ING Direct 2011 Annual Report Download - page 42

40 ING Group Annual Report 2011
Commercial Banking
Focusing on our strengths
> A robust performance focused on core areas
> Client and product platforms sustained and
adjusted againsta challenging economic
and regulatorybackdrop
> Balance sheet optimisation remained
atoppriority
> Risk and cost discipline were fundamental
toour success
In 2011, Commercial Banking delivered strong results, maintaining its
focus on core franchises in the Benelux, Central and Eastern Europe,
Structured Finance and Financial Markets. We made significant
progress in optimising our balance sheet and with managing our
resources in relation to solvency, liquidity and funding more
efficiently; this against the backdrop of a tough economic
environment and materially increasing regulatory demands.
The year presented many challenges, but we have adapted our
business model to ensure continued success. We have continued
todivest non-core businesses (e.g. ING Car Lease) and adjust our
core platforms where necessary, maintaining tight control over costs
and risks and with a continued discipline over capital allocation and
returns. As a result, the Commercial Banking franchise remained
robust and strengthened its position in the market.
FINANCIAL DEVELOPMENTS
The underlying result before tax of Commercial Banking decreased
8.9% to EUR 2,020 million from EUR 2,217 million in 2010. ING
Real Estate recorded a profit before tax of EUR 34 million compared
with a loss of EUR 109 million in 2010. The underlying result before
tax of Commercial Banking excluding Real Estate dropped 14.6%
to EUR 1,986 million.
The decrease in the underlying result before tax of Commercial
Banking excluding Real Estate was largely attributable to Financial
Markets, whose result declined by EUR 420 million to EUR 499
million in 2011, partly caused by EUR 225 million of impairments on
Greek government bonds. Excluding these impairments, underlying
result of Financial Markets declined by EUR 195 million (or –21.2%),
following adverse market circumstances as well as the winding
down of the proprietary trading book in the US.
Underlying result of General Lending and Payments and Cash
Management (PCM) declined by 9.9% to EUR 410 million in 2011
from EUR 455 million in 2010. This was mainly driven by
impairments on the restructuring portfolio, as well as higher
expenses due to selective IT investments in PCM. The result of
Structured Finance rose by 21.4% to EUR 1,139 million in 2011,
driven by strong volume growth in the first half of 2011 resulting
inhigher interest results and commission income, while risk costs
were lower. The result of Leasing & Factoring declined EUR 5 million
to EUR 75 million entirely due to higher risk costs.
ING Real Estate reported an underlying profit before tax of EUR 34
million, compared with a loss of EUR 109 million in 2010. Negative
fair value changes on the direct and indirect real estate investments
as well as impairments on real estate development projects
declined to EUR 273 million in 2011, compared with EUR 434
million in 2010. Excluding revaluations and impairments, underlying
result before tax decreased EUR 18 million to EUR 307 million in
2011 from EUR 325 million in 2010, mainly due to higher risk costs
at Real Estate Finance.
In 2011, net production of client balances was EUR 5.8 billion
negative. Funds entrusted reported a net outflow of EUR 3.6 billion,
while lending was EUR 1.7 billion down as demand was subdued.
Assets under management declined EUR 0.6 billion.
Total underlying income of Commercial Banking declined 6.1%
toEUR 5,023 million, mainly in Financial Markets, which included
EUR 225 million of impairments on Greek government bonds
Financial overview*
in EUR million 2011 2010
Total underlying income 5,023 5,349
Underlying operating expenses 2,527 2,643
Underlying additions to loan loss provisions 476 489
Underlying result before tax 2,020 2,217
Underlying cost/income ratio 50.3% 49.4%
Underlying cost/income ratio
(excl. market impacts) 44.5% 42.2%
Net production client balances (EUR billion) –6 12
Underlying risk costs in bp of average RWA 35 33
Risk-weighted assets (year-end, EUR billion,
adjusted for divestments) 145 140
Underlying Return on Equity based on 10%
core Tier 1** 11.2% 11.6%
* Underlying numbers are derived from IFRS-EU numbers, excluding the
impact of divestments and special items.
** Underlying after tax return divided by average equity based on 10%
core Tier 1 ratio.
Underlying income
in EUR million 2011 2010
Commercial Banking excl. ING Real Estate 4,494 4,820
– General Lending & PCM 1,121 1,159
– Structured Finance 1,601 1,440
– Leasing & Factoring 320 310
– Financial Markets 1,290 1,700
– Other Products 162 211
ING Real Estate 529 529
Total Commercial Banking 5,023 5,350
Underlying result before tax
in EUR million 2011 2010
Commercial Banking excl. ING Real Estate 1,986 2,326
– General Lending & PCM 410 455
– Structured Finance 1,139 938
– Leasing & Factoring 75 80
– Financial Markets 499 919
– Other Products –138 –65
ING Real Estate 34 –109
Total Commercial Banking 2,020 2,217