ING Direct 2008 Annual Report Download - page 204

2.1 Consolidated annual accounts
The end-of-year overall NPV-at-Risk figure as result of an upward shock of market rates of 1% is on a higher level compared to last year.
This is mainly driven by Wholesale Banking’s ALM positions and the Corporate Line that increased in line with ING Bank’s higher capital
position after the capital injection from the Dutch State in October 2008.
Basis Point Values (BPV)
The Basis Point Value (BPV) figures below represent the value impact to the banking books resulting from a change in interest rates of
1 basis point. The BPV figures represent the directional position under a small upward shift in interest rates and do not capture the
convexity resulting from the optionality in mortgages under larger interest rate movements.
BPVs per currency
In EUR thousands
Currency 2008 2007
Euro –19,176 –15,165
US dollar 337 –2,055
Pound sterling –582 778
Other –373 706
Total –19,794 –15,736
The outright interest rate risk that is represented through the BPV positions in the table above is mainly caused by the investments of
the Bank’s core capital. This only holds under the view that this capital is not sensitive to interest movements but ignores ALCO Bank’s
assumption that its shareholders expect ING Bank to invest the funds in such a way that it produces a long-term and stable income.
The remaining outright risk is mainly maintained in the Bank’s ALM books in which the strategic position is maintained.
Foreign exchange risk in non-trading books
Foreign exchange (FX) exposures in non-trading books result from commercial banking business (business units doing business in other
currencies than their base currency), realised non-EUR results and FX translation risk on foreign currency investments. The policy
regarding these exposures is briefly explained below.
Commercial banking business
Every business unit hedges the FX risk as result of their commercial activities into the base currency of the unit. Consequently assets and
liabilities are matched in terms of currency.
Realised results
Every unit hedges realised results to the base currency of the unit. On a monthly basis the central Capital Management department
hedges the non-EUR results to EUR. ING does not hedge the future EUR value of projected results in non-EUR currency.
FX Translation result
ING’s strategy is to protect its Tier-1 ratio against unfavourable currency fluctuations. The protection is largely achieved by the issuance of
USD and GBP denominated Tier-1 capital and furthermore by taking structural foreign currency positions. In general, open positions are
deliberately taken in order to achieve protection of the Tier-1 ratio by establishing the right ratio of non-EUR denominated capital and risk
weighted assets in these currencies. The US dollar, Pound sterling, Polish zloty, Australian dollar and Turkish lira are the main currencies in
this respect. For other currencies the objective is to substantially mitigate the translation risk.
The following tables present the non-trading currency exposures of the central Capital Management department. As a consequence
of the layered hedging policy described above, the net position of Capital Management in principle equals the aggregated non-trading
currency exposure of the entire bank. Exception is the 2008 US dollar exposure which will be explained below. Note: all amounts are in
EUR millions (equivalents).
Overnight non-trading currency exposures ING Bank
2008
Foreign
investments Tier-1 Gross exposure Hedges Net position
US dollar 9,061 –3,757 5,304 –745 4,559
Pound sterling –1,132 –628 –1,760 1,741 –19
Polish zloty 1,027 1,027 –490 537
Australian dollar 1,031 1,031 –700 331
Turkish lira 1,687 1,687 –193 1,494
Other currency 4,897 4,897 –3,794 1,103
Total 16,571 –4,385 12,18 6 – 4,181 8,005
Risk management (continued)
ING Group Annual Report 2008
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