ING Direct 2009 Annual Report Download - page 308

RETURN ON EQUITY (ROE)
The return on equity is the net result as percentage of the
average equity.
RISK ADJUSTED RETURN ON CAPITAL (RAROC)
A performance indicator that measures revenues in the perspective
of the risks that had to be taken to obtain that revenue. RAROC is
calculated by dividing the risk-adjusted-return by economic capital.
In the RAROC calculation, the actual credit-risk provisioning is
replaced by statistically expected losses reflecting the average credit
losses over the entire economic cycle.
RISK-WEIGHTED ASSETS (‘RWA‘ UNDER BASEL I)
Assets which are weighted for credit risk according to a formula
used by the Dutch central bank (De Nederlandsche Bank), which
conforms to the capital adequacy guidelines of the BIS (Bank of
International Settlements). On and off-balance-sheet items are
weighted for risk, with off-balance-sheet items converted to
balance-sheet equivalents (using credit-conversion factors) before
being allocated a risk weight.
RISK-WEIGHTED ASSETS (‘RWA’ UNDER BASEL II)
Assets which are weighted for credit and market risk in accordance
with the Basel II methodology. The risk-weighted assets are
calculated using internal models approved by The Dutch central
bank (De Nederlandsche Bank). Regulatory capital requirements for
operational risk are calculated without use of risk-weighted assets.
SETTLEMENT RISK
Settlement risk arises when there is an exchange of value (funds,
instruments or commodities) for the same or different value dates
and receipt is not verified or expected until ING Group has paid or
delivered its side of the trade. The risk is that ING Group delivers,
but does not receive delivery from the counterparty.
SIGNIFICANT INFLUENCE
The power to participate in the financial and operating policy
decisions of an entity, but not to have control over these policies.
Significant influence may be gained by share ownership, statute or
agreement.
SUB-PRIME MORTGAGES
Mortgage loans made to borrowers who cannot get a regular
mortgage because they have a bad credit history or limited income.
SUBSIDIARY
An entity that is controlled by another entity.
SURRENDER
The termination of a life or retirement contract at the request of the
policyholder after which the policyholder receives the cash
surrender value, if any, on the contract.
SWAP CONTRACTS
Commitments to settle in cash at a specified future date, based on
differentials between specified financial indices as applied to a
notional principal amount. Generally, no cash is exchanged at the
outset of the contract and no principal payments are made by
either party.
PRE-SETTLEMENT RISK
Pre-settlement risk arises when a counterparty defaults on a
transaction before settlement and ING Group has to replace the
contract by a trade with another counterparty at the then prevailing
(possibly unfavourable) market price. The pre-settlement risk
(potential or expected risk) is the cost of ING Group replacing a
trade in the market. This credit risk category is associated with
dealing room products such as options, swaps, and securities
financing transactions. Where there is a mutual exchange of value,
the amount of outstanding is generally based on the replacement
value (mark-to-market) plus potential future volatility concept, using
an historical 7 year time horizon and a 99% confidence level.
PRESSURISED ASSETS
Pressurised assets have been defined as subprime ABS exposures,
Alt-A ABS exposures, CDO/CLOs, SIVs, ABCP investment, leveraged
finance and exposures on monoliners.
PRIVATE LOAN
Loans to governments, other public bodies, public utilities,
corporations, other institutions or individuals with a loan agreement
as the only instrument of title.
PRIVATE PLACEMENT
A placement in which newly issued shares or debentures come into
possession of a limited group of subscribers who are prepared to
buy the new securities.
PROJECTED UNIT CREDIT METHOD
An actuarial valuation method that considers each period of service
as giving rise to an additional unit of benefit entitlement and
measures each unit separately to build up the final obligation.
QUALIFYING ASSET (WITHIN THE MEANING OF
BORROWING COSTS)
An asset that necessarily takes a substantial period of time to get
ready for its intended use or sale.
RECOGNITION
The process of incorporating in the balance sheet or profit and loss
account an item that meets the definition of an element and
satisfies the following criteria for recognition:
it is probable that any future economic benefit associated with •
the item will flow to or from the enterprise; and
the item has a cost or value that can be measured reliably. •
RECOVERABLE AMOUNT
The higher of an asset’s net selling price and its value in use.
REDEMPTION VALUE
With respect to investments in fixed-interest securities, the amount
payable on the maturity date.
REINSURANCE
The practice whereby one party, called the reinsurer, in
consideration for a premium paid to him, agrees to indemnify
another party, called the reinsured or ceding company, for part or
all of the liability assumed by the reinsured under a contract or
contracts of insurance which the reinsured has issued. The
reinsured may also be referred to as the original or primary insurer,
the direct writing company, or the ceding company.
2.4 Additional information
ING Group Annual Report 2009
306
Financial glossary (continued)