ING Direct 2009 Annual Report Download - page 223

ING Bank
Basis Point Value (BPV)
The Basis Point Value (BPV) figures below represent the value impact to the banking books resulting from a change in interest rates of
1 basis point. The BPV figures represent the directional position under a small upward shift in interest rates and do not capture the
convexity resulting from the optionality in mortgages under larger interest rate movements.
BPV per currency banking books
in EUR thousands 2009 2008
Currency
Euro –15,340 –19,176
US dollar 757 337
Pound sterling –684 –582
Other 475 –373
Total –14,792 –19,794
The outright interest rate risk that is represented through the BPV positions in the table above is mainly caused by the investments of the
Bank’s core capital. The BPV figures are consistent with the NPV-at-Risk figures, showing the reduced exposure to changing interest rates.
Foreign exchange risk in banking books
Foreign exchange (FX) exposures in banking books result from commercial banking business (business units doing business in other
currencies than their base currency), FX translation risk on foreign currency investments (including realised results) and strategic equity
stakes in foreign currencies. The policy regarding these exposures is briefly explained below.
Commercial banking business
Every business unit hedges the FX risk as result of their commercial activities into the base currency of the unit. Consequently assets and
liabilities are matched in terms of currency.
FX Translation result
ING’s strategy is to protect the bank’s Tier 1 ratio against unfavourable FX rate fluctuations (1). The protection is largely achieved by the
issuance of US dollar and Pound sterling denominated hybrid debt that qualifies as Tier 1 capital (‘Tier 1 securities’) and furthermore
by taking structural foreign currency positions. The goal of deliberately taking open FX positions is to make the Tier 1 capital and risk-
weighted assets evenly sensitive to changing FX rates. The US dollar, Pound sterling, Polish zloty, Australian dollar and Turkish lira are
the main currencies in this respect.
The following tables present the currency exposures in the banking books.
Net banking currency exposures banking books
Foreign investments Hedges Net Exposure
2009 2008 2009 2008 2009 2008
US dollar 6,913 9,061 –3,980 –4,502 2,933 4,559
Pound sterling –1,155 –1,132 1,220 1,113 65 –19
Polish zloty 1,153 1,027 –486 –490 667 537
Australian dollar 2,186 1,031 –1,423 –700 763 331
Turkish lira 1,752 1,687 –233 –193 1,519 1,494
Other currency 7,321 4,897 –3,549 –3,794 3,772 1,103
Total 18,170 16,571 –8,451 –8,566 9,719 8,005
The US dollar Foreign Investments declined in 2009 due to significant negative results, mainly within ING Direct US. The Australian dollar
Foreign investments increased significantly for different reasons: a capital injection in ING Direct Australia, strengthening of the FX rate by
25% and positive realised results. The significantly increased Net Exposure in the category ‘Other currency’ is mainly caused by increased
share prices related to strategic equity stakes. For example, the share price of Bank of Beijing increased over 100%, increasing the exposure
to the Chinese renminbi.
In order to measure the remaining sensitivity of the Tier 1 ratio against FX rate fluctuations, the Tier 1 ratio at Risk (TaR) measure is used
as presented in the following table. It measures the drop in the Tier 1 ratio when stressing a certain FX rate.The stress scenarios for the
FX rates that are used for calculating the TaR, are presented in the last two columns. A positive stress scenario means that the foreign
currency appreciates against the Euro. For the US dollar this means that at the end of 2009 the Tier 1 ratio would decrease by 0.030%
in absolute terms (e.g. from 9.030% to 9.000%) if the US dollar depreciates by 15%.
(1) Recently, the strategy changed and the core Tier 1 ratio, instead of the Tier 1 ratio, will be protected against FX rate fluctuations going forward.
2.1 Consolidated annual accounts
Risk management (continued)
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