ING Direct 2008 Annual Report Download - page 256

RAROC performance
ING Bank applies the Risk Adjusted Return on Capital framework (RAROC). This method consistently measures the performance of
different activities and has a clear link to shareholder-value creation. The use of RAROC increases focus on risks versus return in the
decision-making process, and consequently stimulates the use of scarce capital in the most efficient way. Risk-adjusted pricing tools
are also used as a basis for the pricing of certain transactions and as an important determinant in the credit-approval procedures.
RAROC is calculated as the risk-adjusted return divided by economic capital. The risk-adjusted return is based on similar valuation policies
as applied in the financial accounts, with two important exceptions. The actual credit-risk provisioning is replaced by expected losses
reflecting statistically calculated average credit losses over the entire economic cycle. In addition the profit and loss account is adjusted
for effects that relate to replacing actual book capital by economic capital.
Underlying RAROC for banking operations
RAROC (after-tax) RAROC (pre-tax)
2008 2007 2008 2007
General Lending & PCM 9.4% 6.7% 11.9% 7.1%
Structured Finance 25.1% 29.3% 30.9% 32.3%
Leasing & Factoring 19.1% 18.6% 27.9% 28 .1%
Financial Markets 7.4% 14.9% 11.1% 11.4%
Other Wholesale products –25.7% 42.3% –40.8% 19.5%
Subtotal Wholesale Banking 10.0% 16.5% 12.9% 15.4%
ING Real Estate –13.3% 32.7% –13.5% 44.6%
Total Wholesale Banking 4.9% 19.8% 7.1% 21.3%
The Netherlands 42.2% 51.5% 53.6% 66.9%
Belgium 26.3% 39.3% 32.7% 49.0%
Central Europe –7.2% 29.5% –8.9% 37.6%
Asia 5.5% 5.9% 6.0% 5.8%
Total Retail Banking 21.7% 37.0% 27.2% 47.3%
Total ING Direct –18.2% 14.3% –27.8% 17.7%
Corporate Line –71.2% –59.5% –122.1% –86.8%
Total banking operations 2.6% 22.3% 1.3% 26.2%
Total banking operations including divestments
and special items 1.2% 19.9% –0.3% 23.1%
Note: The underlying figures exclude divestments and special items. The 2007 figures were restated for the transfer of Mid-corporate clients in the home markets
Netherlands, Belgium, Poland and Romania from Wholesale Banking to Retail Banking.
2.4 Additional information
ING Group Annual Report 2008
254