ING Direct 2008 Annual Report Download - page 194

2.1 Consolidated annual accounts
Problem loans
Renegotiated Loans
ING’s credit restructuring activities focus on managing the client relationships, improving the borrower’s risk profile, maximising collection
opportunities and, if possible, avoiding foreclosure or repossession. These activities are pro-actively pursued and primarily relate to
Wholesale and Small and Medium Enterprise (SME) borrowers (‘Business’), which are not yet in default. Common actions taken include,
but are not limited to, revising or extending repayment arrangements, assisting in financial reorganisation and/or turnaround management
plans, deferring foreclosure, modifying loan conditions and deferring certain payments pending a change in circumstances. For consumer
and residential mortgage loans (‘Consumer’) the approach is more portfolio oriented.
Restructuring activities for Business borrowers normally start with a watch list indication. Borrowers on the watch list maintain their rating
(1-19). A watch list indication may develop into a restructuring status (15-19) or even a recovery status (20-22). Most borrowers with a
watch list indication return to a regular status. For Consumer clients the watch list of ‘potential problem loan’ status is usually caused by
payment arrears (more than 1 month) which are subsequently reflected in the risk rating of 18-19 (or comparable status based on an
increased probability of default). Following restructuring relationship management is either transferred to the regular commercial banking
departments or terminated.
ING’s renegotiated loans that would otherwise be past due or impaired are reflected below:
ING Bank renegotiated loans that would otherwise be past due or impaired (outstandings)
2008 2007
From restructuring (18-19) to regular (1-17) status 1,183 1,414
From recovery (20-22) to regular or
restructuring status (1-19) 3,556 3,123
Total of renegotiated loans 4,739 4,537
This total is broken down by Business and Consumer clients as follows:
Renegotiated business loans that would otherwise be past due or impaired (outstandings)
2008 2007
From restructuring (18-19) to regular (1-17) status 1,183 1,414
From recovery (20-22) to regular
or restructuring status (1-19) 978 1,170
Total of renegotiated Business loans 2,161 2,584
For Business clients, ING has taken a proactive approach to restructuring loans that may have otherwise experienced financial difficulties,
which has led to an increase in the level of restructuring loans returning to a regular status. Restructuring is generally a time consuming
process that can take several years. Through early 2008, ING’s inventory of problem loans and restructuring clients declined at a steady
pace which is then reflected in the level of restructured Business Loans in 2008.
Renegotiated consumer and mortgage loans that would otherwise be past due or impaired (outstandings)
2008 2007
From recovery (20-22) to regular
or restructuring status (1-19) 2,578 1,953
Total of renegotiated consumer and mortgages loans
(‘Consumer’) 2,578 1,953
The increase in the total amount of renegotiated consumer and mortgage loans is a reflection of the growth of the portfolio and of ING’s
proactive (portfolio) management approach involving the automation of reminder and warning letters to Consumer borrowers who may
otherwise be facing financial difficulties. Consumer borrowers do not have a restructuring status.
Past-due obligations
ING continually measures its portfolio in terms of payment arrears. Particularly the retail portfolios are closely monitored on a monthly
basis to determine if there are any significant changes in the level of arrears. Generally, an obligation is considered ‘past-due’ if a payment
of interest or principal is more than one day late. In practice, the first 5-7 days after an obligation becomes past due are considered to be
operational in nature for the retail loans and small businesses. After this period, letters are sent to the obligor reminding the obligor of its
(past due) payment obligations. If the arrear still exists after 90 days, the obligation is transferred to one of the ‘problem loan’ units. In
order to reduce the number of arrears, ING banking units encourage their obligors to set up automatic debits from their (current)
accounts to ensure timely payments.
Risk management (continued)
ING Group Annual Report 2008
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