ING Direct 2008 Annual Report Download - page 231

Capital management
amounts in millions of euros, unless stated otherwise
OBJECTIVES
ING Group Capital Management (Capital Management) is responsible for the sufficient capitalisation of ING Group entities at all times
in order to manage the risk associated with ING’s business activities. This involves the management, planning and allocation of capital
within ING Group. ING’s Corporate Treasury is part of Capital Management. It executes the necessary capital market transactions, term
(capital) funding and risk management transactions. Capital Management monitors and plans capital adequacy on a consolidated basis
at three levels: ING Group, ING Insurance and ING Bank. The rating objective for these three entities is AA. Capital Management takes
into account the metrics and requirements of regulators (EU Solvency, Tier-1 and BIS ratios and limits for hybrid capital), rating agencies
(leverage ratios, Adjusted Equity) and internal risk management models and market value balance sheets (Economic Capital (EC) and
Available Financial Resources (AFR)).
ING applies three main capital definitions:
AFR – This is a market value concept, defined as market value of assets (MVA) less the market value of liabilities (MVL) on the balance •
sheet. The liabilities do not include the hybrid capital and core Tier-1 securities which are included in AFR as equity. The valuation of
ING Insurance includes an adjustment for portfolio illiquidity. In the absence of a full market value balance sheet for ING Bank, AFR
Bank is defined as IFRS Equity including several adjustments (see table in this section). AFR of ING Group is defined as AFR Bank plus
AFR Insurance minus core debt ING Group. AFR is used as the measure of available capital in comparison with EC employed. EC, or
Economic Capital, is the amount of capital that is required to absorb unexpected losses in times of severe stress given ING Group’s
‘AA’ target rating.
Adjusted Equity – This rating agency concept is defined as shareholders’ equity plus core Tier-1 securities, hybrid capital, prudential •
filters and an adjustment for Value in Force and Deferred Acquisition Cost. See ‘Capital Base’ disclosures in this section. This capital
definition is applied in comparing available capital to core debt (leverage) for ING Group and ING Insurance.
Core Tier-1 capital, Tier-1 capital and total BIS capital are regulatory concepts applicable to ING Bank. Tier-1 capital is defined as •
shareholders’ equity plus hybrid capital less certain prudential filters and deductible items. Tier-1 and BIS capital divided by risk
weighted assets equals the Tier-1 and BIS ratio respectively. Core Tier-1 capital is equal to Tier-1 capital excluding hybrid capital.
Increasingly Capital Management considers AFR and EC employed when managing capital. AFR should exceed EC and for ING Group
as a whole there should be a prudent buffer. The target for the buffer at Group level is 20%.
POLICIES
The activities of Capital Management are executed on the basis of established policies, guidelines and procedures. The main documents
that serve as guidelines for capital planning are the Capital Letter (comprising the approved targets and limits for capital), the Capital
Planning Policy, the Dividend Policy and the Capital Request Policy. For the Corporate Treasury there are many policies and limits that
guide the management of the balance sheets and the execution of capital market transactions.
The above capital definitions and policies have been approved by the ING Group Executive Board or delegated authorities.
PROCESSES FOR MANAGING CAPITAL
In addition to measuring capital adequacy, Capital Management also ensures that sufficient capital is available through setting targets
and limits relevant to the above mentioned metrics for ING Bank, ING Insurance and ING Group and ensuring adherence to the set limits
and targets through planning and executing capital management transactions. The process is supplemented by stress testing and
scenario analysis. The ongoing assessment and monitoring of capital adequacy is embedded in Capital Management’s capital planning
process and results in a quarterly Capital Adequacy Assessment Report which is presented to both the ING Group Finance and Risk
Committee and the ING Group Executive and Supervisory Boards. The main objective of the assessment is to ensure that ING Group
as a whole has sufficient capital relative to its risk profile both in the short and the medium term.
CAPITAL ADEQUACY ASSESSMENT
As at 31 December 2008 and 2007, ING Group, ING Bank and ING Insurance met all key target capital ratios and metrics and regulatory
requirements. As at 31 December 2008 and 2007, ING Group, ING Bank and ING Insurance were adequately capitalised in relation to
their risk profile and strategic objectives.
BASEL II
As of 1 January 2008, ING Bank calculates its capital ratios under Basel II. In 2008, ING Bank published risk weighted assets (RWA), Tier-1
and BIS capital and the accompanying capital ratios based on Basel II data only. In addition, ING publishes the minimum required capital
level according to Basel II and according to the Basel I floor. The Basel I floor is a temporary minimum capital requirement based on 90%
of Basel I RWA for 2008 and 80% of Basel I RWA for 2009. The minimum requirements according to Basel II and Basel I will both be
compared to total BIS available capital according to Basel II.
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ING Group Annual Report 2008