ING Direct 2011 Annual Report Download - page 232

Risk management continued
ING Bank
The cover tables show a break down of ING Bank’s retail and commercial portfolios. The Residential Mortgages portfolio relates to private
individuals. The growth in this portfolio was mainly driven by United Kingdom, Germany and Belgium. The Financial Institutions portfolio
iscomprised of commercial banks, central banks and non-bank financial institutions. The increase in this portfolio was mainly driven by
The Netherlands. Corporates range from large enterprises to small and medium sized companies. Governments consist of all governmental
layers, from local to national.
Loan-to-Value (LTV)
The LTV ratio relates the total loan amount to the market value of the collateral. The market value is the registered value as adopted from the
valuation report of a qualified appraiser or valuer. ING Bank has a team of specialists for the valuation of real estate, which is supplemented
with external and desk top valuation. In some countries residential mortgages are covered by governmental or commercial insurers. For
example the Nationale Hypotheek Garantie (NHG) in The Netherlands, which guarantees the repayment of a loan in case of a forced property
sale. The LTV in The Netherlands is relatively high, but is partially compensated by the NHG guaranteed portfolio and other secondary covers,
such as life insurance policies, savings and investment products. The average LTV in the Netherlands is 81% (2010: 80%).
When available, indexation is applied to revaluate the collateral to the present value. In the LTV calculation the following property covers are
included: residential and industrial/commercial properties, land and applicable other fixed assets. All other covers are excluded. The ING
Bank’s total residential mortgage portfolio amounts to EUR 341 billion, making up 39% of the ING Bank’s total credit risk outstandings. The
average Loan to Value (LTV) of the total residential mortgage portfolio amounts to 75% (2010: 74%).
Problem loans
Past-due obligations
ING Bank continually measures its portfolio in terms of payment arrears. Particularly the retail portfolios are closely monitored on a monthly
basis to determine if there are any significant changes in the level of arrears. Generally, an obligation is considered ‘past-due’ if a payment
of interest or principal is more than one day late. In practice, the first 5–7 days after an obligation becomes past due are considered to be
operational in nature for retail loans and small businesses portfolios. After this period, letters are sent to the obligor reminding the obligor
of its (past due) payment obligations. If the arrear still exists after 90 days, the obligation is transferred to one of the ‘problem loan’ units.
In order to reduce the number of arrears, ING banking units encourage their obligors to set up automatic debits from their (current)
accounts to ensure timely payments.
Aging analysis (past due but not impaired): ING Bank portfolio, outstandings (1) (2)
2011 2010
Past due for 1–30 days 5,455 4,565
Past due for 31–60 days 1,111 973
Past due for 61–90 days 83 100
Total 6,649 5,638
(1) Based on lending (consumer loans and residential mortgages only).
(2) The amount of past due but not impaired financial assets in respect of non-lending activities was not material.
Impaired loans and provisions
The credit portfolio is under constant review. Generally, all loans with past due financial obligations of more than 90 days are automatically
reclassified as impaired. For the wholesale lending portfolios and securities obligations, there are generally reasons for declaring a loan
impaired prior to being 90 days past due. These include, but are not limited to, ING Bank’s assessment of the customer’s perceived inability
to meet its financial obligations, or the customer filing for bankruptcy or bankruptcy protection. In some cases, a material breach of
financial covenants will also trigger a reclassification of a loan to the impaired category. ING Bank identifies as impaired loans those loans
for which it is probable, based on current information and events that the principal and interest amounts contractually due will not be
collected in accordance with the contractual terms of the loan agreements.
A formal analysis takes place quarterly to determine the provisions for possible bad debts, using a bottom-up approach. Conclusions are
discussed by the ING Provisioning Committee (IPC) Bank, which advises the MBB on specific provisioning levels.
230 ING Group Annual Report 2011