ING Direct 2009 Annual Report Download - page 295

Rating Models for retail obligors are predominantly statistically driven and automated, such that they can be updated on a monthly or
bi-monthly basis. Models for SME companies, and larger corporates, institutions and banks are manually updated, and are individually
monitored on at least an annual basis.
Under Basel II rules, the nominal exposures are weighted to determine the RWA (and regulatory capital) of a portfolio, under a ‘risk-based
approach’. This approach dictates that less capital is required for credit risks which are well-rated, while progressively more capital is
required as an obligor’s risk (rating) deteriorates. This effect can cause RWA assets to increase or decrease together with risk rating
migration without a significant change in the size of the underlying financial assets, in terms of financial accounting. As such, rating
migrations are closely monitored within ING.
Average LGD by PD Grade under the advanced IRB approach
Central
Governments
and Central
Banks Institutions Corporate
Residential
mortgages Other retail Total 2009 Total 2008
1 (AAA) 20% 14% 26% 10% 46% 21% 23%
2 (AA+) 20% 22% 32% 10% 61% 21% 20%
3 (AA) 20% 19% 26% 23% 64% 22% 23%
4 (AA-) 20% 19% 42% 10% 76% 23% 23%
5 (A+) 20% 21% 31% 10% 63% 22% 27%
6 (A) 20% 20% 29% 21% 63% 24% 25%
7 (A-) 27% 24% 33% 19% 43% 25% 26%
8 (BBB+) 30% 23% 36% 18% 39% 26% 27%
9 (BBB) 13% 26% 30% 16% 41% 22% 23%
10 (BBB-) 43% 39% 26% 14% 37% 20% 19%
11 (BB+) 38% 29% 25% 14% 31% 19% 17%
12 (BB) 24% 44% 21% 17% 33% 20% 20%
13 (BB-) 4% 41% 20% 18% 31% 21% 20%
14 (B+) 8% 35% 19% 21% 32% 21% 23%
15 (B) 8% 44% 22% 21% 50% 23% 21%
16 (B-) 60% 51% 20% 19% 41% 22% 25%
17 (CCC-C) 11% 30% 24% 15% 34% 22% 24%
18 (Special Mention) 20% 29% 16% 21% 35% 19% 17%
19 (Substandard) 80% 46% 24% 20% 36% 23% 18%
20 (Doubtful) 36% 43% 28% 29% 47% 30% 27%
21 (Liquidation – no loss) 16% 15% 64% 21% 16%
22 (Liquidation – with loss) 11% 32% 16% 65% 37% 36%
Total 20% 22% 26% 16% 38% 22% 22%
* Includes both AIRB portfolios; Excludes securitisations, equities and ONCOA.
* Excludes revaluations made directly through the equity account.
The table above represents the weighted average LGD for each of the represented combination of PD Grade and Exposure Class. For
example, the weighted average LGD for an AAA rated Corporate is 26%, while the weighted average LGD for a BBB rated Corporate is
30%. LGD percentages are influenced by the transactional structure of the financial obligation, the related collateral or covers provided,
and the country in which the collateral (if any) would have to be recovered.
In certain cases, the portfolio size is relatively small, which can also have an effect on the weighted average LGD in a given PD Grade and
Exposure Class. Therefore, this table should be read in conjunction with the previous table (Exposures (EAD) by PD grade).
Undrawn Commitments
Central
Governments
and Central
Banks Institutions Corporate
Residential
mortgages Other retail Total 2009 Total 2008
Standardised Approach 6272 2,470 586 5,492 8,826 10,518
Advanced IRB Approach 195 1,181 52,425 9,232 11,776 74,809 76,177
Total 201 1,453 54,895 9,818 17, 268 83,635 86,695
* Includes both AIRB and SA portfolios; Excludes securitisations, equities and ONCOA.
* Excludes revaluations made directly through the equity account.
These figures represent the potential exposure that may be drawn by ING’s obligors under committed facilities. In most cases, the obligors
have the right to make use of these facilities unless an event of default has occurred, or another defined event within the associated credit
risk agreement has occurred. In most cases, the obligor pays a commitment fee to ING on the unused portion of these facilities. Pre-
Settlement, Money Market and Investment limits are generally not committed.
ING Group Annual Report 2009 293
Additional Pillar 3 information for ING Bank only (continued)
2.4 Additional information