ING Direct 2002 Annual Report Download - page 56

LIMIT SETTING AND MONITORING In
countries where ING is active, the risk profile is
regularly evaluated, resulting in a country rating.
Based on this rating and ING’s risk appetite,
country risk limits are defined. Exposures derived
from lending and investment activities are then
measured and reported against these country
limits on a daily basis. Country risk limits are
assigned for transfer risk, generally only in
emerging markets. The amount of emerging
markets transfer risk as a percentage of total
retail and wholesale lending activities remained
6%. Exposure is closely monitored for economic
country risks, although no formal limits are
established. The table below shows the largest
economic exposures by country. A breakdown
has been made by customer type.
COUNTRY RISK PROVISIONING The country
risk provision methodology is linked to the
definitions with respect to determining where
the country risk occurs. Some countries with
perceptually high risk, but which are not in
default, require no mandatory provisions for
transfer risk. Instead of provisions, additional
capital is allocated to transactions that incur
country risk, the amount of which is related to
the risk of the country as well as the risk of the
transaction itself. For countries that are near
default or have recently defaulted, adequate
provisioning remains a requirement. The Dutch
central bank monitors ING’s policy with respect
to capital allocation and provisioning for
country risk.
Annual Report 2002 · ING Group 53
Risk Management
ADDITIONS TO THE PROVISION FOR LOAN LOSSES
ING BANK (BASED ON RISK COUNTRY)
amounts in millions of euros
2002 2001
Netherlands 236 160
Belgium 53 10
Rest of Western Europe 352 189
Central and Eastern Europe 80 111
North America 497 237
South America 167 149
Asia 3-84
Other 47 -22
1,435 750
The regions are related to the risk country of the under-
lying credit risk. Previously the country of the reporting
unit was shown in this table. The numbers for 2001 have
been restated in conformance with this new methodology.
LARGEST ECONOMIC EXPOSURES BY COUNTRY (ING BANK, > EUR 10 BILLION)
amounts in billions of euros
FINANCIAL GOVERN-
2002 CORPORATE BANKS INSTITUTIONS MENTS OTHERS TOTAL
Netherlands 63.1 2.2 6.3 2.1 71.7 145.4
United States 15.5 17.8 25.1 6.2 2.8 67.4
Germany 13.4 20.6 2.1 3.3 3.7 43.1
United Kingdom 12.3 12.1 11.5 0.0 0.1 36.0
Belgium 12.1 4.4 1.0 1.3 6.5 25.3
France 13.4 7.6 2.8 0.2 0.0 24.0
Poland 4.2 12.0 0.3 0.2 0.2 16.9
Spain 4.7 3.6 1.1 0.7 0.0 10.1
Economic country risk is the concentration risk relating to any event in the risk country that may affect transactions
and other exposure in that country, regardless of the currency.
The weak economic conditions in the USA and
Germany combined with the financial crisis in
Argentina and the bankruptcy of National
Century Financial Enterprises (NCFE) in the USA
are the primary causes of the significant increase
in the provisions in 2002.
Country Risk
Country risk is the risk that ING faces attributable
to events in a specific country or group of
countries. Country risk is identified in lending
(corporate and counterparty), trading and
investment activities. All transactions and
trading positions generated by ING Bank have a
country risk. Country risk is further divided into
economic and transfer risk. Economic risk is the
concentration risk relating to any event in the
risk country that may affect transactions and
other exposure in that country, regardless of the
currency. Transfer risk is the risk incurred
through the inability of ING or its counterparties
to meet their respective foreign currency
obligations due to a specific country event.
 
Provisions for loan losses
increased substantially due
to weak economic
conditions and the
bankruptcy of NCFE
—
In countries where ING is
active, the risk profile is
regularly evaluated