ING Direct 2009 Annual Report Download - page 306

JOINT VENTURE
A contractual arrangement whereby two or more parties undertake
an economic activity which is subject to joint control.
LENDING RISK
Lending risk arises when ING Group grants a loan to a customer, or
issues guarantees on behalf of a customer. This is the most
common risk category, and includes term loans, mortgages,
revolving credits, overdrafts, guarantees, letters of credit, etc. The
risk is measured at the notional amount of the financial obligation
that the customer has to repay to ING, excluding any accrued and
unpaid interest, or discount/premium amortisations or impairments.
LIQUIDITY RISK
The risk that ING Group or one of its subsidiaries cannot meet its
financial liabilities when they fall due, at reasonable costs and in a
timely manner.
MARKET RISK
Market risk is the risk that movements in market variables, such as
interest rates, equity prices, implied volatilities, foreign exchange
rates, real estate prices negatively impact the earnings or market
value.
MARKET VALUE AT RISK (MVAR)
A calculation method which measures the decrease in the market
value surplus caused by movements in financial markets, at a
99.95% confidence level over a one year horizon.
MINORITY INTERESTS
The part of the profit or loss and net assets of a subsidiary
attributable to an interest which is not owned, directly or indirectly,
by the parent company.
MONETARY ASSETS AND LIABILITIES
Assets and liabilities which are fixed in terms of units of currency by
contract or otherwise. Examples are cash, short or long-term
accounts, notes receivable in cash and notes payable in cash.
MONEY MARKET RISK
Money market risk arises when ING Group places short term
deposits with a counterparty in order to manage excess liquidity, as
such, money market deposits tend to be short term in nature (1-7
days is common). In the event of a counterparty default, ING Group
may lose the deposit placed. Money market risk is therefore
measured simply as the notional value of the deposit , excluding
any accrued and unpaid interest or the effect of any impairment.
MONOLINER
A financial company that deals specifically with one particular
branch of the financial industry.
MONTE CARLO SIMULATION
A model to calculate Value at Risk, assuming that changes in risk
factors are (jointly) normally distributed taking into account
nonlinear behaviour of financial products.
MORTGAGE BACKED SECURITIES (MBS)
A security whose cash flows are backed by typically the principal
and/ or interest payments of a pool of mortgages.
IMPAIRMENT LOSS
The amount by which the carrying amount of an asset exceeds its
recoverable amount.
INTEREST BEARING INSTRUMENT
A financial asset or a liability for which a time-proportionate
compensation is paid or received in relation to a notional amount.
INTERNAL RATE OF RETURN (IRR)
Internal rate of return is the discount rate at which the present
value of distributable earnings from new business equals the
investment in new business (i.e. the projected return on the
investment in new business) is calculated.
INTEREST-RATE REBATES
Profit sharing for group life insurance business. A rebate granted to
policyholders based on the discounted value of the difference
between the interest rate used to calculate the premiums and the
expected yield on investment. The profit sharing is granted by
means of a premium discount related to the yield on government
bonds.
INTEREST RATE RISK
Probability that the market interest rates will rise significantly higher
than the interest rate earned on investments such as bonds,
resulting in their lower market value.
IN THE MONEY
A call option is said to be in the money if the exercise price is lower
than the price of the underlying value; a put option is said to be in
the money if the exercise price is higher than the price of the
underlying value.
INVESTMENT RISK
Investment risk is the credit default and risk rating migration risk
that is associated with ING Group’s investments in bonds,
commercial paper, securitisations, and other similar publicly traded
securities. Investment risk arises when ING purchases a (synthetic)
bond with the intent to hold the bond for a longer period of time
(generally through maturity).
INVESTMENT PORTFOLIO
Comprises those assets which are intended for use on a continuing
basis, and have been identified as such. These investments are held
in order to cover the insurance provisions and to manage interest
rate, capital and liquidity risks.
IRREVOCABLE FACILITIES
Mainly constitute unused portions of irrevocable credit facilities
granted to corporate clients and commitments made to purchase
securities to be issued by governments and private issuers.
IRREVOCABLE LETTERS OF CREDIT
Concerns an obligation on behalf of a client to pay an amount of
money under submission of a specific document or to accept a bill
of exchange, subject to certain conditions. An irrevocable letter of
credit cannot be cancelled or adjusted by the bank that has granted
it during the duration of the agreement unless all those concerned
agree.
2.4 Additional information
ING Group Annual Report 2009
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Financial glossary (continued)