ING Direct 2009 Annual Report Download - page 282

ING Bank applies the Risk Adjusted Return on Capital framework (RAROC). This method consistently measures the performance of
different activities and has a clear link to shareholder-value creation. The use of RAROC increases the focus on risks versus return in the
decision-making process. It stimulates the use of scarce capital in the most efficient way. Risk-adjusted pricing tools are also used as a basis
for the pricing of certain transactions and as an important determinant in the credit-approval procedures.
RAROC is calculated as the risk-adjusted return divided by economic capital. The risk-adjusted return is based on similar valuation policies
as applied in the financial accounts, with two important exceptions. The actual credit-risk provisioning is replaced by expected losses
reflecting statistically calculated average credit losses over the entire economic cycle. In addition the profit and loss account is adjusted for
effects that relate to replacing actual book capital by economic capital.
Underlying RAROC for banking operations
RAROC (after-tax) RAROC (pre-tax)
2009 2008 2009 2008
The Netherlands 30.4% 42.2% 41.1% 53.6%
Belgium 55.0% 26.3% 66.6% 32.7%
Central Europe –5.9% –7.2% – 6.1% –8.9%
Asia 5.4% 5.5% 6.0% 6.0%
Total Retail Banking 22.7% 21.7% 29.4% 27. 2%
Total ING Direct –1.0% –18.2% –2.0% –27. 8%
General Lending & PCM 15.2% 9.4% 19.4% 11.9%
Structured Finance 30.5% 25.1% 40.6% 30.9%
Leasing & Factoring 24.7% 19.1% 36.0% 27.9%
Financial Markets 36.7% 7.4% 44.4% 11.1%
Other products 11.9% –25.7% 2.7% –40.8%
Subtotal Commercial Banking 27.0% 10.0% 33.6% 12.9%
ING Real Estate –49.2% –13.3% –55.2% –13.5%
Total Commercial Banking 9.5% 4.9% 13.1% 7.1%
Corporate Line –26.9% –71.2% –36.8% –122.1%
Total banking operations 7.2% 2.6% 9.4% 1.3%
Total banking operations including divestments and special items 1.7% 1.2% 1.8% –0.3%
Note: The underlying figures exclude divestments and special items.
ING Group Annual Report 2009
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RAROC performance
2.4 Additional information