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Annual Report 2002 · ING Group52
Report of the Executive Board
Credit Risk
ING’s policy is to maintain an internationally
diversified loan and bond portfolio, while
avoiding large risk concentrations. The emphasis
is on managing business developments within
the regions by means of top-down concentration
limits for countries, individual borrowers and
industry sectors. The aim is expanding relationship
banking activities, while maintaining stringent
internal risk/return guidelines. For the investment
portfolios backing the insurance liabilities, ING’s
policy is to maintain a fixed-income investment
portfolio with a diversified credit portfolio within
acceptable internally and externally driven
parameters.
Credit risk ING Bank
Credit risk is the risk of loss from the default by
a debtor or counterparty. Credit risks arise in
lending and investment activities, as well as in
trading activities. Risk management is supported
by general information systems and debtor and
counterparty internal rating methodologies. The
internal risk rating models were converted from
a ten-risk class scale to a twenty-two risk class
scale to provide better granularity and to meet
the future requirements of the new Basel II
capital accord.
Credit analysis is risk/reward-oriented whereby
the level of credit analysis is determined by the
risk amount, tenor, structure (e.g. covers
received) of the facility, and the risks entered
into. Analysts make use of publicly available
information in combination with in-house analysis
based on information provided by the customer,
peer group comparisons, industry comparisons
and other quantitative tools.
DEBTOR PROVISIONING The banking credit
portfolio is under constant review. A formal
analysis takes place on a quarterly basis to
determine the provisions for possible bad debts,
using a bottom-up approach. ING is of the opinion
that its loan loss provisions as of 31 December
2002 are adequate to absorb losses from ING
Bank’s lending and counterparty activities. The
following table shows the regional specification
of the addition to the provision for loan losses.
 
BALANCING RISK,
RETURN AND CAPITAL
Because of the size of ING, its wide diversity of activities, types
of clients and geographic regions, ING has comprehensive risk
management procedures on all levels within the Group. On
Executive Board level, the Risk Policy Committee evaluates and
manages ING Group's overall risk profile, aiming for a good
balance between risk, return and capital. This chapter
discusses the principal risks that are monitored: credit risk,
market risk, liquidity risk, actuarial and underwriting risk and
operational risk.
RISK CLASSES ING BANK
in % of total outstandings
2002 2001
Investment Grade: 1-10 46.5% 49.6%
Speculative Grade: 11-17 51.7% 48.1%
Problem Grade:18-22 1.8% 2.3%
Total 100% 100%
Based on retail and wholesale lending activities
 
Credit risks are managed by
limits for countries,
individual borrowers and
industry sectors
—
Internal banking risk rating
models were converted from
a ten-risk class scale to a
twenty-two risk class scale