ING Direct 2009 Annual Report Download - page 224

ING Bank
Tier 1 ratio sensitivity ING Bank
TaR Stress Scenario
2009 2008 2009 2008
US dollar 0.030% 0.041% –15% –10%
Pound sterling 0.002% 0.000% –15% +5%
Polish zloty 0.006% 0.0 01% –15% +20%
Australian dollar 0.010% 0.003% –20% +5%
Turkish lira 0.006% 0.017% –25% –30%
Total n/a n/a n/a n/a
Equity price risk in banking books
Equity price risk arises from the possibility that equity security prices will fluctuate, affecting the value of equity securities and other
instruments whose price reacts similarly to a particular security, a defined basket of securities, or a securities index. ING Bank maintains
a strategic portfolio with substantial equity exposure in its banking books. This equity exposure mainly consists of the investments in
associates of EUR 1,396 million (2008: EUR 1,813 million) and equity securities held in the Available-for-Sale portfolio of EUR 3,682 million
(2008: EUR 1,863 million). The value of equity securities held in the Available-for-Sale portfolio is directly linked to equity security prices
with increases/decreases being recognised (except in the case of impairment) in the revaluation reserve. During the year ended
31 December 2009 the revaluation reserve relating to equity securities held in the Available-for-Sale portfolio fluctuated between a
month-end low amount of EUR 1,198 million (2008: EUR 776 million) and a high amount of EUR 2,536 million (2008: EUR 1,969 million).
Investments in associates are measured in accordance with the equity method of accounting and the balance sheet value is therefore
not directly linked to equity security prices.
Real Estate price risk in banking books
Real estate price risk arises from the possibility that real estate prices will fluctuate affecting both the value of real estate assets and
earnings related to real estate activities.
ING Bank has three different categories of real estate exposure on its banking books. First, ING Bank owns buildings it occupies. Second,
ING Bank has a Real Estate Development company for which results are dependent on the overall real estate market, although the general
policy is to mitigate risk by pre-sale agreements where possible. Third, for various real estate funds, ING Bank has co-invested seed capital
and bridge capital to support the launch of new funds. A decrease in real estate prices will cause the value of this seed and bridge capital
to decrease and will lower the level of third party assets under management, which in turn will reduce the fee income from this activity.
The crisis in the financial markets could lead to a further slowdown of the world economy in general. These global economic factors could
also have future negative consequences for the value of real estate assets.
For the third category mentioned above real estate price shocks will have a direct impact on reported net profit. ING Bank’s real estate
exposure (i.e. including leverage and committed purchases) is EUR 7.0 billion of which EUR 3.3 billion is recorded as fair value through P&L
and EUR 3.7 billion is not revalued through P&L, but is either booked at cost or is revalued through equity (with impairments going
through P&L). In total, Real Estate exposure decreased by EUR 1.9 billion mainly as a result of negative fair value changes (EUR 800 million),
impairments (EUR 620 million), net divestments (EUR 900 million) and compensated by FX appreciation (EUR 420 million).
Risk management (continued)
2.1 Consolidated annual accounts
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