ING Direct 2008 Annual Report Download - page 17

ING Group Annual Report 2008
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New sales, measured in annual premium equivalent (APE), for the
life insurance business decreased 10.3%, or 7.8% excluding ING
Life Taiwan to EUR 6,568 million primarily due to lower sales in the
US, Australia, South Korea and Japan. APE is the sum of regular
annual premiums from new business plus 10% of single premiums
on new business written during the year. This decrease was in
part offset by higher sales in Latin America, the Netherlands and
Rest of Asia. The value of new business (VNB) decreased 8.1% to
EUR 1,023 million. Excluding ING Life Taiwan, VNB remained flat
compared to 2007.
BANKING OPERATIONS
Despite the unprecedented impact of the financial crisis and
challenging commercial environment, ING’s banking businesses
reported commercial growth across all three business lines. Client
balances went up EUR 61 billion to EUR 1,073 billion in total. Total
result before tax from Banking operations declined 96.7% to
EUR 148 million, driven by impairments and fair value changes due
to the extreme market volatility and sharp decline in asset prices
combined with higher risk costs. Underlying result before tax
(excluding the impact of divestments and special items) declined by
91.0% to EUR 449 million. Retail Banking and Wholesale Banking
remained profitable, while ING Direct reported a loss of EUR 1,125
million due to impairments on pressurised assets. Risk costs
increased significantly due to worsening economic conditions.
Underlying income decreased 19.7% to EUR 11,731 million. The
interest result, however, rose 22.3%, driven by higher margins at
ING Direct and Wholesale Banking, the inclusion of ING Bank
Turkey (formerly Oyak Bank) and an increase in volumes. Loans
and advances to customers increased by EUR 72.0 billion, or
13.7%, to EUR 598.3 billion. Customer deposits and other funds
on deposits increased by EUR 9.5 billion, or 1.8%, to EUR 537.7
billion. The total interest margin rose to 1.07% from 0.94% in
2007. Commission income decreased 1.1% driven by lower asset
management fees and lower income from the securities business.
Investment income fell from EUR 891 million in 2007 to
EUR -2,459 million in 2008, mainly due to impairments on bonds
and equities, and negative revaluations on real estate. Other
income dropped 88% as a result of negative trading income and
losses from associates.
Underlying operating expenses increased 5.0% to EUR 10,002
million mainly at Retail Banking due to the inclusion of ING
Bank Turkey, and at ING Direct. The underlying cost/income ratio
increased to 85.3% from 65.2% in 2007 driven by the sharp
decline in income. The underlying net addition to the provision for
loan losses increased to EUR 1,280 million from EUR 125 million in
2007. Risk costs in 2008 were 48 basis points of average credit-risk
weighted assets, as gross additions to loan loss provisions of 62
basis points were offset by 14 basis points in releases.
The underlying risk-adjusted return on capital (RAROC) after tax
fell to 2.6% from 22.3% in 2007, reflecting the impact of the
market turmoil and a 31.6% increase in average Economic Capital
due to methodology changes.
ASSET MANAGEMENT
Assets under management declined by EUR 91.4 billion, or 14.2%,
to EUR 551.3 billion in 2008, as a result of the sharp deterioration
of financial markets. Lower asset prices for equity and fixed income
securities had a negative impact of EUR 99.1 billion. Despite the
depressed financial markets, ING recorded a net inflow of EUR 17.4
billion in 2008. All lines of business contributed to this net inflow
with the exception of Insurance Europe which registered a net
outflow of EUR 2.2 billion. Acquisitions and divestments had a net
negative impact of EUR 6.2 billion. Furthermore exchange rates
negatively impacted the growth of assets under management
by EUR 3.6 billion.
LOOKING AHEAD
In 2009, ING will operate in a difficult economic climate. Some
of the main uncertainties are the development of the financial
markets, the residential and commercial real estate markets, and
a further deteriorating global economy, which will keep loan loss
provisions and impairments at elevated levels. As we steer our
business through these turbulent times, ING aims to mitigate risk,
put in place measures to preserve capital and to reduce costs in
line with the operating environment.