ING Direct 2002 Annual Report Download - page 57

Annual Report 2002 · ING Group54
Report of the Executive Board
For Poland an additional provision for local and
foreign currency loans of EUR 99 million was
taken in 2002. The total provisions on local and
foreign currency loans in Poland is EUR 458
million. Total exposure on local and foreign
currency denominated loans in Poland is
EUR 16.9 billion.
Credit risk ING Insurance
Within the insurance companies there are
detailed investment mandates also specifying
the credit risk appetite. ING Insurance’s policy is
to maintain a fixed-income investment portfolio
with a diversified credit portfolio within
acceptable internally and externally driven
parameters.
DEBTOR PROVISIONING For insurance credit
risks, a provision for loan losses is maintained
that is considered adequate to absorb losses
arising from the existing insurance investment
portfolios. The provisions are reviewed on a
quarterly basis. They amounted to EUR 155
million at the end of 2002 compared with EUR
165 million at the end of 2001. Similar to the
practice in the banking activities, the out-
standing debt and any suspense balances are
written off when there is no prospect of
recovering the principal.
Market Risk
Market risk ING Bank
ING’s policy is to maintain an internationally
diversified and mainly client-related trading port-
folio, while avoiding large risk concentrations.
ING applies value-at-risk and stress-testing
scenarios for market risk management. Value-at-
Risk measures the maximum overnight loss that
could occur under normal market circumstances
due to changes in risk factors (e.g. interest rate,
foreign exchange rate, equity prices) if the
trading positions remain unchanged for a time
interval of one day.
LARGEST CROSS-BORDER LENDING EXPOSURES IN EMERGING MARKETS (ING BANK, > EUR 750 MILLION)
amounts in millions of euros
GROSS TRANSFER PROVISIONS ON FOREIGN COUNTRY
EXPOSURE CURRENCY LOANS CAPITAL ADD-ON
2002 2001 2002 2001 2002 2001
South Korea 1,942 1,537 514
Hong Kong 1,917 1,912 33 37
Poland 1,832 2,658 65 46
Brazil 1,024 1,371 10 64 79
China 784 644 23 38
Mexico 759 1,202 25
Figures exclude local currency-denominated loans. During 2002, ING changed the methodology for calculating transfer
risk. The numbers for 2001 have been restated to comply with the new methodology.
VALUE-AT-RISK BY CATEGORY
amounts in millions of euros
YEAR-END YEAR-END
2002 2001
Foreign exchange 2.5 3.1
Equities 10.7 7.7
Emerging markets/
high yield 7.7 9.2
Interest 9.3 24.9
Sub-total 30.2 44.9
Diversification effect - 9.5 - 12.1
Total 20.7 32.8
Apart from market risks in its trading portfolios,
ING Bank has a structural interest rate risk on its
balance sheet. As at 31 December 2002, an
instantaneous increase in interest rates of 1%
could potentially have an adverse effect on
interest income of EUR 14 million (year-end
2001: EUR 105 million). The one-day 99% VaR
for all banking books at year-end 2002 was
EUR 65 million, compared with EUR 104 million
at year-end 2001.
Market risk ING Insurance
The risk of loss occurring through adverse changes
of prices in the financial markets is quantified in
extensive analyses, using stochastic analyses for
both assets and liabilities and the interaction
between these portfolios.
INTEREST RATE RISK The insurance
operations are exposed to interest rate move-
ments with respect to guaranteed interest rates
and policyholders’ reasonable expectations with
respect to crediting rates. The current product
portfolio also comprises products where interest
rate risks are entirely taken by the policyholder,
thereby reducing ING’s exposure to interest
movements.
Through scenario-analysis the sensitivity of
a 1% upward movement in interest rates and a
1% downward movement in interest rates on the
 
ING Bank has a structural
interest-rate risk on its
balance sheet. A 1%
increase can have an
adverse effect of EUR 14
million (year-end 2002)
—
For the insurance operations,
a 1% decrease/increase in
interest rates would have an
adverse/positive effect on
the budgeted 2003 pre-tax
result of 4% and 3%
respectively