ING Direct 2011 Annual Report Download - page 181

Notes to the consolidated annual accounts of ING Group continued
obtained vendor price is deemed the most representative of fair value. The indicative price is not itself used for valuing the security;
rather,it is used to select the most appropriate price obtained from independent external sources. As a result, each security in the portfolio
is priced based on an external price, without modification by ING Group.
Loans and receivables
Reference is made to Loans and advances to customers below.
Loans and advances to customers
For loans and advances that are repriced frequently and have had no significant changes in credit risk, carrying amounts represent a
reasonable estimate of fair values. The fair values of other loans are estimated by discounting expected future cash flows using interest
rates offered for similar loans to borrowers with similar credit ratings.
The fair values of mortgage loans are estimated by taking into account prepayment behaviour and discounting future cash flows using
interest rates currently being offered for similar loans to borrowers with similar credit ratings. The fair values of fixed rate policy loans
areestimated by discounting cash flows at the interest rates charged on policy loans of similar policies currently being issued. Loans
withsimilar characteristics are aggregated for calculations purposes. The carrying values of variable rate policy loans approximate
theirfairvalue.
Other assets
The other assets are stated at their carrying value which is not materially different from their fair value.
Financial liabilities
Subordinated loans
The fair value of the subordinated loans is estimated using discounted cash flows based on interest rates and credit spreads that apply
tosimilar instruments.
Investment contracts
For investment contracts for risk of company the fair values have been estimated using a discounted cash flow approach based on
interestrates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued.
For investment contracts for risk of policyholder the fair value generally equals the fair value of the underlying assets.
Amounts due to banks
The fair values of payables to banks are generally based on quoted market prices or, if not available, on estimates based on discounting
future cash flows using available market interest rates and credit spreads for payables to banks with similar characteristics.
Customer deposits and other funds on deposit
The carrying values of customer deposits and other funds on deposit with no stated maturity approximate their fair values. The fair values
of deposits with stated maturities have been estimated based on discounting future cash flows using the interest rates currently applicable
to deposits of similar maturities.
Financial liabilities at fair value through profit and loss
The fair values of securities in the trading portfolio and other liabilities at fair value through profit and loss are based on quoted market
prices, where available. For those securities not actively traded, fair values are estimated based on internal discounted cash flow valuation
techniques using interest rates and credit spreads that apply to similar instruments. Reference is made to Financial assets at fair value
through profit and loss above.
Debt securities in issue and other borrowed funds
The fair value of debt securities in issue and other borrowed funds is generally based on quoted market prices or, if not available,
onestimated prices by discounting expected future cash flows using a current market interest rate and credit spreads applicable to the
yield, credit quality and maturity.
Other liabilities
The other liabilities are stated at their carrying value which is not materially different from their fair value.
Fair value hierarchy
ING Group has categorised its financial instruments that are measured in the balance sheet at fair value into a three level hierarchy
basedon the priority of the inputs to the valuation. The fair value hierarchy gives the highest priority to quoted prices in active markets for
identical assets or liabilities and the lowest priority to valuation techniques based on unobservable inputs. An active market for the asset
orliability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide reliable pricing
information on an ongoing basis. The fair value hierarchy consists of three levels, depending upon whether fair values were determined
based on quoted prices in an active market (Level 1), valuation techniques with observable inputs (Level 2) or valuation techniques that
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
179ING Group Annual Report 2011