ING Direct 2011 Annual Report Download - page 109

Net investment hedges
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. Any gain or loss on the hedging
instrument relating to the effective portion of the hedge is recognised in equity and the gain or loss relating to the ineffective portion is
recognised immediately in the profit and loss account. Gains and losses accumulated in equity are included in the profit and loss account
when the foreign operation is disposed.
Non-trading derivatives that do not qualify for hedge accounting
Derivative instruments that are used by the Group as part of its risk management strategies, but which do not qualify for hedge
accounting under ING Group’s accounting policies, are presented as non-trading derivatives. Non-trading derivatives are measured at fair
value with changes in the fair value taken to the profit and loss account.
OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Financial assets and financial liabilities are offset, and the net amount reported, in the balance sheet when the Group has a current legally
enforceable right to set off the recognised amounts and intends to either settle on a net basis or to realise the asset and settle the liability
simultaneously. Offsetting is applied to certain interest rate swaps for which the services of a central clearing house are used. Furthermore,
offsetting is also applied to certain current accounts for which the product features and internal procedures allow net presentation under
IFRS-EU.
REPURCHASE TRANSACTIONS AND REVERSE REPURCHASE TRANSACTIONS
Securities sold subject to repurchase agreements (‘repos’) are retained in the consolidated financial statements. The counterparty liability
isincluded in Amounts due to banks, Other borrowed funds, Customer deposits and other funds on deposit, or Trading as appropriate.
Securities purchased under agreements to resell (‘reverse repos’) are recognised as Loans and advances to customers or Amounts due from
banks, as appropriate. The difference between the sale and repurchase price is treated as interest and amortised over the life of the
agreement using the effective interest method.
IMPAIRMENTS OF LOANS AND ADVANCES TO CUSTOMERS (LOAN LOSS PROVISIONS)
ING Group assesses periodically and at each balance sheet date whether there is objective evidence that a financial asset or group of
financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if,
there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, but
before the balance sheet date, (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the
financial asset or group of financial assets that can be reliably estimated. The following circumstances, among others, are considered
objective evidence that a financial asset or group of assets is impaired:
• The borrower has sought or has been placed in bankruptcy or similar protection and this leads to the avoidance of or delays in
repayment of the financial asset;
• The borrower has failed in the repayment of principal, interest or fees and the payment failure has remained unsolved for a certain period;
• The borrower has demonstrated significant financial difficulty, to the extent that it will have a negative impact on the expected future
cash flows of the financial asset;
• The credit obligation has been restructured for non-commercial reasons. ING Group has granted concessions, for economic or legal
reasons relating to the borrower’s financial difficulty, the effect of which is a reduction in the expected future cash flows of the financial
asset; and
• Historical experience, updated for current events where necessary, provides evidence that a proportion of a group of assets is impaired
although the related events that represent impairment triggers are not yet captured by the Group’s credit risk systems.
The Group does not consider events that may be expected to occur in the future as objective evidence, and consequently they are not
used as a basis for concluding that a financial asset or group of assets is impaired.
In determining the impairment, expected future cash flows are estimated on the basis of the contractual cash flows of the assets in the
portfolio and historical loss experience for assets with credit risk characteristics similar to those in the portfolio. Historical loss experience is
adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the
historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Losses
expected as a result of future events, no matter how likely, are not recognised.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant,
and then individually or collectively for financial assets that are not individually significant. If the Group determines that no objective
evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
Accounting policies for the consolidated annual accounts of ING Group continued
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information
107ING Group Annual Report 2011