liquidity management to the Treasury Amsterdam, which is responsible for
managing the overall liquidity-risk position of ING Bank, while regional and local treasuries are responsible for managing
liquidity in their respective regions and locations.
The main objective of ING’s liquidity strategy is to maintain sufficient liquidity in order to ensure safe and sound operations.
The liquidity strategy of ING Bank has four primary components.
The first is the day-to-day funding. It is policy to sufficiently spread the day-to-day funding requirements. The Treasury function
monitors all maturing cash flows along with expected changes in core-business funding requirements. This includes replenishment
of existing funds as they mature, expected withdrawals from retail current accounts, savings and additional borrowings.
The second component is to maintain an adequate mix of funding sources. ING Bank aims for a well-diversified funding mix
in terms of instrument types, fund providers, geographic markets and currencies. Sources of liquidity are widely distributed
over the entire ING Bank. ING has a broad base of core retail funding, which mainly consists of current accounts, savings and
retail deposits. Although these accounts can be withdrawn immediately or at short notice, the accounts are considered to
form a stable resource of funding because of the broad customer base. The retail funding is, from a geographical point of
view, widely spread, with most of the funding located in the euro zone.
The third component of ING’s liquidity strategy is to maintain a broad portfolio of highly marketable assets that can be easily
used to bear disruptions in the cash-flow profile. ING has relatively large portfolios of unencumbered marketable assets. These
marketable assets can provide liquidity through repurchase agreements or through sale. The majority of ING’s marketable assets
are located in the euro zone.
RISK MANAGEMENT
(continued)
2.3
ADDITIONAL FINANCIAL
INFORMATION
CONSOLIDATED FX VAR BANKING ING BANK 2003 – 2004
18
16
14
12
10
8
6
4
2
Date
Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05
Value at Risk