ING Direct 2008 Annual Report Download - page 182

2.1 Consolidated annual accounts
Risk management
amounts in millions of euros, unless stated otherwise
STRUCTURE OF RISK MANAGEMENT SECTION
– Risk Management in 2008
– ING Group
Risk Governance
ING Group Risk Profile
– ING Bank
ING Bank Risk Profile
ING Bank – Credit risks
ING Bank – Market risks
ING Bank – Liquidity risk
– ING Insurance
ING Insurance Risk Profile
ING Insurance – Market risks
ING Insurance – Insurance risks
ING Insurance – Credit risks
– ING Group – Non-financial Risks
Operational risks
Compliance risk
– Model Disclosures
RISK MANAGEMENT IN 2008
Taking measured risks is part of ING Group’s business. As a financial services company active in banking, investments, life insurance
and retirement services. ING Group is naturally exposed to a variety of risks. To ensure measured risk-taking ING Group has integrated
risk management in its daily business activities and strategic planning. Risk Management assists with the formulation of risk appetite,
strategies, policies and limits and provides a review, oversight and support function throughout the Group on risk-related issues. The
main financial risks ING Group is exposed to are credit risk (including transfer risk), market risk (including interest rate, equity, real estate,
and foreign exchange risks), insurance risk and liquidity risk. In addition, ING Group is exposed to non-financial risks, e.g. operational
and compliance risks. The way ING Group manages these risks on a day-to-day basis is described in this risk management section.
Despite the fact that the ongoing crisis claims most of the management attention on a daily basis throughout the risk management
organisation, ING Group continued its long-term investments in risk management, including investments in people, governance,
processes, measurement tools and systems. The Non-Financial Risk Dashboard, which was introduced internally and piloted in 2007
was implemented and presented to the Executive Board and the Audit Committee for the first time in November 2008.
MARKET DEVELOPMENTS 2008
Although the whole of 2008 was characterised by significant turmoil, it was in the second half of the year, after the default of Lehman
Brothers, Washington Mutual and three Icelandic banks, that volatility in financial markets intensified. Throughout the world the prices
of most major asset classes fell sharply. Equity markets came down significantly: year on year the S&P 500 declined 38% and the Dutch
Amsterdam Exchange Index (AEX) declined 52%. Real estate prices were also under pressure. At 31 December 2008 the most prominent
real estate index in the United States, the S&P Case-Shiller Index, was 18.6% lower than at the end of 2007. Moreover, credit spreads in
the financial and corporate sector widened materially, both in the US and in Europe. The second half of 2008 showed a steep increase
in corporate credit spreads which was for a major part driven by the auto and industrial sectors. Both short and long term interest rates
dropped in Europe and more profoundly in the United States.
In response to these movements governments all over the world stepped in with rescue plans to buy pressurised assets, deposit
guarantee programmes, capital injections or full nationalisations. In October 2008 ING Group and the Dutch state announced that
an agreement had been reached on a EUR 10 billion capital injection from the Dutch State. See Note 12 Shareholders’ equity (parent)/
non-voting equity securities for details.
Risk mitigation
To counter the implications of the financial crisis ING Group decided to take several measures over the course of the year to reduce risk:
Deleveraging •
ING is working to reduce the bank balance sheet by 10% by decreasing the non-lending part by 25%. ING intends to reduce the
available for sale portfolio over time as proceeds from maturing securities will be used to fund ING-originated loans. Reducing trading
activities, deposits at other banks and reverse-repos are expected to make up most of the remaining reduction. At the same time,
lending activities will be maintained with focus on the Corporate and Retail business.
Reduction of credit risk •
In January 2009, ING Group entered into an Illiquid Assets Back-up Facility term sheet with the Dutch State covering ING’s Alt-A
residential mortgage backed securities (RMBS) portfolio. Through this transaction, which is expected to close in the first quarter of
2009, subject to final documentation and regulatory approval, the Dutch State will become the economic owner of 80% of the Alt-A
RMBS portfolio. This transaction is expected to be concluded at 90% of the par value with respect to the 80% portion of the portfolio
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